Portugal’s government has handed in its cunning plan to throw more taxpayers’ money at ailing bank Caixa Geral de Depósitos.
Brussels, despite its obsessive insistence that Portugal hits the financial targets set for the year, it has even asked for a stand-by Plan B in case things get tight - has read the plan and has given the go-ahead for the €4 billion refinancing as long as this State aid is provided in the same way as would be provided by a private investor, i.e. it is not categorised as ‘State aid’ in the national accounts.
There is no final EC decision on the re-capitalisation of Caixa, a proposal that comes hot on the heels of the painful collapse of other parts of Portugal’s fractured banking system, but the Competition Directorate at the European Commission has approved the plan in principle.
Next, permission is needed from the European Central Bank before the €4 billion can be scraped together or borrowed by the government, underwritten as ever by the taxpayer and transferred to Caixa.
The incoming President of Caixa Geral de Depósitos, António Domingues, made the refinancing a pre-condition of his taking the job but it is not known why, on his say-so, the Bank of Portugal and Ministry of Finance have been bending over backwards to accommodate his plan.
For Brussels to accept the €4 billion as an ‘investment’ by the Portuguese government, rather than State aid, Caixa needs to show that it is able to repay the money over an agreed period, out of trading profits.
This involves Caixa being profitable and here’s the rub, it isn’t. The bank lost €74 million in the first quarter of 2016.
Another problem is that Caixa has yet to repay a cent of the 2013 State bailout of €1.65 billion in cash and in convertible capital instruments, the infamous ‘CoCos’ - €850 million worth.
Caixa has to repay all of the 2013 money in 2017 so the situation looks very much like the sort of financial practice that financial advisors warn against - borrowing more money to pay off existing loans.
If Finance Minister Mário 'Magic Wand' Centeno gets his way and the €4 billion in State aid can be classified as a loan, the new directorate at Caixa still has a huge hill to climb to get the bank back to financial health.
Centeno will want the Caixa situation sorted out before tackling his next great plan, to set up a 'bad bank' to hold all the bad debts from the Portuguese banking sector.
This will involve the taxpayer underwriting another €20 billion of bad debt, much of it unrecoverable. A share of this bad debt will be coming from Caixa which at that point will be rolling in money having both refinanced and got rid of its bad debts.
With a Hurrah! for creative accounting, the government is about to saddle the Portuguese taxpayer with another €25 billion - much of it will never be repaid.
The situation at Caixa Geral has not gone un-noticed by MPs who now are increasing their demands that an inquiry should be held to analyse what exactly went on at the State-owned bank that it now needs a further €4 billion in public funds.
TV commentator Marques Mendes, in his weekly programme on SIC, asked, "What about the case where the State has put in €2.4 billion in capital since 2009 and now another €4 billion is needed? Whose responsibility is it? Where is the missing money? Everything is hidden."
MPs are keenly aware that there currently are committees of inquiry into BCP, BPN, BES and two for Banif, one on the mainland and one in Madeira, but are asking why there is no inquiry into Caixa, is it because it is a State-owned bank that gave politically expedient loans?
