Large international investors burnt in BES debacle “threaten Portugal”

With the nation focusing on immediate banking woes – like the frightening level of debt emerging from Montepio and CGD’s bid to ‘rise up’ from despond – a much more insidious financial story has started to bubble to the surface.

It began on Wednesday, with stories of “a group of major international investors who lost money with BES advising that now is the time for a deal”.

The tone was interpreted in some quarters as these investors “threatening Portugal”.

And now we’re getting the full picture: the Bank of Portugal’s catastrophic handling of Novo Banco senior bonds back in December 2015 is truly ‘coming home to roost’.

Big league losers from the €2 billion retroactive bond dump – designed at the time to ‘ease’ Novo Banco’s sale (and we all know how well that went!) – are now flexing their muscles just as Portugal is ‘going shopping’ for new investors to help recapitalise State Bank CGD.

Asset managers PIMCO and Black Rock lost well over €200 million each in the BdP dump, and have already instituted a legal fight to recover their money (click here).

Now “people with knowledge of the matter” have told the Financial Times they will be “shunning” the Portuguese €500 million subordinate bank bond that new CGD president Paulo Macedo is taking on an ambitious roadshow.

This bond is crucial to CGD’s future, so any reluctance on the part of big name investors to back it is the last thing CGD (and Portugal) needs.

The way forwards could be a ‘deal’ that satisfies PIMCO and Black Rock. Hence the origin of the ‘threat’ word.

Economia online explains that “an agreement would bring benefits to the reputation of Portugal, and in the final analysis, it would benefit Portuguese taxpayers by reducing the costs of sovereign financing and the banking sector”.

Expresso veers away from the ‘threat’ word, stating that PIMCO and Black Rock are merely ‘advising’ Portugal on a way through the looming complications.

A statement released by the investors yesterday said that “in spite of substantial economic progress achieved by the Portuguese government, the reputation and credibility of the country were so badly damaged (by the bond dump) that costs of sovereign debt will be many thousands of millions of euros higher than they would have been had the Bank of Portugal not taken (its) imprudent decision” between Christmas 2015 and the New Year of 2016” (when the financial world, along with almost every other sector, habitually has its eyes off the ball).

Battlelines are drawn. Investors are hoping for a “timely and constructive conclusion to this matter”.

Once again, the ball is in Bank of Portugal’s court.

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