Downfall of a dynasty: The last days of Ricardo Salgado and Banco Espírito Santo

By:
Eric Ellis
Published on:

Bankers in Lisbon say the demise of BES is a watershed moment for the country: the turning point when old Portugal became new Europe. Ricardo Salgado tried every trick he knew to save his empire, but found that the Portuguese establishment could not – or would not – save him. How did Salgado’s efforts to shore up Espírito Santo through the commercial paper market hasten, rather than avert, his downfall?

BES

Early summer along the charming cobbled pavements of Rua Barata Salgueiro, Lisbon’s leafy financial quarter, is usually a leisurely affair.

As the heat kicks in, deals – those precious few to have exercised Portugal’s decimated banking community since it succumbed to the post-2008 eurozone malaise – start winding down, and bankers start thinking of their holidays; of the Algarve, the beach, of golf and lazy afternoons devouring plates of the delicious sardinhas grelhadas much prized by the loafer set.

But this summer was different in Lisbon, and not because of a sudden surfeit of late-spring business.

Getaways were temporarily put on hold and local restaurateurs reported a steady, later-than-usual traffic of suits into their eateries. And far from the sober occasions business lunches have been these lean recent years, bottles of alvarinho were broken out, and even champagne was spotted. Unusually for the mild-mannered Portuguese, large helpings of Schadenfreude were also on the menu.

"It’s been too exciting to go away," one banker tells Euromoney on a hot, late August day. "Usually we don’t drink at lunch but these are special days. This has been the biggest and best thing to happen to us in years."

The reason for all this celebration? That would be the dramatic failure of the closest thing Portugal has to an oligarch, Ricardo Espírito Santo Silva Salgado, and with him the demise of the bank that bears his family’s storied name across 20 countries. Portugal’s biggest privately-owned bank and second only in industry terms to the state-owned Caixa Geral de Depósitos, Banco Espírito Santo (BES) fell 145 years after it was founded by his great-great grandfather when, on August 2, the Banco de Portugal stepped up with Brussels’ backing to make a €4.5 billion rescue of BES.

That’s about the same amount that seems to be missing from the wider accounts of Salgado’s Espírito Santo group, in a scandal that at one point forced Portugal perilously close to systemic failure and, as Brussels briefly fretted, possibly Europe with it.

A few weeks on, and BES is no more, its solvent bits shuffled off under BdP supervision into a newly-constituted entity called Novo Banco, which is seeking a major shareholder to pay back the bailout funds that the central bank’s Resolution Fund temporarily 'lent’ Portugal from the €78 billion that Europe provided in 2011 at the depths of the eurozone crisis.

The central bank has appointed BNP Paribas to assist with the sale of Novo Banco and hopes to have a deal done "within a few months," a source close to the central bank tells Euromoney. "There is a very good chance to sell Novo Banco in a couple of months. It’s an attractive asset. It’s not exactly life as usual but very close to it."

The BES bailout would guarantee the funds of thousands of BES depositors and, so far at least, has prevented a systemic meltdown that regulators feared would again afflict Portugal – and possibly the still shaky eurozone with it – with a new viral strain of financial contagion.

As Portugal wobbled yet again, President Anabel Cavaco Silva warned that "if some citizens, some investors, suffer significant losses they may delay investment decisions, or some of them may find themselves in very big difficulties. We cannot ignore that there will be some impact on the real economy".

BES’s bad parts, mostly comprising its catastrophic exposure to Salgado’s largely unregulated and unaudited Espírito Santo Group, have been sectioned off out of further harm’s way, with the big losers being Salgado’s fellow travellers along the tumultuous BES journey; his wider family, France’s Crédit Agricole, Portugal’s state-owned Caixa Geral de Depósitos and BES shareholders, which include many of Portugal’s wealthiest people.

Carlos Costa 
The credibility of the Banco de Portugal and its governor Carlos Costa has been called into question over the collapse of BES. But a source close to the central bank says: "Our solution was well received in the political arena, and amongst our international peers and by Portuguese bankers. To have a public backstop is not luck"

Meanwhile, investigators in at least six countries – Portugal, Switzerland, Venezuela, Panama, Luxembourg and Angola – pore over bank documents, transfers and deals, trying to make sense of Salgado’s last days battling to keep his empire afloat. In Lisbon’s elite circles, they are referring to the Salgado collapse as "Portugal’s Madoff".

As allegations of fraud, tax evasion and money laundering swirl around Salgado and his now defunct empire, there are few tears about his sudden removal from Portuguese banking.

"They had tentacles and conflicts everywhere, in big companies, in politics, in the civil service," a local banker says. "They were very close to the government, every government and so they would stand in the market as the de facto official bank of the system."