International investor confidence shaken by Bank of Portugal governor

The Financial Times has joined in the rising clamour surrounding the Bank of Portugal’s governor whose recent series of actions have caused international opprobrium, with overseas investors’ trust in Portugal at a depressing and avoidable low.

The recent stripping of investors of €2 billion in bonds held by Novo Banco has affected the principle of equal treatment of debtors, has left large institutions such as Pimco hundreds of millions out of pocket and has left another group of individuals without their life savings.

Pimco, one of the largest asset managers in the world, has compared Portugal to Venezuela, accusing the country of "confiscation" and has promised legal action to recover its investors’ money from Portugal, i.e. from the taxpayer - yet again.

The European Central Bank, when asked about the Bank of Portugal’s move, said it was down to the Bank of Portugal, as did the Portuguese government which has "difficulties and concerns" and is trying to put as much space as possible between itself and the bank’s governor Carlos Costa who now is seen as a ‘dead man walking.’

Costa’s blunder was thinking that it was only big institutions that would suffer his €2 billion vanishing act but individual clients are grouping together that have lost over €60 million, some have lost their life savings in a near repeat of the ‘BES-deposit-account-to-valueless-shares' scandal dreamed up and actioned by BES chief laundry man Ricardo Salgado as his empire of the sun was extinguished by a flood of red ink.

Portugal former Prime Minister Pedro Passos Coelho said that Carlos Costa’s actions have “undermined the trust of foreign investors" and few now disagree.

The Canadian rating agency DBRS has warned, rather politely, that the decision by the Bank of Portugal over the Novo Banco bonds may bring "increased risks" and "impact on investor sentiment and confidence in the Portuguese banking system."

The rating agency warns that the decision to strip investors of €2 billion, to make Novo Banco more saleable, may hamper the full return of Portuguese banks to the international lending markets because there now is a weakening of investor confidence causing higher funding costs which in turn will affect profits.

Add to this the Banif bailout fiasco, where Carlos Costa rushed through a deal that is eye-wateringly expensive for the taxpayer, and things are not looking good for the embattled governor.  

It is not just Carlos Costa’s actions that are causing international eyebrows to rise and hover.

The government is not helping sentiment as it aims to take TAP back into public ownership, and scraps PPP funding arrangements for transport facilities in Lisbon and Oporto.

All of which have made Portugal look unreliable, unfair, arbitrary and not a sound place in which to invest.

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