Disgraced banker regrets Vale do Lobo project “went wrong”

A former senior director of State-owned bank Caixa Geral de Depósitos told a public inquiry into ruinous lending by the institution that he “regretted the deal had gone wrong”.

Armando Vara gave evidence last week before a parliamentary inquiry into irresponsible lending by directors at the banking institution a decade ago which left the Caixa with a €1Bn black hole of which an estimated €180 million was down to investments and lending in the luxury golf resort Vale do Lobo.
According to a fine tooth-comb accounting report undertaken by the consultants Ernst & Young, the luxury Algarve golf and second home tourism development Vale do Lobo under its former management owed millions to Caixa by the end of 2015.
In 2006 a combination of Portuguese and international investors together with Caixa bank had been involved in 12 loans to develop the resort, bringing total loans to around €250 million. By the summer of 2015 all of these loans were in arrears.
It was just one of the many imprudently financed projects and reckless loans made by the bank without the necessary due diligence, guarantees and customary collateral and which, as a result, put the entire public bank at grave risk of bankruptcy.
The tourist resort project had passed to a real estate recovery and restructuring fund ECS led by António de Sousa, an ex-president of Caixa Geral de Depósitos.
During last week’s grilling from MPs, Vara admitted that he looked back “with pain” at what had happened to the Vale do Lobo project which at that time had made Caixa directors “very enthusiastic” but inisisted that when the maths has been done at the time “we concluded that Caixa would end up by recovering all the money it had lent” to the project.
“In the worst case scenario, Caixa would have got back what it had lent. But we continue to say that there was a black hole of €250 million and doesn’t anyone mention this?” he told the inquiry.
According to Vara, if the bank had lost money with Vale do Lobo, it would have lost a small amount, but believes that it would have proved ‘evens stevens’ given the financing model required by the bank.
In addition to the loan, the public bank also invested €30 million of public money (€2 million in capital and €28 million in stock), to obtain a 25% share in the resort through a subsidiary company set up for the purpose called Wolfpart – with the other 75% in the hands of the developers who put in €6 million.
Quizzed by MP Mariana Mortágua as to why Caixa paid more to have a smaller share in Wolfpart, Vara said that the developers were reticent and did not want to abdicate any part of its position in the project, but Caixa forced the issue and insisted so as to have a 25% share in the project said to be worth €300 million. In other words, the bank was paying €30 million for a share in the project worth €75 million said the former director.
Despite stating that Caixa would not have lost money (according the business model accepted at the time), Vara said that he regretted that the project had “gone wrong” and added that there had perhaps been too much enthusiasm over the project but that: “it is difficult to imagine today that, under the same conditions, it would not have done.”
However, Vara denied that he had been the one who had put forward or supported the proposal to agree the loan.
Since 16 January 2019 Armando Vara has been serving a 5 year prison term in Évora for his part in the Face Oculta case (Hidden Face Case).
He was a director at Caixa Geral de Depósitos from 2004 until his appointment as Vice-President of the Banco Comercial Português until 2009.
In May 2012 Vara was fined €50,000 by the Portuguese stock market regulatory and supervisory authority CMVM for ‘negligence’ for not having prevented — despite being in possession of the facts — a number of illicit acts carried out at Caixa Geral de Depósitos in 2006 and 2007 when he was vice-president of that bank.
Addressing the inquiry and quizzed by parliamentary MPs, Vara said he would not speak about Vale do Lobo because it pertained to Operation Marquês in which he is a legal defendant.
Operation Marquês is a major fraud case involving 28 defendants accused of fraud, tax evasion and corruption — one of the biggest in Portugal’s history and involving, among others, former prime minister José Sócrates.
According to the Algarve Daily News in 2018, Operation Marquês “brings into the open the financial collusion between politics and business and defines how business has been mismanaged to use the political system to further the aims of a cadre of seemingly untouchable individuals.”
The prosecution contended that Sócrates received some €34 million between 2006 and 2015, in exchange for favouring the interests of banker Ricardo Salgado in the Espírito Santo Group and Portugal Telecom, as well as Caixa Geral de Depósitos involved in unsecured loans in Vale do Lobo in the Algarve, and favouring construction company Lena Group businesses in public tenders.Also accused were former directors of Portugal Telecom, Henrique Granadeiro and Zeinal Bava as well as Armando Vara, among others.*Today the Vale do Lobo golf resort in the Algarve is considered one of the most successful and well-run luxury resorts of its kind in Europe. A gated community near Quarteira and Almancil, it hosted the Portuguese Open and part of the PGA European Tour in 2002 and 2003.