A compensation package has been agreed for the victims of the Banco Espírito Santo rip-off whose were persuaded to move money in guaranteed deposit accounts to high risk investments in Grupo Espírito Santo companies which later failed.
The solution has been presented publicly in a ceremony attended by the Prime Minister, António Costa, who has been insistent that those affected should receive compensation.
If all the ripped-off customers sign up for the deal on offer, €286 million of the €485 million (including interest) to which they are entitled will be returned over the next two years. The balance of €199 million will be lost.
Those covered must be private customers who subscribed to commercial paper from Espírito Santo International and Rioforte at branches of Banco Espírito Santo, at BEST Bank and at Banco Espírito Santo in the Açores before August 3rd, 2014, the date that BES went bust and was turned into Novo Banco.
This should number around 4,500 customers who made 2,000 investments in the doomed investment scheme pushed mostly in BES branches.
Those left out of the deal are Portuguese nationals or Portuguese emigrants who invested in these bonds through overseas branches of BES, primarily in Switzerland and Panama.
"There have been meetings that lead us to believe that there is a desire to find a solution, above all on the part of the Government," said Helena Batista, vice president of the Portuguese Emigrants' Movement Association.
There also is a group of several hundred customers who invested a total of €100 million though a free trade area Madeira branch of BES. These are not included in the solution but they still expect the Government to offer them a deal.
Customers who sign up for the deal, waiving their rights to take any further recovery action, are guaranteed that they will receive 75% of the amount they invested if this was under €250,000.
For those who invested more than €500,000, they will get 50% back over the next two years. For joint investment, which most of these were, the sum refunded will be per investment, not per person.
The scheme’s working group says that all customers will make a loss, but that this is preferable to spending more money on legal action which may result in failure.
The first tranche of 30% of the agreed compensation will be paid in the first half of 2017 to those signing up. This percentage is the amount that creditors would have received if BES had been liquidated, instead of being ‘rescued’ by the Bank of Portugal.
The remaining amounts will be paid in the first months of 2018 and 2019, meaning everything should be paid up before the 2019 general election.
The compensation money, a maximum of €286 million, will come from funds raised using a State guarantee and a counter-guarantee from the Banking Resolution Fund.
Customers accepting the deal must transfer their legal rights in any court cases against those deemed responsible for the losses, i.e. Ricardo Salgado and the management of Grupo Espírito Santo, to a new vehicle that will be created especially.
This new vehicle will then take over all litigation and will receive any compensation decided by the courts. This means the compensation fund should be able to recover any amounts paid out to the injured clients on the instructions of the courts.
Customers also have to stop all complaints and lawsuits against the Bank of Portugal, the stock market regulator CMVM, the Banking Resolution Fund, the government, and Novo Banco and its future buyer. This list may still be added too as the financial services industry and its failed regulators cover their already well-padded arses.
The proposed solution needs to have the approval of more than 50% of the affected BES customers, or more than 50% of the amount concerned.
The prime minister said today that the solution guarantees that the taxpayer will not have finance the compensation for BES customers: one of his instructions to the Ministry of Finance was to ensure "a solution that has no impact on the deficit,” although questions already have emerged about how Brussels and the European Central Bank will view the deal and how the compensation will be treated in the national accounts.
