The Bank of Portugal hid a financial black hole of €954 million in Rioforte while guaranteeing to shareholders that the company was viable.
The Bank of Portugal, under governor Carlos Costa, (pictured), later failed to disclose key information about events leading to the bankruptcy of Rioforte, part of the Espírito Santo Group which collapsed in 2014.
This incendiary information, that the Bank of Portugal knew that Rioforte was dead in the water while saying it was viable, was revealed by SIC this evening following an in-depth investigation.
The SIC report states that the Bank of Portugal requested, in the third quarter of 2013, an analysis of Espírito Santo Group’s holdings. In the first response, the information and financial data sent to the Bank of Portugal showed that Rioforte had 'positive capital of €930 million.'
Three months later, a PwC auditors' report revealed a shocking €945 million hole in Rioforte's accounts.
The Bank of Portugal hid this news and assured investors that Rioforte was a viable company.
The consequences for Rioforte's shareholders and for its lenders, such as Portugal Telecom, were disastrous. Banif, itself later going bust, took the Bank of Portugal’s words as being truthful and piled cash into Rioforte.
In 2015, the financial director of Portugal Telecom appeared at a parliamentary committee of inquiry into the management of Banco Espírito Santo and Espírito Santo Group and said he was outraged.
Luís Pacheco de Melo stated that Portugal Telecom was deceived by the management of Espírito Santo Group (aka Ricardo Salgado).
The SIC investigation by Pedro Coelho no doubt will be covered in depth in newspapers over the next few days, with the journalist having concluded that it is impossible to work out the reason for the Bank of Portugal’s continuing silence in this matter.
If the Bank of Portugal's governor, Carlos Costa, has lied to the market over Rioforte's finances, Portugal's taxpayers can expect again to be asked to fork out compensation for some of those affected by Rioforte's collapse.
Carlos Costa was directly confronted by SIC on Tuesday about the 'silent destruction' of Rioforte, but the governor of the Bank of Portugal did not answer the questions posed. In Costa's speech at a banking conference, he chose to introduce an indirect response to the doubts raised by the SIC report, saying that the regulator has “limited powers.”
Costa can not be sacked by this government, or any other, as his appointment and exit is under the purview of the European Central Bank whose continual support of this lame duck regulator is damaging Portugal's interests.
The Bank of Portugal is responsible for ensuring that the financial system makes a positive contribution to the quality of life of the Portuguese and the Portuguese Economy - this certainly has not been fulfilled by Carlos Costa who deceived other Banks as to the real situation at Rioforte and protected BES and Ricardo Salgado.
Carlos Costa's actions sacrificed BANIF, which eventually had to be sold off, sacrificed PT, which lost €900 million, sacrificed small investors who invested in a capital increase and lost the lot, sacrificed taxpayers who have so far had to pay over €4 billion for the BES/Novo Banco disaster.
The state of independence for central banks is there so they can better fulfil their mandate - it does not give them impunity in their conduct.
For the special report in Portuguese, click on 'À noite todos os gatos são pardos'
