Novo Banco “must pay” the thousands “left out in the cold”

Portugal’s securities market regulatory body CMVM delivered the kind of opinion in parliament yesterday that will have delighted thousands of small investors caught-up in the devastating BES tsunami.

“Novo Banco has to reimburse commercial paper clients, says Carlos Tavares,” ran the headline in Jornal de Notícias.

And today, the parliamentary inquiry set up to hear key witnesses into the banking disaster delivered its preliminary report saying it was vital that the issue is sorted as quickly as possible.

Meantime, the members of the association of indignant and misled commercial paper holders held yet another high profile protest in Lisbon.

Hours earlier, Tavares, president of CMVM, told MPs that not only was it “perfectly legal” for Novo Banco to reimburse these damaged investors, it was also morally expedient.

CMVM’s “juridical analysis” has “shown that Novo Banco is legally responsible for reimbursing 2,500 clients with applications that come to €520 million,” writes Sol today.

Even more categoric, Tavares claimed Novo Banco – the good bank that rose from the ashes of BES, shedding thousands of millions of euros-worth in so-called ‘toxic business’ along the way – would not be acting in a “transparent or equitable way” if it did not “guarantee a solution for all those who suffered losses” over their purchase of commercial paper in failed Espírito Santo group companies.

TVI news went even further, claiming Novo Banco stands to be “accused of giving false information and violating the principle of good faith” in the way it has handled this matter so far.

Readers may recall that in February, Novo Banco’s executive president Eduardo Stock da Cunha affirmed there was “no legal obligation” for any money invested in commercial paper in Grupo Espírito Santo to be paid back by Novo Banco.

It was an affirmation that enraged small investors caught up in the drama who have now banded together and promise weekly protests until they get their money back.

At the centre of the wrangle sits the increasingly uncomfortable governor of the Bank of Portugal, Carlos Costa, who promised clients when Novo Banco was first set up that deposits would be safeguarded and contractual conditions of credits conceded by BES unaltered.

Costa is now being assailed from all sides by legal actions over his handling of the BES affair – with American banking giant Goldman Sachs demanding €721 million alone.

Goldman Sachs’ lawsuit was followed earlier this week by another, to the tune of €143 million, submitted by a New Zealand Superannuation Fund.

In other words, the chances of Novo Banco being sold off to repay the amount ploughed into its ‘creation’ are getting less likely by the day.

But Carlos Tavares’ words yesterday have added new spice to the mix. As Sol reports: “CMVM has no doubts that false information” was given “to clients who subscribed to commercial paper” at their BES branches, and thus these clients now have “legal justification” in their favour.

“They have become creditors of Novo Banco and not of the ‘bad bank’,” Sol concludes.

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