Large investors - such as Pimco and BlackRock -, who lost money on BES's debt have found a strong argument for the proceeding they filed against the Bank of Portugal.
During last week’s press conference announcing the sale of Novo Banco, the Portuguese prime minister António Costa made a statement that pleased New York. He was asked two questions: what would happen if NB‘s senior creditors refused to exchange the debt they hold for another one less beneficial; and whether or not that operation could frighten even more those investors which in 2015 had already suffer great losses due to NB‘s debt.
António Costa answered: “It was precisely because of that experience that we never conceived a solution which would require a non-voluntary action from bond holders. I believe it is now clear that nothing harmed the Republic and its financial system’s cost more than the Bank of Portugal’s decision of imposing sacrifices to some bond holders in December 2015, in a unilateral and discretionary manner — a decision which was not particularly viewed favorably by international investors.”
The words “discretionary”, “unilateral” and “sacrifices” were very well received in New York, where the people in charge of large companies such as Pimco and BlackRock are preparing a legal proceeding against the Bank of Portugal because of the losses they suffered with BES‘s debt.
To ECO, a representative of the group of investors stated: “Our stance comes from a legal point of view and we do not confuse it with politics. Nonetheless, we like the prime minister’s opinion. It reveals that, as we have always known, the Portuguese authorities strictly follow international rulings and we can count on them to correct past mistakes made by entities which, in a stress situation, did not properly assess the impact of their decisions“. That same group of investors also mentions the need to “encourage Portuguese authorities to search for a prompt and constructive conclusion for this matter, since it is beneficial for all, starting with the Portuguese taxpayers”.
We should recall that on March 22, 2016, this group of investors, headed by Pimco and BlackRock, announced they were going to “bring a legal proceeding against the Bank of Portugal in an attempt to recover their clients’ losses”. This decision was made because “on 29th December 2015 the Bank of Portugal undertook the illegal and discriminatory act of transferring 5 series of notes totalling 2.2 billion euros from Novo Banco to the insolvent estate of Banco Espírito Santo […] This arbitrary and unjustified action caused losses of around 1.5 billion euros for the ordinary retail investors and pensioners who had entrusted their savings to the group of institutions that the Bank of Portugal selected to impair”.
In the beginning of this week, after the sale of Novo Banco to the North-American fund Lone Star was announced, BlackRock, which is one one the largest investors of the Portuguese public debt, stated that it would move forward, along with a group of investors, with an injunction to block the sale of the bank.
“Various members of the group will seek an injunction to block the sale of Novo Banco during the week commencing April 3, 2017. The rules governing the sale process are discriminatory and breach Portuguese and EU laws“, the asset manager adds in a press release announcing the injunction.