C O N F I D E N T I A L LISBON 002694
E.O. 12958: DECL: 11/05/2009
TAGS: ECON EFIN PGOV PO
SUBJECT: PORTUGAL BANK NATIONALIZATION RATIFIED
Classified By: Gary B. Applegarth, Pol-Econ Officer, Embassy Lisbon
Reasons 1.4 (b) and (d).
Â¶1. (U) The Portuguese parliament ratified the
nationalization of Banco Portugues de Negocios (BPN)
announced by Finance Minister Teixeira dos Santos on November
Â¶2. The takeover, the first bank nationalization in Portugal
since 1975, was prompted after days of negotiation failed to
produce an acceptable plan ensuring BPN's solvency.
Beginning November 3 the central bank is administering BPN
operations, and management will transfer to state-owned Caixa
Geral de Depositos at a later date. BPN losses from
declining investment values are currently estimated at 700
Â¶2. (U) Minister Teixeira dos Santos continued to emphasize
the relative soundness of Portugal's financial system, and
blamed BPN's troubles on mismanagement and possible
malfeasance rather than the current economic crisis. Justice
officials are investigating allegations of fraud, money
laundering, and other illegal activities at BPN.
Â¶3. (U) Separately, parliament approved the 4 billion euro
package previously proposed by PM Socrates to help Portuguese
banks strengthen their capitalization ratios. Teixeira dos
Santos said the stronger capital ratios will put Portuguese
banks on a similar footing as other European banks. Although
profitability in the financial sector is down, Portuguese
banks' conservative lending practices have minimized the
negative impacts of asset devaluation experienced by many
other international banks.
Â¶4. (C) Comment: GOP and Central Bank contacts have been
close-mouthed about the nationalization, but local business
contacts generally agree that BPN's troubles stem from a long
period of mismanagement and do not signal deeper distress for
the broader Portuguese financial sector. End comment.