Banco Espírito Santo collapsed two years ago and supposedly was ‘rescued’ by the bank of Portugal’s decision to split the bank into two. One part retained all the toxic assets of the old BES and continued to be called BES.
The seemingly good parts of BES were put into a new company and the bank continued to operate, but as Novo Banco, with new fascias and paperwork duly altered at no little expense.
Novo Banco was set to be revitalised by a keen new management and sold on in a couple of years to recoup the €4.9 billion used in financing it. This money came from the Resolution Fund, a fund paid into by the country’s banks, and from the taxpayer.
The result of the shiny, debt free banking business has been the loss of €1.8 billion in 24 months.
As for selling the bank, the Bank of Portugal governor Carlos Costa tried it once but pulled the process last September as offers were way below the €4.9 billion needed for him to be declared the financial genius that he knows he is.
The fraud at Banco Espírito Santo, under the careful regulatory eye of the Bank of Portugal, was massive with €3.6 billion being lost in the first half of 2014 alone. This was the largest loss in the history of banking in Portugal and as the story unravels, the corruption and greed are astounding even by modern banking standards.
The breaches in swathes of regulation were astounding and showed Carlos Costa to be less regulator and more co-conspiritor as the old boys’ network was used to the full by BES president Ricardo Salgado to ensure inconvenient questions were swept under the carpet.
The losses of over €1.8 billion in two years at Novo Banco creates another scenario as the Bank of Portugal strives to sell the business as a going concern.
The bank's problems were spotted early on by the first businessman that took over the reins at Novo Banco. Vitor Bento realised that the bank could not be sold for years and after much good luck and hard work.
Carlos Costa, desperate to recoup the €4.9 billion he had borrowed, fired Bento and installed a Lloyds Bank man, Eduardo Stock da Cunha whose time at Novo Banco politely could be described as ‘uneventful’ as he watched €1.8 billion flow down the drain.
The next person wheeled in to run Novo Banco, as yet another disastrous sale process nears its sticky end, is António Ramalho. The problem with this appointment is that the European Central Bank has issues with the appointee whose last job was running Portugal’s rail and road network.
Ramalho was meant to get the keys to the executive toilet on August 1st but has yet to start work – another embarrassment for Carlos Costa who should have checked out the appointment before announcing it.
Two years on and currently without anyone in charge, four offers have been received for Novo Banco. One from BCP, one from BPI, one from the US vulture fund consortium Apollo/Centerbridge and one from Vilamoura owner, the Lone Star Fund.
This is an unimpressive line up which will offer unimpressive amounts for Novo Banco which, at the end of the day, is not worth much more than €1.5 billion on a good day.
The government has left this mess for the Bank of Portugal to sort out but has indicated that if it does not see sensible offers on the table, it will instruct that Novo Banco be wound up - a move that perhaps should have been carried out two years and €1.8 billion ago.
