BoP wins first BES debt case

 In Banks, Law, News

A court has agreed with the Bank of Portugal that channelling toxic debts inherited by Novo Banco from BES, a bank that collapsed in 2014, to a BES ‘bad’ bank in 2015 was the right thing to do.

It is yet another legal victory for the Portuguese credit sector supervisor over the toxic inheritance of soured loans.
The Porto Administrative and Fiscal Court found in favour of the Bank of Portugal over a lawsuit from a private investor from the north of Portugal who requested the invalidity or annulment of a decision made by the Bank of Portugal’s administrative board of directors which redirected around €2Bn in senior shares from Novo Banco to BES ‘bad’ bank which had been created to hold all the NPL and other toxic assets inherited from the collapse of the Banco Espírito Santo banking empire in 2014.
The shares were passed to ‘bad’ BES ON 29 December, 2015. The transfer of this debt, considered to be of a lesser risk, was done to rebalance the books at Novo Banco at a time when the bank could not receive any further fresh capital injections.
But the toxic assets in the BES ‘bad’ bank were considered much harder to recover. This transfer of debts to a ‘bad’ bank had been contested from the start by a huge number of investors, including funds, and large investors such as Goldman Sachs, Pimco and Blackrock, which have accused the BoP of having blatantly violated legal dispositions and fundamental judicial principles enshrined in Portuguese and European Union law.
The news was reported by the newspaper Expresso which points out that this is the first legal decision of many cases against the transfer of €2Bn in shares which was decided by the Bank of Portugal in 2015.
The investor in the North, says they lost €400,000 because of the decision and called for the decision to be annulled or declared invalid by the BoP’s administrative board.
A bad bank is a bank set up to buy the bad loans and other illiquid holdings of another financial institution. The entity holding significant nonperforming assets (in this case Novo Banco) sold these holdings to the bad bank (BES) at market price. By transferring such assets to the bad bank, the original institution can clear its balance sheet—although it will still be forced to take write-downs.