Banif sold to Santander - taxpayers' bill may reach €3 billion

In a painful yet necessary resolution to the Banif collapse, Portugal's taxpayers end up losing around €2.2 billion despite Banif's 'good bank' assets being sold off to Santander for €150 million.

Portugal's Prime Minister António Costa blames previous government, with 100% justification, for passing on a problem that should have been dealt with in March this year. Costa's Socialist Party and those of his left-wing support group are to demand a parliamentary inquiry into this fiasco.

António Costa admitted late on Sunday night that the sale of Banif is a solution “that will be costly to taxpayers,” pointing a finger at the inertia of the previous government which deliberately did nothing to present a workable plan for the bank, despite pressure from Brussels.

Banif was thus forced into a fire sale over the weekend and will be sold to Santander Totta for €150 million, with the taxpayer expected to underwrite further losses to the tune of €1.7 billion in what is laughably still being referred to as a Bank of Portugal ‘resolution process.’

In what hopefully is the last statement ever from the discredited Bank of Portugal governor, Carlos Costa, the regulator said that the sale "involves estimated public support of €2.255 billion intended to cover future contingencies, of which €489 million comes from the Resolution Fund and €1.766 million from the State as a result of the options agreed by the Portuguese authorities, the European institutions and Banco Santander Totta, in defining the assets and liabilities included in the sale.

The EC Competition chief Margaret Vestager today said that when the dust has settled, the Portuguese taxpayer could be in for a loss of €3 billion.

The taxpayer already had piled over €1.2 billion into Banif in 2012; €825 million for a now worthless 60.5% of the share capital and €400 million in convertible bonds, or CoCos.

"The sale has a very high cost to taxpayers, but of the possible sale options, this is the best in defending the national interest," said the Prime Minister while attempting to assure the public that the losses suffered are finite, not open ended.

The Council of Ministers is meeting in an extraordinary session this morning and now has to approve an amended 2015 State Budget. The Council will push for urgent debate in parliament, a session which should prove to be incendiary.

The Socialists, Communists and Left Bloc are to ask for a parliamentary inquiry into the Banif case by the establishment of a commission to investigate the management and duplicity of the previous government and the collusion of the Bank of Portugal's governor Carlos Costa in delaying a solution, however unpalatable.

The PM tried to put a brave face on the Banif collapse and subsequent fire sale and said that the deal “protects all depositors, including overseas depositors, jobs and the financial system," noting that although "the bank resolution is painful and catastrophic for taxpayers, branches will be operating normally on Monday under the ownership of a credible bank."

The Prime Minister despaired of the previous government’s inaction over Banif, which a year ago was meant to have presented a workable rescue plan.

"The government was faced with an emergency situation that it knew about over a year ago and nothing was done,” said António Costa.

The Prime Minister added that the European Commission called for "a credible restructuring plan by March of this year." This was the final deadline given by Brussels to the Passos Coelho government and nothing was done.

"Nine months later nothing was solved," said António Costa, noting that the sale solution over this weekend was at the highest possible cost to the taxpayer.

'Good bank ~ Bad bank'

Santander of course has only taken on the good bits of Banif, leaving the losses and toxic assets for the taxpayer to swallow. Santander buys the branches and takes on the bank’s employees, cuts are expected in both.

The purchase of Banif is part of a formal 'resolution measure' by the Bank of Portugal whose governor, in the role of regulator of Portugal's financial system, yet again dramatically has failed in his duty yet still clings to his post.

Thankfully, all customer deposits at Banif are protected but the resolution costs to the State are enormous at a maximum €2.930 billion made up of €2,255 million in new provisions and €825 million already thrown at the problem in 2012, less the amount paid by Santander for the bust business.

Banif’s shares were suspended last Thursday at 0.2 cents, 99% down on the 2012 share price and a good indication of the Directors’ inability to manage the business even after the unwarranted largesse of the Passos Coelho administration in the 2012 bailout.

This unmitigated disaster raises questions about the previous government’s illegal state intervention in Banif in 2012, its deliberate delay in addressing the solution in an election year, the role of the bank’s directors who have overseen a collapse in share price of 99% yet were happy to remain in post and draw salaries, and lastly, the role of Carlos Costa at the Bank of Portugal who has been unable to regulate Portugal’s financial sector, despite being paid so to do.

The scale of losses triggered by the failure and sale of Portugal's seventh largest bank is astounding, nearly half those of the major Banco Espirito Santo which cost Portugal's taxpayers €4.9 billion.

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