Towards a new Millennium
MILLENNIUM BCP, PORTUGAL’S largest private sector bank, is hardly alone these days in having to turn cap in hand to its shareholders for cash to repair its balance sheet. But whereas most of the banks that have gone begging recently have been victims of the sub-prime crisis, BCP’s riches-to-rags story has nothing to do with bad lending decisions or dodgy credit instruments. The story behind its bargain basement rights issue, planned for this month, is largely about equity – dodgy equity raisings, bad equity investments, a tumbling share price, disastrous M&A misadventures, management excess and a struggle for power in the boardroom.
But the election of an entirely new board in January and the announcement of a rights issue in April mark a turning point in the history of the bank and a chance to start afresh. Shareholders nursing losses on their investments, however, will want to see results soon.
"It takes a fight between two mother-in-laws to learn the whole truth," says the CFO of a leading Portuguese bank, translating a local expression. "BCP had always enjoyed a reputation as a national champion. Portuguese felt proud to have a bank that was expanding internationally and being taught as a case study at Insead. But it always seemed strange how the management could determine the whole life of the bank with such a free hand. It might be completely normal in a bank with a market cap of €100 billion but it’s almost unheard of for a €10 billion bank in a small country to be without a large shareholder that calls the shots."
In the case of BCP, it took a fight between the former chairman and former chief executive for the whole truth to come out. What emerged were secrets that would ultimately cost the jobs of everyone on the board and a national icon its reputation.
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Carlos Santos Ferreira: using all his diplomatic skills to unite BCP investors |
People familiar with the relationship between Jardim Gonçalves, BCP’s founder and former chairman of the supervisory board, and Paulo Teixeira Pinto, chief executive between 2005 and 2007, say the two men were almost like father and son. They saw eye to eye on many issues and shared common values, both being members of the ultra-conservative Catholic organization Opus Dei.
The younger man, Teixeira Pinto, owed his position as chief executive to Gonçalves, who had personally picked him for the job ahead of more obvious candidates.
Tensions began to emerge between the two, however, when Teixeira Pinto’s attempts to cut the bank’s bloated cost base and a series of bungled M&A deals stretched the relationship to breaking point.
BCP had just seen its revised €5.32 billion hostile bid for BPI, Portugal’s third-largest private sector bank, rejected and Teixeira Pinto was keen to raise the bank’s offer a second time, in order to avoid a repeat of the Banca Commerciala Romana debacle, in which BCP lost out on its bid for the leading Romanian bank by a mere €50 million and was heavily criticized as a result. Gonçalves, however, was opposed to the idea and wanted to consider BPI’s counter-offer for BCP, although issues of management control, the exchange ratio and sensitivity surrounding the influence of Spanish bank La Caixa at BPI ultimately made that deal unacceptable too.
Frustrated by the chairman’s tight grip on the reins, Teixeira Pinto set about courting some of the bank’s shareholders to solidify his personal powerbase, setting the stage for a confrontation with Gonçalves, who was enraged by the perceived betrayal.
"Teixeira Pinto decided to go his own way and tried to set up a core group of shareholders that would give him the backing he needed to ‘kill his father’ at the next AGM," says a banker familiar with the situation. "When Gonçalves found out he made it his goal to get rid of him."
Power struggle
The dispute became one about the relative power of the supervisory and executive boards of the bank. Gonçalves, backed by long-time shareholders including construction company Teixeira Duarte and European insurer Eureko, wanted to increase the power of the supervisory board and make it even harder to alter the bank’s highly restrictive voting rights by raising the threshold from 66% to 75%. Teixeira Pinto, on the other hand, wanted to get rid of the general and supervisory council, headed by Gonçalves, or to expand its membership from 11 to 24, which could give him the upper hand.
Teixeira Pinto’s supporters included the colourful and controversial activist investor Jose Manuel Rodrigues "Joe" Berardo, who has built an almost 7% stake in the bank.
Rumoured to be one of the richest men in Portugal, Berardo is a prominent investor who made waves with his activist style in Sonaecom’s attempted takeover of Portugal Telecom in 2007 but is widely derided by Lisbon’s elite circles for his flamboyant personality and poor grasp of Portuguese, a result of his having left his native Madeira at the age of 16 to make his fortune, starting with gold in South Africa.
Berardo lived up to his reputation for activism at BCP by, among other things, pushing for greater transparency about executive compensation. Before Teixeira Pinto became CEO, BCP board members had been earning an average of €3 million a year, about three to four times as much as board members at other Portuguese banks, despite the bank’s poor share price performance, and had grown used to an extravagant lifestyle of private jets and bodyguards. They had also proved stubbornly resistant to attempts to lower their pay, winning increases in fixed compensation that substantially offset a cut in their bonus allocations. In the hostile atmosphere generated by the fight at the top of the bank, it did not take long before the digging around senior executives’ pay led to the discovery of skeletons in BCP’s closet.