Bank of Portugal governor under increasingly heavy fire in Banif inquiry

The inquiry into the refinancing of Banif and its eventual sale to Santander continues with bank of Portugal governor Carlos Costa under pressure, especially from the Left Bloc’s secret weapon, MP Mariana Mortágua.

In late 2012 and early 2013, when Carlos Costa convinced the government to inject €1,100 million into the ailing Banif, arguing that the bank was viable based on the restructuring plan that was on the table, Costa knew also that the restructuring plan would not be accepted by the European authorities.

The Governor of the Bank of Portugal already knew that the requirements that Brussels would impose on the restructuring plan, not only meant a radical change in the assumptions that had been used for the proposed injection of taxpayers' money, but also put into question the viability of Banif itself.

In late 2012 and early 2013, Carlos Costa alerted members of the Troika and the EU president Durão Barroso that the demands being placed by the European Commission could endanger the future of Banif.

The documentation in front of the Committee of inquiry in to the Banif disaster led Bloquista Mariana Mortágua today to call into question much of the Bank of Portugal governor's account of the affair.

Mortágua noted that according to emails, Carlos Costa knew from the beginning that there was no plan approved by Brussels that was acceptable to Banif's board.

"The Governor participated in a scam that lasted two years," said Mortágua, adding Costa "knew that the plan would not be approved as the European Commission would not accept the plans from the Banif board and Banif did not accept the EC's ideas."

In November 2012, the Governor of the Bank of Portugal wrote a letter to then Finance Minister Vítor Gaspar, advising that the State had to recapitalise Banif and that the governor considered that Banif was viable and they should proceed with a restructuring plan which would have to be approved by Portugal's Competition Directorate.

Gaspar was surprised by the suggestion and came up with a long list of questions about the viability of the bank, but ended up being convinced by Carlos Costa that State intervention was the best solution. This was not Gaspar's only error of judgement when Finance Minister but was possbibly his most foolish.

Shortly after this agreement, in an email of 20 December 2012 sent to a member of the Durão Barroso cabinet, Carlos Costa noted that "at a meeting held today, the Directorate of Competition reported that, as a condition for a positive decision in terms of State aid, major changes should be made to the structure of the capitalisation operation and to the size of the reduction in the activity of the bank, which differ materially from those that had the approval of the Troika."

These changes, Costa warned, "are generating uncertainty about the sustainability of Banif and could give rise to loss of depositor confidence in this institution - with unpredictable effects on the financial system."

The changes in question, the reduction in the size of Banif by 60% and restricting its geographical spread, could jeopardise the very foundations of the State aid progranmme.

But even before the State injected €1,100 million into Banif as recommended by the Bank of Portugal,there were other emails warning of the consequences of the plans that the Directorate of Competition had for Banif.

In an email dated January 10, 2013, Costa outlined the problems Banif would face, "Unfortunately we could not deter the Competition Directorate from the required downsizing and the geographical limitation to Madeira, the Azores and the emigrant communities,” complained the governor.

"I emphasize that the goals that the Competition Directorate is demanding imply a substantial change in the assumptions of the restructuring plan that supports the recapitalisation plan. Any change that means a material change in the current version of the recapitalisation plan would involve a new opinion from the Bank of Portugal," warned Costa.

The Competition Directorate never validated the restructuring plans submitted by Banif that had been prepared with the Government in cooperation with the Bank of Portugal.

This impasse led to the European Commission opening an in-depth investigation into State aid to Banif in order to declare such aid illegal.

Carlos Costa said the board of Banif did not sufficient negotiation skills to get itself out of trouble. In fact carlos Costa by playing a deceptive double game proved that he did not have the management ability to solve the problem in front of him, so resorted to blaming everyone else for the position Banif and himself were in.

The inquiry continues as Carlos Costa digs himself a deeper and deeper hole, faced as he is by the fearsome Left Bloc MP, Mariana Mortágua who is fully aware that Carlos Costa was using public money to hide his own incompetence, resulting in yet another multi-billion euro loss for the taxpayer when Banif was sold to Santander for a pittance along with some tax credits making it the give-away of the century, so far.

Costa has blamed everyone but himself for the trail of financial disasters that lie, smouldering in his wake as he speeds towards a retirement that will not be a day too soon.

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