Reuters points out that this scheme is being reviewed by Portuguese financial regulators who are trying to determine its legality. The debt was “sold through a complex scheme involving transatlantic companies in Panama and in Europe,” advances the news agency.
The Espirito Santo Group (GES) issued 5 billion euros of debt in the first half, shortly before going into bankruptcy. The news is being advanced by Reuters citing sources with knowledge of the operation and others who are closely monitoring the investigations.
“The debt was sold through a complex scheme involving transatlantic companies in Panama and Europe , the sources said. lot of debt just in Banco Espírito Santo and its customers, the sources added, thus accelerating the conditions that led to the bank was rescued by the state earlier this month, “writes the agency on Monday, August 25.
Reuters notes that this funding scheme is being reviewed by Portuguese financial regulators who are trying to determine its legality.
This scheme was set up to reimburse BES customers who had purchased very short-term debt of companies belonging to GES. At the end of 2013, had been sold short-term debt in the amount of EUR 1.7 billion.
Then “under pressure to repay the bank’s customers, the companies have created new debt to GES a total value of five billion, “writes Reuters, citing sources who had knowledge of the transactions.
Despite the holders of these securities have to wait up to 40 years to be repaid, an interest rate of 7% “made up for the wait.” The bonds were also issued with a “big discount”, said the same sources.
The debt was first sold to ES Bank Panama (ESBP), owned by the Espírito Santo Financial Group, which later transferred to the obligations other company related to the Holy Spirit Family.
Transactions of ESBP in Panama City are currently closed. The governor of the Central American country, the “Superintendencia de Bancos de Panama” (SBP), told Reuters he is reviewing the scheme and can not comment.
“The debt was then recoded into debt shorter maturities than the original 40 years, and was then sold to BES customers, “said Reuters citing the same sources.
To make the long-term debt in short-term debt, the GES wore special financial vehicles (“Special Purposes Entities”), which are used to insulate a company from the risks of holding debt on their balance sheets.
Contacted by Reuters, the New Bank declined to comment on the news and pointed to previous reports which said it would pay its retail customers who had purchased commercial paper from companies the GES.
BES customers would not be aware of what they were buying
The Wall Street Journal ran on August 18 that Credit Suisse helped hide debt GES. BES had sold to their customers interests in financial vehicles that had hidden corporate debt Espírito Santo Group and BES itself. The financial newspaper stressed that customers would not be aware of what they were buying
The Swiss bank will have clustered securities issued by companies in the Espírito Santo Group -. Well as BES, the Angolan Escom and Espírito Santo Financial Group – in financial vehicles
After the debt was sold by BES at their counters.. The bank’s customers bought these products without knowing that there was corporate debt within these vehicles, ie, were not aware of the risk that the investment involved. It was in this way that these companies were financed themselves.
The Credit Suisse came after he had to take part in the formation and operation of these financial vehicles, but that played no role in their marketing.
The New Bank, an institution that was born BES already assumed that it intends to repay commercial paper (very short-term debt) of Espírito Santo International and Rioforte acquired by BES customers.
debt issued by the GES and signed by BES customers amounted to a total of EUR 3.1 billion at the end of the first half. This cake, 1.1 billion were purchased by individual customers of BES and will be entitled to a refund. The remaining amount, 2 billion, were bought by qualified investors, as large companies, who will not be eligible for reimbursement.
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