How the Bank of Portugal caught Ricardo Salgado and the importance of the “assessors”
The Committee of Inquiry’s strategy, and a bit of the Parliament’s tradition, was to listen first to the “Regulators” (Bank of Portugal, CMVM and Instituto de Seguros de Portugal), then to the Ministers of Finance who dealt with the situation, in the case of Teixeira. dos Santos, Vítor Gaspar and Maria Luís Albuquerque (in office) and only afterwards those responsible for the BES/GES Group.
The hearings of the Governor (which lasted 8 hours) and the Deputy Governor, Pedro Duarte Neves, who was responsible at Banco de Portugal for supervision, were fundamental to understand how the regulator “discovered” the problems, how he was deceived during and how the lack of of articulation between regulators, with different skills on different products, can put everything in question. In this regard, it is important to emphasize that the responsibility of Banco de Portugal is limited, under the terms of the law, to retail banking products, that is, current and term deposit accounts, consumer credit and credit to companies. The law does not confer on Banco de Portugal the competence to supervise other financial instruments, even if they are marketed over the counters of credit institutions.
If listening to the Governor was essential to “dismantle” the excuses that both Ricardo Salgado and the opposition had put up in a circular, listening to Pedro Duarte Neves was “pedagogical” to explain “tim tim by tim tim” how it all happened. I highly recommend reading this audition doc.pdf (parlamento.pt).
It is important that, recently, the strengthening of supervision has been reinforced by increasing the scenarios for strengthening own funds and strengthening the various prudential strengthening measures; adoption of an intrusive supervision model; task execution; strengthening the prospective aspect of supervision; Development and Development of Behavioral Supervision. As a result of the financial crisis and the problems created by banks, both the European Central Bank and the Central Banks on their own initiative were forced to take more drastic measures.
As far as BES is concerned, three key moments in the process of the European Bank of Portugal: 1) the stress tests of the European Banking Authority Espírito Santo Financial Group was the intervention of subsequent stress tests in 2010 and 2011, having presented values above the limits set by that authority. It is recalled that 201 this authority recommended a capital increase which turned out to be the Portuguese banking system at the risk of penalizing the regime of a buffer — that is, a margin of slack — for the sovereign. Own funds establishments an additional reinforcement of Portuguese banks. It is following this decision that will result in capital needs for our four largest banks, and if in these three cases they were assured with access to “additional money” troika”, Banco Espírito Santo made an effort and ensured this reinforcement exclusively through the private sector. Weird. I remind you that in the case of public support this would lead to a majority in the management of the regulators in the management of these institutions.
According to Pedro Duarte Neves, from then on, and following different regulatory solutions adjusted by the Bank of Portugal, “the conclusion was reached that the situation of the group was really questionable” and for that reason the regulator informed the administration of the administration Espírito Santo Financial Group, in July 2013, one of the main concerns of the regulator — “the complexity of the Group, associated with a wide international activity in several jurisdictions; upside risk, both through exposure to the Espírito Santo Group’s non-financial activity and in the real estate sector; situation ratio by a high credit/deposit ratio; and, finally, reputational risk associated with trading in non-financial debt securities.”
It is the second decisive one because it exploded an unprecedented bomb that had never been used in a group with a moment close to BES. “Taking into account the level of material risk” it decided, in July 201, “to impose on BES the regulation, until the end of 2013, of a minimum capital buffer of 50 basis points to reinforce the reinforcement of Core Tier 1 against the minimum ratio in force”. In other words, thanks to the regulator’s intrusive identifier, and despite a possible “favorable external risk perception”, banking elements outside the supervision perimeter were identified.
And here we come to the third decisive act to discover the real situation of BES, the famous “ring-fencing” and the ECC.
Groups, followed by Pedro, from the economic sequences, from a sequence of forecasts, at the end of 2011, Banco Portugal decided to deepen a set of 12 sets. For this purpose, a new transversal action was developed at the beginning of September 2013, called ETRICC 2 (Transversal Exercise for Reviewing the Impairment of the Loan Portfolio, 2nd phase). Among these 12 selected economic groups, the financial branch not belonging to Grupo Espírito Santo was included. “It is important to highlight that the quality of credit granted to various financial entities of BES Espírito Santo (BES Espírito Santo), whether by other banking entities in the previous actions of cross-sectional transactions without groups that were detected in these needs to reinforce impairments, were at least validated as impairments, almost nil or basically nil, previously existing.” In the background, it is significant as the “big four”, as four main auditors, in the capacity of independent auditors responsible for the development of transversal exercises not identified by Banco de Portugal not identified, that until mid-2013, “any material credit risk in these fiscal years for entities in the non-financial branch of GES”. precisely the result of this financial supervision exercise, the real ETRI the result to Banco de Portugal was detailed as reflected until Banco de Portugal was disclosed which was not disclosed due to its financial reality. Further on, discover in more detail the tricks used by Ricardo Salgado for orienteering and your own.
The first conclusion we arrived at is that “BES” finally mentioned it to the regulator and manipulated the reports that the Bank of Portugal had received. This moment immediately reminded me of the importance of the “assessors”, men who, on behalf of the municipalities, identified themselves as the scales of the markets and stores, they were correct and the citizens were not deceived. However, a Bank of this size in Portugal never thought that a bank of this size would have been so incorrect or that it would have been executed in the provision of services that it presented.
Duarte Marques