Home News Ripped-off Novo Banco bond holders give Bank of Portugal one last chance to negotiate

Ripped-off Novo Banco bond holders give Bank of Portugal one last chance to negotiate

Published on 18/12/2017

A group of big investors, ripped-off by the Bank of Portugal in 2015, is fed up with being fobbed off.

Nursing over €2 billion in losses, Attestor Capital, BlackRock, CQS and PIMCO were tricked when Carlos Costa, governor of the Bank of Portugal, switched their bonds from the newly created Novo Banco, to the bankrupt BES – rendering their investments worthless.

Writing to the Bank of Portugal, the group states, “We are pleased to have received the news that this matter would be addressed by Deputy Governor of the Bank of Portugal, Luís Máximo dos Santos, who has since informed us that this matter is being analysed at the highest level within the Bank.”

The institutional investors sent their latest letter to Carlos Costa, “to draw attention to the consequences of the errors committed in the resolution of BES, severely harming senior holders of Novo Banco bonds.”

“We send this letter as coordinators of a group of international investors who were affected by the decision taken by the Bank of Portugal on December 29, 2015 to retransmit bonds from Novo Banco to Banco Espírito Santo. As a result of the discrimination and illegal basis of this decision, we were forced to contest it in court.”

The court case is pending so the group has given the Bank of Portugal an opportuinity to get around the negotiating table and thrash out a deal.

The Ministry of Finance admitted in July this year that these major investors are keen to reach an agreement with the State. At that time, the government said that the Bank of Portugal is handling the matter and made no further comment.

“As we approach the second anniversary of the decision and, in the absence of a fair resolution of the issues arising from it, the decision continues to undermine the credibility of the Portuguese financial sector as a destination for foreign investment,” said the institutional investors’ group.

The knock-on effect is that the Portuguese banking sector pays over the odds for its borrowings.

“More than eighteen months ago, in response to several declarations of interest from the Portuguese Government and the Bank of Portugal, our group has been working persistently to reach a fair resolution of the consequences arising from the Bank of Portugal’s decision.

“At all times, we have accommodated the preferences and restrictions presented by the Portuguese authorities, including the Bank of Portugal,” reads the letter that referred to a unilateral limitation imposed by the State that any repayment should not represent more than 75% of the amount originally invested.

This ‘one last chance’ letter maybe the last communication before the court case stars but the group points out the damage this extended process has been causing the banking sector, “Until a resolution is reached, Portuguese banks will continue to bear the cost of this unprecedented decision in the form of higher capital costs and shortages of long-term institutional investors in their capital structure.”

“This is certainly something to which the Bank of Portugal is not indifferent, given its crucial role in preserving the stability of the financial sector,” read the note sent to newsrooms today.

The letter to Carlos Costa ends with an optimistioc appeal to return to negotiations. “We know that it is the intention of the Bank of Portugal to resolve this matter in a fair manner both for the holders of the securities that have been affected and for the Portuguese public.”

The government may not want to have to pay out billions to foreign investors but this looks likely should the group win in court. With the sale of Novo Banco to Lone Star, taxpayers again will be the ones shelling out for another of Carlos Costa’s expensive mistakes.

The government is unlikely to step in and do a deal. This mess was created by Carlos Costa and, as there is no love lost between him and the prime minister, it is his alone to sweep up.

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