The report on the first IMF monitoring mission after the bailout was released on Friday and the institution led by Christine Lagarde warned that, if the sale value of Novo Banco “is not enough to reimburse the loans made to the Resolution Fund” this could “infect the banks through the allocation of losses”.
Therefore, and to “reduce market uncertainty” the IMF argued that the Portuguese authorities “should clarify the loss allocation methods as quickly as possible”.
The Portuguese authorities however are opposed to the Fund’s proposal for now despite acknowledging that the Novo Banco sale requires “careful management” to “minimise the risk of contagion” and to avoid “overloading the largest Portuguese banks”. The IMF noted that the “financial situation remained stable despite the challenge raised by the BES resolution”, but still pointed towards some frailties in the Portuguese financial system.
On 3 August, the Bank of Portugal took over the reins of Banco Espirito Santo (BES) after it had presented net half-yearly losses of €3.6 billion and split the institution into a bad bank with all the toxic assets and liabilities (a vehicle which is still called BES, and where the shareholders are corralled) and a good bank, although it is only transitory, called Novo Banco.
In related news, the former executive president of Banco Espirito Santo, Ricardo Salgado met the president of Portugal twice in 2014 to warn Cavaco Silva about the “systemic risks” involving Grupo Espírito Santo (GES) and BES.
In a letter addressed to the parliamentary inquiry looking into BES and GES, Salgado gives details of the meetings he had with the political leaders in 2014, dividing the meetings into two phases.
The first phase of contacts was in March and April where he discussed the “situation in BES and the need to ensure that the transition of its governance progressed in a stable and controlled fashion”, and in the second round of meetings, in May, he asked for “institutional support and even (for) confidence in the recovery plans that had been presented and the strategy that had been outlined”.
“The diligences that were later adopted under the scope of each entity’s responsibilities, transcends my knowledge”, Salgado said.
Novo Banco sale may not cleanse debts – IMF
By TPN/Lusa, in Business · 05 Feb 2015, 14:25 · 0 Comments