BES released on July 29th. the cancelation of the EGM called on 31st July onrequest of the two major shareholders, ESFG and Crédit Agricole, following the Court of Luxembourg’s request for court controlof ESFG and Rio Forte (two Grupo Espirito Santo’s holding companies). Finally in early August as explained by our ECGS -Frontis Governance colleague in Rome Sergio Carbonara, the Portuguese Government will burn billions of public money and EC funding to save the bank.
The setbacks of the 2nd largest listed Portuguese bank Banco Espirito Santo (BES) shook the markets :in this listed bank with Crédit Agricole as second shareholder with 15% of capital and three Director seats we discover Madoff style bank management. They are, after the BNP Paribas US fines, perfectly revealing of the perversions which leads the universal banking model, so praised the banking lobby and French Treasury.
The BES stock dropped in eight years from Euro 15 to 50 cents d’ECGS and clients have been warned several times.
For several years our ECGS analyst criticized the incredible protectionist family governance of BES group and its intricate family companies refinancing. Like other Iberian banking groups BES maintained a Board dominated by the family interests as family Espirito Santo owned 25% of BES, now 20% due to an emergency sale, via Espirito Santo Financial Group (ESFG) itself 49% owned by Espirito Santo International (ESI).
In order to maintain control the family overloaded its holding companies with BES group debt and shares plus billions of Angola’s debt : then the allowed addition of the asset management for third parties and the usual listed commercial bank business suggested to litteraly « stuff » the BES clients managed accounts up to a billion euros of junk investments in the family interests. It is indeed a crime when the interests and protection of customers are left behind confused interest defined by generously paid managers of State protected multi-business banking groups.
This year as last year ECGS recommended its clients vote against the BES Management report, but the complacency of many international shareholders and banking regulators have allowed the BES Group to sink into the deadly trap of self-possession and outright fraud of its managed clients.
Remind that Portugal Telecom in June bought € 897 million bonds issued by the Spirito Santo Luxembourg unit Rioforte as Portugal Telecom is 10% held by BES, of which PT holds in turn 2%. Brazil’s Oi was not informed of the investment from PT and the terms of the Oi-PT merger will likely be re-discussed. A typical case of national disasters caused by the “relationship capitalism”, similar to so many cases supported by univesal banking in Southern Europe….
This case is a useful warning shot for shareholders on the abuse of share repurchase whose consequences can often ruin companies.
July 2014
