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Banks lose millions in 2011

by CHRIS GRAEME [email protected]

Portugal’s three main private national banks ended 2011 with an historic €1 billion loss.

Exposure to Greek bonds, the transfer of the banking sector’s pension funds to the state, the costs of interbank lending on the international money markets, the stain of Portugal’s massive public and private debt, record company defaults and bankruptcies, losses in some operations abroad and the cost of troika-ordered recapitalisation have all slashed the country’s once booming banking system to shreds.

The three main banks, Millennium bcp (BCP), Banco Espírito Santo (BES) and Banco Português de Investimento (BPI) saw losses of €1,110 million in total.

The hardest hit was Portugal’s largest private group, Millennium bcp, which had already been dogged by financial scandals and expansion problems abroad in countries like Turkey and Poland.

That institution, led by government appointee Carlos Santos Ferreira, who had come from Caixa Geral de Depósitos to clean the bank’s image up and turn its fortunes around after years of scandals, last week had to tell shareholders and the press that the bank had suffered record €786.2 million losses.

Giving his last annual results presentation at BCP’s Lisbon headquarters, the president said that he was leaving the bank with a “calm conscience”.

Now BCP shareholders, including billionaire Madeira tycoon Joe Berardo, who was reported (and then denied) being “broke” partly because of his exposure to the bank’s losses, will meet on February 28 to appoint new board members and an executive commission under new president António Monteiro and Nuno Amado respectively.

Carlos Santos Ferreira, who had been at BCP since 2008, said that his conscience was clear at having left the bank “more solid” and with a “clean balance” and “better prepared to face the challenges in 2012”.

“Many contributed towards the €3 billion in credit provisions for the bank, but it’s always a never ending story. No balances are immune to (outside) things happening,” he said in a nod to the economic situation and exposure to Greek debt.

Millennium bcp’s bank capital ratio to lending now stands at 9.4% – double what it had been before the crisis – but Greek losses and the transfer of pension funds had taken a heavy toll on the bank’s balance sheet.

However, the CEO admitted that his departure from BCP “wasn’t a (personal) decision but as a consequence”.

“I don’t feel frustrated but I also don’t feel like a bird that’s been set free to fly after the cage door was left open,” he said.

One of Portugal’s oldest and most respected financial institutions, Banco Espírito Santo, a financial bedrock that has been around since the 19th century and is a byword for prudent and thrifty financial management, clocked up a loss of €108.8 million.

That, too, was caused in large measure by the bank’s exposure to risky Greek debts as well as the cost of the transfer of part of its pension fund to the State-run social security system.

Despite the losses, the bank’s president, Ricardo Salgado, said that the bank would not go cap in hand to the government for liquidity but would, instead, seek a whip-round from shareholders.

At a press conference last week, the banker admitted that BES’s results were not “brilliant” but said that “given the circumstances, the results weren’t bad at all”.

He said that he was “fairly optimistic that the bank could return to credit in the first quarter of 2012”.

BPI, the bank led by Fernando Ulrich, saw €339 million wiped off its balance sheet because it had invested in Greek public debt. The bank’s president apologised to shareholders but reassured depositors that their savings and deposits were safe.

“I’m not proud of the fact that I had decided to buy up Greek sovereign debt on that dimension and at that time. It was obviously, with hindsight, a bad decision,” the banker admitted.

BPI already suffered losses of €204 million in 2011 but with its exposure to Greek debt that figure spiralled to €339 million.

In common with other banks, the transfer of pension funds to Social Security (Segurança Social) took a further €71 million away from BPI, not to mention the €28 million forked out on early retirement, €15 million in extraordinary taxes on the banking system, and a further €5 million compensation payouts to investors through the Investors Compensation System to pay off BPP clients from the mismanagement caused by former CEO João Rendeiro.

Bucking the downward trend was the Santander Group, which enjoyed profits of €64.1 million, but even so was a fall of 85.4% on 2010.

The Bank of Portugal (BdP) was quick to reassure investors last week by stating in a press conference that Portugal’s banking system was “solid”.

On Friday, the BdP’s governor Carlos Costa guaranteed the solidity of the nation’s financial system and the security of deposits.

In a bid to avoid public alarm, the BdP said that “the banking system is today more robust and more resilient (despite record losses)”.

Carlos Costa said that since December 2008, the Core Tier 1 ratio (the quality of capital most valued by the markets) went from 6.8% to 8.5% in December 2011 and in many cases “comfortably exceeded 9%”.

He said that the banking system’s losses were of a “non-recurrent nature” such as the transfer of banking sector pension funds to the State and exposure to Greek sovereign debt,” but added that depositors could “rest assured” that their money was safe.

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