Failed Portuguese bank breached orders, says audit report

Banco Espirito Santo collapsed last August. Photo / Getty

The Portuguese bank that failed and lost the New Zealand Superannuation Fund almost $200 million breached Central Bank orders by "increasing exposure to its founding family's collapsing business", according to local media reports.

Banco Espirito Santo (BES) collapsed last August, when the Bank of Portugal launched a €4.9 billion ($7.4 billion) rescue plan, and divided the financial institution into a "good bank" and a "bad bank". At the time of BES' bailout, it was revealed that while the bank's customers and senior bondholders will be protected, losses would be borne by the bank's shareholders and subordinated creditors.

The break-up of the bank came only weeks after the Super Fund made a US$150 million contribution to BES via a Goldman Sachs-organised loan.

An audit report prepared by Deloitte, according to a Reuters article, said BES contravened orders from the Bank of Portugal by increasing exposure to its founding family's business interests in the lead-up to its bailout.

"In the period between December 31, 2013 and June 30, 2014 there was an increase in the BES Group's exposure to ES Bank Panama and Espirito Santo Financiere worth 579.2 million," Reuters quoted the report as saying. These two institutions were owned by the family's Espirito Santo Financial Group and at this time they lent 699 million to related entities, Reuters said while citing the audit report.

Goldman Sachs, with the Super Fund, is also suing the Central Bank of Portugal over its loans being excluded from a bailout of BES.