The €1.1 billion recapitalisation of Banif in 2013 was “the most effective way to protect the stability of the Portuguese financial system,” according to Carlos Costa, the governor of the Bank of Portugal, with whom few agree.
The Bank of Portugal "concluded that recapitalisation of Banif with public funds which was the best way to ensure financial stability at the lowest costs for the State," said Costa during today’s often punchy hearing at the committee of inquiry into the Banif fiasco.
The governor explained that at the end of 2011, there already had been "a sharp deterioration in the Banif ratios," explaining that this was due to a combination of five factors which he listed.
"The rapid credit growth in the years preceding the crisis without an adequate assessment of risk, the credit deposit ratio of 184% against an average of 128% in the sector, a high cost structure due to a policy of expansion of branches and overseas operations which resulted in a 178% efficiency ratio compared with a 60% average in the banking system."
Carlos Costa said that at that time there was a need to "recognise a very significant amount of impairment charges (€500 million)," because of the evaluation exercises conducted at the time, and finally the increased regulatory demands from Europe on the Portuguese banking system.
"Given the shortage of capital in May and June 2012, the Bank of Portugal demanded a restructuring plan for the bank to fulfill the required ratios with the involvement of private capital," said Costa.
This plan, when it arrived, included the reduction of the structure and of those activities that were not essential to the banking business, and the implementation of corrective measures such as reducing exposure to group companies.
Costa also was fully aware that the European Commission and the Directorate-General for Competitio would not accept the plan and would question the earlier rescue by the use of public money.
As plans went, this one was weak and had no urgency about it despite Banif being in terminal decline for the reasons listed and that Jorge Tomé and the board had their faults, "The viability of a credit institution depends a lot on who manages" added Costa, unaware of the irony but but aware that the plan did not go ahead "due to (unspecified) fears of litigation."
Having entered into some arrogant argy-bargy with various of the committee members, Costa went to some lengths to point out the shortcomings in the various European mechanisms to control banks, criticising the lack of coordination between those entities and the lack of public scrutiny of the decisions that are taken, adding that he was powerless in the hands of European bodies such as the Supervisory Unique Mechanism and the Directorate-General for Competition.
"The experience with Banif raised a number of issues and concerns that have been forward to the European and national authorities," snooted Costa during the hearing, seemingly unaware that these very ‘issues and concerns’ were why he was sat in front of the committee of inquiry.
"The national authorities remain responsible for financial stability, but the decision is conditioned by supervision, resolution and application of competition rules that are taken at European level."
According to Carlos Costa, "this limitation of powers and instruments of national authorities weakens their ability to ensure the stability of the financial system."
This is the “big boy did it and ran away” excuse so beloved by the man in charge. 'Blame Europe and all will be forgiven' is an inadequate excuse for the €15,000 a month governor.
At issue are the supervision mechanisms and the European Commission, "whose work is not properly coordinated or consistent, despite the obvious negative outcomes which result," he concluded, taking no blame for his uncoordinated, inconsistent approach with devastating results on the public purse.
Carlos Costa said that the Banif inquiry committee ought to be held in the European Parliament, mainly so he would not be troubled with explaining the dire reaction to his own actions and the billions he so far has cost the taxpayer during his reign of unrivalled incompetence.
Arrogant, evasive and clearly not going to take the blame for the Bank of Portugal’s failings in regulating Portugal’s financial system, Carlos Costa’s performance today was a master-class in passing the buck.
The lack of supervision, the irresponsible recapitalisation of Banif with the public’s money in 2013, the congenital blindness when throwing good money after bad at the end of 2015, and the sale of Banif to Santander for a pittance was all the fault of European regulators, according to the man in charge.
Costa does not have the confidence of the prime minister and, after today, those members of the Banif inquiry committee.
Isolated, puffed with self-importance and holier-than-thou, Costa remains in post for reasons best known to the fairies at the end of the garden. His mishandling of BES and then Banif has seen public money thrown at privately owned institutions on a massive scale, affecting Portugal overall debt and credit rating and destroying credibility, especially in the US where large investment funds currently are taking the Bank of Portugal to court in London, rather than considering further investments in the country.
