+++ P.O./V.I. (FT) Bank bailout tests Portuguese leader’s austerity pledge

P.O.

There’s more, much much more to this than meets the eye…

It seems that, of what is public information on this, very little seems to be true…

I already wrote two P.O. on this scandal in Portuguese, but I will write again, both in English and Portuguese.

 

Francisco (Abouaf) de Curiel Marques Pereira

(FT) A parliamentary rebellion over a €2.2bn bank bailout has exposed the difficulties facing Portugal’s new socialist prime minister as he tries to reconcile a pledge to “turn the page on austerity” with harsh financial realities.

In its first decisive vote since taking office a month ago, António Costa’s minority government was saved from defeat only by the abstention of the centre-right opposition after his far left allies rejected a plan to use taxpayers’ money to rescue an ailing bank.

The bailout of Banco Internacional de Funchal (Banif), a small Madeira-based lender that has blown a big hole in Portugal’s public finances, has revealed the fragility of the unprecedented leftwing alliance that brought Mr Costa to power after an inconclusive general election.

It has also exposed the scale of the problems still facing the financial sector in Portugal, where, in contrast to Ireland and Spain, high levels of public and private debt, not troubled banks, had been seen as the main reason for the €78bn international bailout programme the country left last year.

According to Portugal’s audit court, state funds totalling €11.8bn were injected into the country’s banks between 2008 and 2014, the equivalent of 6.8 per cent of national output in 2014. The total taxpayer bill for rescuing Banif could reach €3bn, according to the European Commission.

In addition to seeing through a costly bailout of Banif, Mr Costa faces the challenge of selling off Novo Banco, the so-called good bank created from the healthy assets of Banco Espírito Santo, once Portugal’s largest listed bank, which had to be rescued last year at a cost of €4.9bn.

Attempts by the previous centre-right government to sell Novo Banco collapsed in September after attracting only “unsatisfactory” offers.

António Horta-Osório, who runs Britain’s Lloyds Banking Group, told journalists in Portugal the Banif case was “shocking”. An independent audit should be carried out to determine exactly what had happened to land taxpayers with a bill of “more than a thousand euros for every family”, said the Portuguese banker.

Mário Centeno, finance minister, said the previous centre-right government delayed vital decisions on Banif for political reasons relating to Lisbon’s “clean exit” from its bailout in May 2014 and the general election in October this year.

Senior figures in the previous administration reject these allegations, sparking a political row that has also called into question the role of the Bank of Portugal and other regulators in overseeing troubled banks.

Parties on all sides have called for an official inquiry into the events leading to Banif’s collapse. “The sacrifice of taxpayers has to stop now,” said Catarina Martins, leader of the radical Left Bloc (BE). “There will always be another bank asking for the same blank cheque.”

The BE and Communist party (PCP) reached a historic “anti-austerity” pact with Mr Costa in November, giving his mainstream Socialists (PS) majority support in parliamentary. But both far left parties have rejected his plan for rescuing Banif, calling instead for the bank to be nationalised.

In a debate last week on revising the 2015 budget to allow for spending an additional €2.2bn on saving Banif, the BE and PCP voted against the government. Mr Costa was rescued from defeat only by the abstention of the centre-right Social Democrats led by Pedro Passos Coelho, the former prime minister who steered Portugal through its bailout.

Banif, the market leader in the Portuguese islands of Madeira and the Azores, was the country’s eighth-largest lender by assets. In 2013, the state injected €1.1bn into the lender to shore up its capital. When the bank failed to pay back €125m owed to the state last year, the commission launched an investigation into the legality of the state aid it had received.

Lisbon had been trying to sell off the bank, but the six proposals received earlier this month all involved more state aid. After the European Central Bank in effect cut off Banif’s access to emergency liquidity funding, the Bank of Portugal intervened on December 20, selling its healthy assets, including its branch network, to Spain’s Santander for €150m and transferring its “problematic assets” into a special asset management vehicle.

Jorge Tomé, Banif’s chief executive at the time of last week’s intervention, has called for a judicial investigation, saying the sales process had proved “disastrous”. The decision reached by the Bank of Portugal had been “totally unexpected”, he told SIC television, stating that “another solution” would have been possible.Bank-bailout-tests-Portuguese-leader’s-austerity-pledge-FT-1