The Governor of the Bank of Portugal again made his position clear with regards to depositors who have lost their money due to Banco Espírito Santo’s duplicity and collapse, this time in answer to questions in parliament posed by the socialist MP Pedro Nuno Santos.
Governor Costa denies any culpability at all for the deposit scheme whereby BES customers were persuaded by banking staff and managers to invest in ‘safe’ investments akin to deposit accounts.
In reality these investments were in failing Grupo Espírito Santo companies which folded one by one as BES collapsed under the weight of its debt.
Costa suggests that the Portuguese Securities Market Commission (CMVM) is at fault and in his trademark supercilious manner said today that, "We would be interested in a CMVM solution that respects the rules" of the bank resolution process.
Costa said that it is not for the Bank of Portugal to present a solution to the injured investors in commercial paper issued by those now insolvent Espírito Santo companies and told parliament that he is only in charge of enforcing the rules of the BES resolution programme.
In a snide remark about the desperate BES investors who, having got precisely nowhere through normal channels, have been protesting in Novo Banco branches and more recently outside the prime minister’s official residence, Costa said "It's not in the street that the problem will be solved."
At least Costa admits that there is a problem but says it must be resolved within the "legal and institutional framework," the very framework of regulation that he so spectacularly failed to impose in BES’s case, relying on bland assurances from its now disgraced Chief Executive Ricardo Salgado that all was well with the bank, old chap.
The hugely unpopular Costa did point out that there is a hierarchy of creditors to respect, adding that he is not empowered to put one set of creditors in front of another and that "The Bank of Portugal is not the entity that may account for the solution” but that it will ensure the rules are followed when a resolution to the investors’ problem is agreed.
The socialist MP said that the use of the word ‘investors’ is disingenuous as these BES customers were led to believe that they were ‘depositors ‘ and hence would be covered by the €100,000 deposit guarantee scheme.
Costa was having none of it as he already has assured potential buyers of Novo Banco, the bank that arose from the ashes of BES and kept all the good parts, that should they buy Novo Banco that they will not be troubled by any comeback from the BES depositors and will not have to pay out over €500 in returned deposits, among several claims from duped corporates such as the all powerful vampire squid of legend, Goldman Sachs.
The fact that Costa made this promise when the Bank of Portugal is subject to the law, as are all financial institutions in Portugal whether owned by the taxpayer or not, leads many to suspect that there already is a deal in place whereby the Treasury (aka 'the taxpayer') will pick up the tab if the BES depositors win in court and the money must be reimbursed.
In addition to selling off Novo Banco, Costa said that he is pressing ahead with winding up Banco Espírito Santo within the next 18 months. This will make it harder for any claimants successful in court to receive compensation, i.e it will be convenmient for Costa when BES no longer exists.
However, under normal commercial and fiscal practice the BES directors will remain responsible for any legacy debt. This will suit Costa just as long as he is off the hook and is able to finish his new 5 year contract before his well padded retirement from public life.
Costa also told MPs that the ‘White Paper’ on the financial system is among his short-term priorities.
This report will look at two key areas. The first will assess the regulator’s performance in handling the BES collapse. The second will look at how to asses and regulate financial institutions, an area that Costa admits harbours ‘some deficiencies.’ The report will be produced by the Bank of Portugal so do not expect any fireworks.
The report will not look at the regulatory failure by the Bank of Portugal, a failure which enabled BES to plunge into to €3.9 billion of debt without the regulator being aware, or if it was aware, it did nothing.
Meanwhile the 2,500 BES depositors have lost €500 million in ‘safe’ deposits directly solicited by banking staff working for a bank with a full operating license and subject to a regulatory regime imposed by the Bank of Portugal.
Carlos Costa has the full confidence of the prime minister and of the minister of finance.
