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Luís Máximo dos Santos, president of the Resolution Fund (FdR), in the budget and finance committee (COF) that took place this Wednesday, explained the doubts about the restructuring of the Promovalor loan, by Luís Filipe Vieira, which led to the request of a specific audit.
“We at the Resolution Fund often find issues that need a better explanation and suggest that a specific audit be carried out on a client relationship. But since the generic audit arrived in the meantime [Deloitte]We do insert this audit into this one, but there are still some aspects related to the financial analysis and financial soundness of this fund, so we have determined that Novo Banco hires an auditor to do this work ”, said the president of the FdR .
The ongoing audit is an audit of the constitution of the FIAE fund, which was accredited by the president of Benfica, according to the deputies of this commission.
The bank formed FIAE Capital Criativo, in the second half of 2017, and then transferred the debts of Promovalor there, according to congresswoman Mariana Mortágua, who had access to the complete Deloitte audit.
The FIAE CC fund was no longer included in Novo Banco’s consolidation perimeter in 2018, according to the audit.
“We request a specific audit with two aspects,” said the President of the Resolution Fund. “One of them ended up being covered by the special Deloitte audit, after we requested that this operation be included in the sample”, but there is a second aspect that remains to be done and “is being done”.
It is recalled that the Resolution Fund asked Deloitte to add 22 debtors of Novo Banco to the sample of the special audit of the management acts of BES / Novo Banco.
Then, the Secretary General of the Resolution Fund, João Freitas, who accompanied the President of the FdR in the hearing, explained that the first aspect was an audit of the origination and recovery management acts, and this was integrated into the audit of Deloitte, but lacking a financial analysis on the merits of the operation, on the viability conditions of the fund that was created and on the prospects of recovering the credit of that debtor. That part is being audited by the Resolution Fund and is ongoing.
Yesterday it was confirmed in this Parliament committee that the Resolution Fund requested a specific audit of the bank’s transactions with Promovalor, the company of Luís Filipe Vieira, which is one of Novo Banco’s largest debtors. The debtor caused the entity a loss of 225.1 million euros between August 2014 and the end of 2018.
The bank had an exposure to Promovalor in June 2016, which was 179 million higher than that registered in August 2014. In December 2018 the exposure was 60 million higher than in 2016. In summary, the bank’s total exposure to Promovalor was 760 million with a recorded loss of 225 million. But in 2018 the debt disappeared from the balance sheet because the bank gave money to a fund to buy Luís Filipe Vieira’s debts, ”Mariana Mortágua, from the Esquerda Bloc, said yesterday at COF.
The blocker also said that in 2014 Novo Banco was a creditor of Luís Filipe Vieira, but that in 2018 it was “already a partner” of Luís Filipe Vieira, because, meanwhile, “it gave money to a fund to buy Luís Filipe Vieira’s debts. ”, Fund managed by a company owned by the son of the president of Benfica.
António Ramalho said yesterday in COF that the solution agreed for the restructuring of this debt makes Novo Banco more capable of recovering the debt and, at the same time, maintains all the guarantees and also has the option to sell the participation in the fund.
“These are operations that are analyzed in detail, that were authorized by the Resolution Fund and that the Resolution Fund, in fact, also requested a specific audit so that it could be analyzed in depth. This audit is ongoing, ”the bank’s CEO explained yesterday.
“We fully maintain all the guarantees, maintaining the right to put our participation in relation to the aforementioned investor of group 2. This participation is a loan that, if simply not carried out, leaves the bank in exactly the same situation as it was. It is a participation that in no way reduces credit recovery capacities, on the contrary it is a participation that increases these capacities by guaranteeing special conditions of real guarantees on assets, ”added António Ramalho.
Or case of MSF
On the restructuring of MSF’s credit, João Freitas explained why new financing was authorized at that time, before the company went bankrupt, in response to a question from a deputy.
It is recalled that the construction company MSF Engenharia entered bankruptcy in 2019 with recognized debts to creditors of more than 753.5 million euros.
“The decision at that time made it possible to avoid precipitating insolvency and thus made it possible to recover a greater value for Novo Banco. Since, however, it has allowed to obtain recoveries that otherwise would not have been possible. Later, when the insolvency occurred, the losses for the bank were lower, ”said the Secretary General of the Resolution Fund.
“It is evident that when we make decisions, we do not have all the information in our possession, we cannot predict the future, but we have made a serious analysis with calculations to the counterfactuals, to the alternative scenarios. We analyzed what would be the consequence of not having granted this financing and what losses it would generate for Novo Banco, and the results ended up confirming that the decision to grant this loan was the right one, because insolvency was not avoided, but the greatest recovery was recovered. possible value, ”he said, noting that there was a recovery in value before insolvency.
Legality of the BES resolution
Regarding the legality of the BES resolution, also questioned by the deputies, Luís Máximo dos Santos recalled that the 2014 resolution “was confirmed by the courts with all legality, and also was able to guarantee financial stability since it allowed, in that ultracritical moment, that there would be no loss of deposits ”.
The President of the Resolution Fund also recalled that if the majority of BES assets had been left in bad BES, they would be transferring value to creditors, no matter how small, which would require injecting more capital, so there would have to be more State loan. “The Resolution Fund did not have the money, the Bank of Portugal had to act, but it did not have the money,” he said.
It was the Bank of Portugal, as resolution authority, who promoted the sale of Novo Banco in 2017, recalled the head of the FdR.
It was not possible for the FdR to stay with a representative in the management of Novo Banco, he explained, because Brussels demanded in 2017 that the bank cease to be a transition, that the State had no power in management. The substitute for this position is the monitoring committee that was created at the bank, he said.
The president of the Fund, which holds 25% of Novo Banco, confirmed that there is an asymmetry within the European Union regarding the treatment of financial system problems, solutions are usually influenced by the political weight of the countries.
Luís Máximo dos Santos admitted that being president of the Resolution Fund “is not a pretty position.”
Regarding all the sale of non-performing assets, and the role of the Resolution Fund in stopping operations, Máximo dos Santos explained that the fact that sometimes the FdR does not approve a sale does not prevent the call of capital to the mechanism, because once that the asset remains on the balance sheet continues to generate impairments (losses), due to the obligation of the auditors. Impairment affects results as it is a cost.
“All the sales of Novo Banco’s assets go through a serious and solid process,” he added.
In response to the determination of the definition of the size of the contingent capitalization mechanism (3.89 billion), the president of the FdR explained that it resulted from a negotiation. He recalled again that Lone Star, at one point, wanted a guarantee from the State for all the bad assets of the bank, which was not accepted.
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