Merril Lynch wins first round in bid to reverse Bank of Portugal’s “catastrophic bond dump”

Merrill Lynch, the global wealth and investment management division of Bank of America, has won an important battle in the hard-fought campaign to reverse Bank of Portugal’s “catastrophic bond dump” – the decision by banking regulators to “selectively and retroactively confiscate the assets of bondholders who held five senior bonds in Novo Banco”.

As the world’s financial press has long been explaining, the bond dump – which makes Novo Banco €2 billion-worth ‘more attractive’ to potential buyers – has been viewed as unfair, unethical and illegal – but until yesterday, there was no court upholding this.

Now there is.

Lisbon’s administrative court has accepted a legal bid by Merril Lynch that effectively suspends the dump and in theory should send all the money back to Novo Banco.

In other words, damaged investors should be able to recoup their staggering losses.

For small investors – at least one of whom has been left with no more than the clothes in her suitcase (click here) – this sounds like nothing short of a miracle.

Large investors, too, stand to recover millions.

But for now, the Bank of Portugal appears unphased.

In a communiqué issued yesterday, the country’s central bank said it would be appealing the decision “with immediate effect”.

According to Diário de Notícias, the Merrill Lynch bid – lodged a week ago – “points to various illegalities in the decision of Carlos Costa” given that the bank had already suffered “massive losses” in the resolution of BES in 2014. To suffer further losses retroactively has beggared belief.

Picking up on the news, the Financial Times adds that BdP now has 10 days “to respond to the court’s decision”.

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