Knives are out for Portugal’s central bank governor

 In Banks, News

The professional integrity and competence of the Governor of the Bank of Portugal, Carlos Costa, is being called into question by both bankers and politicians.

The leader of Portugal’s new splinter centre-right political party Aliança asked over the weekend how the Bank of Portugal governor didn’t realise that “so many banks were going down” and promised that his party would not spare the horses in exposing the unbridled truth.

In his first speech at the party’s first congress, Aliança founder Pedro Santana Lopes referred to comments made by a leading figure in the left-wing Bloco Esquerda party that the Governor of the Bank of Portugal’s integrity needed to be examined since Carlos Costa had been on the Board of Directors of Caixa Geral de Depósitos (CGD) — a state bank that almost went under because of a string of ruinous loans worth €2Bn granted despite expert advice to the contrary.

On Friday, the leader of the left-wing BE party, Catarina Martins, requested that the Government “consider the integrity of the Governor of the Bank of Portugal” since Carlos Costa was on the board when the “ruinous loans were made by Caixa.”

The Governor has requested to be excused from involvement in the parliamentary inquiry currently underway to investigate why the public bank lost nearly €2Bn in reckless loans despite advice not to make them.

The result of these loans were made public on the publication of an audit into the bank’s financial statements and accounts by company auditors Ernst & Young.

Carlos Costa, as head of the Bank of Portugal which supervises the dealings of the stock market, banking and financial sector in Portugal, claims that since he was on the board of Caixa and headed the bank between 2004 to 2006, there is a conflict of interest as the supervisor on this particular dossier before parliament.

His decision was announced by the Bank of Portugal on same day that newspaper Jornal Económico reported that “Costa has escaped public scrutiny into his integrity and conduct, while the weekend magazine Sábado published an exposé into the bank’s losses, recalling some of the meetings of CGD’s Board of Credit which gave the green light to the loans which led to astronomic losses, among them irresponsible loans to art collector Joe Berardo and business entrepreneur Manuel Fino.

At the same time, in an interview with the Spanish newspaper El País, Amilcar Morais Pires, the former right-hand man of Ricardo Salgado, the ex-Chairman of failed bank Banco Espiríto Santo, blamed the Bank of Portugal and Carlos Costa for having “destroyed in just one month a financial institution worth €6.3Bn”.

He also said that Portugal would “pay dearly” for no longer having banks genuinely in Portuguese hands.

Morais Pires said that the resolution measures introduced by the Bank of Portugal that wound BES up in 2014 were “completely unfathomable and unjustified.”

“It was bad for the shareholders, customers, employees and the Portuguese State which injected €4Bn and four years later lost the money”, he said.

The banker added that there were three solutions presented in the 20 days prior to that decision.

“The simplest would have been for the bank’s second largest shareholder Credit Agricole to take control of the bank. That would have been a rapid and reliable solution that would not have cost the Portuguese taxpayer a single penny” he said.

The second option on the table at the time was a €2Bn capitalisation offer from the US fund Blackstone. The Bank of Portugal turned them down.

The third offer was when the Angolan Government suggested a capital increase for Banco Espírito Santo Angola (BESA) but the Bank of Portugal decided not to move forward and the Angolan branch of BES collapsed with an impact on the Portuguese bank.

The ex-banker also criticises putting the economist Vítor Bento in front of the bank in its dying days when he had “no experience in running banks”.

Morais Pires, the former CFO at BES is suing the Bank of Portugal and KPMG, demanding they pay the Portuguese State €4.3Bn for allegedly falsifying its accounts before the bank’s collapse in 2014.

Morais Pires filed the lawsuit at the Lisbon Administrative Court in December alleging that the Bank of Portugal and KPMG “imposed inflated losses” on Banco Espírito Santo.