The Novo Banco bond deal that saw investors stripped of €2 billion by the Bank of Portugal has been sharply criticised by those that lost hundreds of millions of euros, including PIMCO and Black Rock Inc.
It seem now that these huge US funds, and the individual and groups of private investors that held the doomed paper, have Portugal’s government on their side as the deal was done without reference to the Finance Ministry which has let slip that it opposes the move.
The Secretary of State for Finance, Ricardo Mourinho Felix, said at a Morgan Stanley event in London on Monday, that his ministry had ‘expressed concern’ to the Bank of Portugal about the transfer of Novo Banco bonds to the old BES ‘bad bank.’
Conveniently, Felix also said that the government did not get involved in the move ‘because of central bank independence.’ If this is true, it is new.
The Bank of Portugal’s moved at the end of December to shift certain classes of Novo Banco bonds back to Banco Espirito Santo led to the value of the bonds dropping from 90 cents to around 10 cents.
This controversial move freed Novo Banco of the bond obligations in preparation for its sale, since which its credit rating has dropped. Novo Banco is short of capital and the asset sale recently announced has been trumped by the €2 billion bond dump.
The Bank of Portugal's governor Carlos Costa needs to sell Novo Banco for more than the bailout amount forced from the taxpayer and the nation's banks through the Resolution Fund.
The botched sale last year ended with a tactical withdrawal as the sums offered by two Chinese financial giants were nowhere near the €3.5 billion needed to save Costa's reputation.
Since then, Banif went bust, another bank that can hardly be said to have been regulated by the Bank of Portugal, which will cost the taxpayer another €4 billion by the time the dust has settled. This again was on Costa's watch yet he continues to draw a salary.
Costa's move to strip Novo Banco bondholders of a further €2 billion to make the bank more saleable is disingenuous, if not illegal but the bank will be up for sale again next week, minus €2 billion of liabilities.
