Portugal’s government has lost the case brought by Santander which claimed that its swaps contracts involvoing Portugal's public transport companies were entered into knowingly and were valid.
A London court agreed with the bank’s position and ordered Portugal’s public transport companies to pay the €1.8 billion due under the terms of the complex financial instruments.
Lisbon Metro, Carris, Metro do Oporto and STCP were instructed by the Commercial Court in London to pay the money as they had breached the terms of nine swaps contracts between 2005 and 2007.
The judgment is not final and may be appealed, but only to determine matters concerning the law applicable to the case, not the amount due under the contract terms.
The decision results from the trial that took place between October 12th and December 10th, and was issued today by Judge William Blair, the older brother of the former British Prime Minister, Tony Blair.
Before the trial, during the Passos Coelho administration with Maria Luís Albuquerque as Finance Minster, the Spanish bank tried to reach "a negotiated solution."
The contracts signed by the four public companies, advised by the Treasury and the Agência de Gestão da Tesouraria e da Dívida Pública (IGCP), were cleared.
IGCP later failed to resolve the matter amicably and the case went to court in London as per the resolution clause in the contracts, Santander preferring London to Lisbon for matters legal.
IGCP and the Ministry of Finance had never expressed reservations "on the ability of these public companies to sign swaps contracts or on the validity or enforceability of the contracts."
Judge Blair was faced with more than 120,000 documents, and heard witnesses from both sides, as well as Portuguese legal experts including five university professors and financial experts versed in the legalities of contract law.
The judge decided that there had been no mis-selling and the contracts were entered into in good faith by both parties.
Judge Blair concluded that when the contracts were signed between 2005 and 2007, during the José Sócrates government, everyone involved had reason to believe that the swaps contracts served the interests of the public companies and protected them from fluctuations and volatility in the financial markets.
This was not the understanding of the subsequent Passos Coelho government and in September 2013, with government collusion, the companies stopped making payments due under the terms of the contracts.
The then Prime Minister and his Finance Minister had managed to reach agreements with other banks holding similar swaps contracts but Santander’s arrears were never paid off and hence the case went to court.
Passos Coelho considered that these swaps were speculative, that managers of public enterprises should not have been allowed to sign them and that the swaps contracts were not in the best interest of the companies involved.
Albuquerque worked at IGCP at the time the contracts were signed off but later claimed that she has never heard of swaps contracts and had not been involved in passing them as fit for purpose, a claim believed by only a handful of her closest supporters.
Santander, despite its willingness to negotiate, never accepted that it had acted fraudulently as the Portuguese government claimed.
The four public companies will be notified of the court’s decision and Portugal's parliament will await with interest the reaction of the Prime Minister who finds yet again that a hole has been blown through his 2016 State Budget as no provision was made under the last administration should the government lose the case and these public companies have to pay up.
Santander has just bought Banif for a song and is in the running to buy Novo Banco, so PM António Costa may be able to do some sort of deal for deferred payment of the €1.8 billion, which includes €233 million in interest, should Santander be amenable.
"Banco Santander Totta endeavoured to achieve a negotiated solution that, within reason, minimised losses to the Portuguese State arising from these contracts," the bank said in a smooth statement that does have some truth in it.
Santander claims it "even proposed to grant a loan to Portugal to finance the costs of settling the contracts but this proposal was rejected" by Maria Luís Albuquerque.
The current Finance Minister, Mario Centeno said this morning in Parliament that this "is one more matter that the Government has to face." "It is a problem that the executive has to solve."
It also is a problem that the taxpayer will have to fund.
Comments
How does this case differ from a mortgaged house owner arguing that they had no idea that events would change (borrowing costs shooting up, losing my job or whatever) and therefore they should be allowed by the bank to stop paying for the house.
Anyone wanting a bet? That Novo Banco (steam cleaned of BES obligations) goes to Santander for a sum of around 2bn ? The 1.8bn owed making up the bulk of this amount. So valuing Novo Banco at roughly what Santander paid for BANIF?
Debts that were incurred yet seem to have had no benefit to the country at all, the money has all disappeared into foreign banks.
And now the struggling Portuguese people are faced with massive tax burdens to cover these contracts signed by yesterday's civil servants [who seem to do very well for themselves], as the health system remains underfunded and the poor starve.
This is beyond poor governance. A country should not be held hostage to past corruption.