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Failed Banks Will Cost Portuguese State Over €1 billion in 2018

20 October 2017

Expenditures with the three financial vehicles born from the debris of BPN amount to €641 million. Four more vehicles linked to Banif added another €372 million. And five companies associated with the former BES increased costs by another €3.6 million

The three major bank failures of the last few years – BPN, BES and Banif – will cost the Portuguese state more than 1 billion euros, the proposed 2018 State Budget showed. That is equal to five times the planned spending on unfreezing the salaries of civil servants (€211 million). That figure also surpasses the amount initially budgeted for the current year, roughly €759 million) by 34% (an additional €258 million).

The expenses related to BES increased by 194%, totalling 3.6 million euros; the costs with Banif grew 90%, reaching €372 million; and BPN’s legacy can cost taxpayers another €641.3 million next year (of increase of 14% from the budget in 2017), according to DN/Dinheiro Vivo’s calculations.

In all, Mário Centeno, the finance minister, is responsible for 12 financial vehicles that inherited toxic and problematic assets from the three banks. The bulk (as, incidentally, has been customary in recent years) goes to the three companies that manage assets of the former BPN, nationalised in 2008 (it will be nine years on November 2, Day of the Dead) by the then government of José Sócrates.

BES imploded in 2014, and the state took responsibility for five financial vehicles that inherited assets from the former group led by Ricardo Salgado. By the end of 2015, it would be Banif’s turn to capitulate. A good part of the bank was bought by Santander’s, but the Spanish bank left some of the worst assets to the Portuguese state – the 2018 OE foresees spending on four vehicle companies that manage legacies of the bank created by Horacio Roque.

As is the case every year, the expected expenditures with these autonomous funds have not yet been tallied but it is possible to see that, in comparison to last year’s budget, that the overwhelming majority of these companies are increasing (public) expenditures.

Banif is the most explicit case of increasing costs to the state in 2018. The amounts dedicated to the four vehicles increased by 90% (+176 million euros compared to the 2017 OE). There is a reason for this: costs with Oitante grew by 80%, Banif Imobiliária by 145%, WIL-Projetos Turísticos by 3000%.

These companies require “multi-annual commitments” to be able to dispose of assets and recover credits, to pay for the services of financial and legal advisors and companies specialising in real estate management and disposal. It is the best way to maximise value or at least minimise losses to taxpayers.

Oitante took on the assets that Santander did not buy (real estate, for example). WIL manages “tourism projects”, though there is little information about what it actually does. Banif Imobiliária, also owned by Oitante, also owns an extensive real estate portfolio.

Expenditures companies linked to BPN rose by another 80 million euros (+14%) in the 2018 OE. Next year, the budget foresees 64.3 million euros for Parparticipadas (the holding company that manages BPNá holdings in other companies and funds); €161.7 million for Parups (which manages real estate, works of art, colllectable coins and various financial instruments) and a further €415.3 million for Parvalorem (the fund holding BPN’s distressed debt portfolio).

Once again, the planned expenditures with these companies will finance asset recovery, interest payments, and overdue capital (to CGD, for example, one of BPN’s largest creditors), to support the sale of real estate, pay litigation and other legal expenses, among other problems.

These financial vehicles are budgeted as an expense, but on the other side of the balance sheet, revenues are budgeted to support and even outweigh those expenses. However, actual revenues are expected yield little or nothing. In the case of the BPN companies, there is an effective annual loss to the taxpayers every year. Usually, this loss is around 400 to 600 million euros per year. 2016’s loss is not yet known. The Court of Auditors will reveal the figures in December.

This new OE also includes five vehicles linked to the former BES, which will cost an additional €3.6 million in budgetary expenditures. Four of them involve relatively small expenditures – ES Tech Ventures, the company Praça do Marquês (which manages the building in Marquês de Pombal, in Lisbon, where Espaço Novo Banco operates), Quinta dos Cónegos – Sociedade Imobiliária and Righthour, a consultancy which belonged to the BES Growth Fund (responsible for investments in resorts and real estate in Bahia, Brazil).

With regards to the Novo Banco, a fifth vehicle appeared this year, the GNB Concessions, with expenses of €2.3 million. That company manages highways and car parks (Auvisa – Autovia de los Viñedos, Ascendi, Empark).

DN/Dinheiro Vivo asked the Finance Ministry about the expenses and increases in appropriations but did not get an answer.

Original Story: Dinheiro Vivo – Luís Reis Ribeiro

Translation: Richard Turner