Bank of Portugal could force shareholders to sell their positions in banks at risk
A new banking code will pave the way for Portugal’s banking supervisor, the Bank of Portugal, to force majority shareholders in the country’s largest banks to sell their positions if the institution is at financial risk.
In other words, the New Banking Activity Code will force majority shareholders to sell their shares to help shore up banks in financial difficulty.
The same would also apply if there was evidence of suspected money laundering in compliance with the draft New Banking Activity Code which is currently going through its public consultation phase.
The new banking code, which will replace the General Regime for Credit Institutions and Financial Companies (RGICSF), will allow the supervisor to decide on the sale of part or all of the shares of the respective holders who have a qualified major share in the bank in situations deemed to be a risk for the stability of that bank.
More specifically, the new rules state that such a decision could be made by the Bank of Portugal if it considers that a lack of share holder diversification creates risks that could lead to a (damaging) financial situation that impedes the healthy and prudent management of a given credit institution, and if that institution is at risk of default in complying with adequate minimum levels of own funds (core liquidity) laid down by (national and EU) regulators.
Moreover, specific qualified shareholders may also be forced to liquidate their position (i.e sell their shares) either totally or partially if they do not have the capacity to financially support the credit institution — “namely through taking part in a capital call or subordinated loans” — which otherwise would call the financial solidity of the bank into question.
There is a third situation foreseen by the new code. The Bank of Portugal could force the shareholder to sell their qualified shareholding “when and if they have been banned from exercising their respective voting rights or when there are reasonable motives to suspect that in relation to a given credit institution and associated shareholding/shareholder in question, an attempted or actual money laundering or terrorism financing operation is being or was carried out.”
The draft Banking Activity Code will be open for public consultation until 4 December. The Bank of Portugal, currently headed by former Portuguese finance minister Mário Centeno who is considered in favour of cleaning up corruption and casino-style risk taking concerning loans in the sector, aims to systematise and update regulations that meet the requirements of the current banking system, as well as following some of the recommendations made by various parliamentary hearings over the past few years into bank scandals involving BNP, BES and even Caixa Geral de Depósitos.