Ex-BES chief 'probably' involved in manipulating accounts, report says

The former chief executive of Banco Espirito Santo, the Portuguese lender that collapsed last year in one of Europe biggest financial failures, was probably involved in manipulating accounts, a parliamentary commission said on Thursday.

After six months of hearings into a case that is estimated to have left investors with €10bn of losses, the commission said in its preliminary findings that Ricardo Espirito Santo Salgado was "probably involved in a decision to deliberately manipulate the accounts of Espirito Santo International", the family group's Luxembourg-based holding company.

Mr Salgado, one of dozens of witnesses who appeared before the commission, had told the hearings that: "I never instructed anyone to conceal the group's debt."

The commission also said that "with hindsight" the Bank of Portugal "may have been excessively prudent" in seeking a solution to the problems at BES that could be accepted by all its shareholders.

It added that co-operation between regulators, including the central bank and the CMVM, Portugal's stock market watchdog, over the case "fell below what would have been desirable".

In a preliminary summary of its full 400-page report, the commission said that the Espirito Santo Group (GES), comprising about 300 companies and operating in 50 countries, had systematically hidden the true extent of its debt since 2008.

It was the exposure of BES to the Espirito Santo family's crumbling business empire that forced the Bank of Portugal to intervene last August with a €4.9bn bailout that split the failed lender into a "bad bank", where its toxic assets were deposited, and "good bank" renamed Novo Banco, which is now up for sale.

"Given the prevailing management style at GES, in which information and responsibility were "centralised around the figure of Ricardo Salgado", it was probable that the 70-year-old patriarch of the family group was involved in manipulating ESI's accounts, the commission said.

Jose Castella, the financial controller of GES, was probably also aware of the alleged manipulation of accounts, although possibly with varying degrees of detail, the commission added.

The report described the manipulation of accounts at ESI, the Espirito Santo family's ultimate holding company, as the group's "original sin", saying ESI sparked a "debt spiral" that pushed up the group's debt to more than €8bn at the end of 2013, implying annual debt servicing costs of more than €400m.

The commission cited "documents drawn up by the PwC" as early as 2001 and 2002 saying BES was excessively exposed to GES, was conceding loans to offshore companies, failing to co-operate fully with audits or to guarantee that the delayed loan payments would be investigated and approving operations that had not been seen by the bank's risk or credit departments.

The parliamentary commission can only make recommendations. It has no legal powers.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation