Novo Banco in eye of new €580 million storm

Novo Banco in eye of new €580 million storm

Novo Banco – the good bank salvaged from the BES financial debacle – is in the eye of a new €580 million storm as the Bank of Portugal has been caught in what looks like a crafty case of double-dealing.
At the 11th hour before Christmas, the bank’s administrative council announced that debts contracted by “a financial vehicle of BES” (namely Oak Finance) to Goldman Sachs last summer would not be attributed to the “good bank”.
Instead they would join the legion of toxic assets owned by the bad bank – currently at the centre of a police investigation.
The news spelled a huge boost for Novo Banco’s “value”. The Bank of Portugal is desperate to sell the bank by early spring next year, with the most likely buyer being Spanish bank Santander.
But Goldman Sachs has returned from Christmas in no mood for the Bank of Portugal’s announcement.
In a statement put out today, the investment group says it will take “all means appropriate”, including legal action, if the Bank does not reconsider its “unexpected” decision.
The statement explained: “When Novo Banco was created, Goldman Sachs obtained confirmation from the Bank of Portugal that all the senior debt of BES – like obligations of Oak Finance – would be transferred to Novo Banco.
“On August 11, a high-ranking representative of the Bank of Portugal explicitly confirmed in writing to Goldman Sachs the transfer of senior obligations to Novo Banco”.
Thus the “public announcement by the Bank of Portugal at the beginning of the week, going back on these undertakings, would undermine expectations and trust within the market and cause losses to various investors, including pension funds…”
“If the Bank of Portugal does not reconsider its position, in light of the damage it will cause clients … and financial markets… investors prejudiced will have no option but to take all means appropriate, including judicial”, the statement concluded.
Where this latest development leaves the Bank of Portugal – and more importantly the future of Novo Banco – will no doubt play out over the weekend and ensuing days.
As negociosonline reports, Goldman Sachs lent BES over €550 million through Oak Finance the month before it went belly-up.
The money was destined to fund the construction of a Chinese refinery in Venezuela. The refinery was to have been built by state fuel company PDVSA – one of the largest creditors in the non-financial sector of Grupo Espírito Santo.
Novo Banco’s sale is of vital interest to the coalition government in an election year. Critics have always maintained that the 3.9 billion euro bailout would end up having disastrous long-term consequences for the Portuguese economy – a contention consistently refuted by Carlos Costa, governor of the Bank of Portugal.