City of London mouthpiece Ambrose Evans-Pritchard writes that the “rescue” of Portugal’s Banco Espirito Santo was a bail-out and not quite a bail-in, and that European officials backed off on bailing in all creditors and unsecured depositors by their new rules, which come into effect in 2015. “They seem to have backed away at the first sign of trouble, opting for soft terms rather than the draconian measures imposed on Cyprus.”
What Evans-Pritchard calls “soft terms” has created rage against Prime Minister Pedro Passos Coelho, who has come under attack from Catarina Martins, leader of the Left Bloc, who charged, “We live in a democracy, not a bankocracy. It is unacceptable for the prime minister to take money from the salaries of workers and pensions, and funnel it to a private bank.”
Evans-Pritchard writes that this “raises fresh doubts about the underlying health of the banks of Portugal” when the country’s private and public debt is now about 380% of GDP, the highest ratio in Europe. The EU4.5 billion bail-out with public money will raise Portugal’s net debt by 3% of GDP.
While the Prime Minister insists that the money will be recouped from the sale of the bank and contributions from other banks into the resolution fund, this is wishful thinking. Evans-Pritchard quotes Megan Greene, from Maverick Intelligence: “The losses could be much larger than people think. This is eerily similar to what happened in Ireland, and I think taxpayers will end up footing the bill.”
He quotes João Rendeiro, former head of Banco Privado Português (BPP) as saying, “The economic impact is gigantic. It could lead to a contraction of GDP by 7.6%. I don’t know of any parallel to this in our economic history.”
Of course, this exposes the fantasy that led to Passos Coelho pulling out of the EU-IMF Troika program on the claim that they are out of the woods.
In an sardonic tone, Evans-Pritchard concludes with a whistling-in-the-dark quote from Holger Schmieding of Berenberg Bank: “The systemic euro crisis is over. Although the Eurozone still has issues, it has a well-oiled machine to deal with them. The vicious contagion risks, the hallmark of the euro crisis, can be kept at bay,” he said.
In a related development, France’s third-largest bank, Crédit Agricole (CA), considerably exposed in the collapse of Portugal’s Banco Espirito Santo (BES), reports a net loss of 98% for the first quarter of this year, against the same quarter last year, or a net profit of only EU17 million; it was EU696 million a year ago. CA has been forced to write off its entire share of 14.6% in BES totalling EU708 million —a larger part of that write-off is to be compensated for by CA shareholders and creditors through a bail-in.