This was the main title of Expresso, Portugal’s reference newspaper, last week. It refered to a plan (sponsored by the Portuguese government) to avoid the bankruptcy of a Portuguese investment bank.
First of all, let me mind about the plan on itself and how it developed in BPP recent history.
BPP is one of Portugal’s investment banks (and probably one of the largest that dedicates solely to this kind of operation, without the deposits & loans safety net that the main consumer banks in Portugal have), mainly responsible for private fortunes investment management. With its current size and shape, it poses little risk to the Portuguese banking system altogether. And at a first instance, the State ruled out any intervention to help this bank, based on this justification – and, lets be honest about it, it was a decision that made sense. Without any signicant risk to the majority of the populations savings (and the participants on it being warned and admittingly running the risks a higher payout implied) and the overall banking safes and loans system, it made little sense for the State to be running into higher external debt compromises (in an already over indebted economy) to safeguard such an entity.
Still, some days later of Banco de Portugal announcement that it would not extend its safety umbrella to Banco Privado Português, the same entity (BdP) sponsored a ‘privately ran’ refunding programm to secure BPP. On this programm, the major Portuguese private banks (some of which are dangerously tied to the Government, like Caixa Geral de Depósitos and Banco Comercial Português) lended the required amount to BPP, and then, using the stately developed safety net, refinanced themselves through signed off State secured credit lines.
I don’t think I need to stress how a… curious move this is. First of all, the State (already debt-buried due to a latent bad management over the last 50 years) is applying the Portuguese People money (ours, the one we all pay in our taxes) to safe a non-strategical bank – let me point out that (if you haven’t by now) I would have a different approach for a bigger, more risk-systemic prone institution. Portugal should take a closer look to its debt level – that is dangerously high! That means carefully judging what investments to make and loans to take.
Then, as Expresso title refers to, the institutionalised fear of bankruptcies in Portugal – from which this case is an example. I am not for bankruptcies. But the point is, they exist for a reason – it is the way the economy gets rid of unproductive investments. When a State acts to prevent them, it is maintaining economic garbage that weights in the overall system, consuming useful resources that could be more value generating elsewhere.
This fear of letting the economy flow (and act on a paternalistic way towards private investment), laggards Portugal’s development. It is on the root of our extremely low economic growth over the past 30 years. It is true that Portugal (unlike most of Western countries) is not on a recession – but, the point is, we don’t experience (and aren’t expected to) any GDP growth over 1% in the last few years and foreseable ones.
The US are on the midst of a major economy crisis. But, read my words, they will come out of it as a rocket in just a few years (I would say 2). Portugal, on the other hand, is maintaining GDP value – but will keep as a slow laggard once the storms calms down. And you don’t change things if you don’t let the economy follows its course and acts on unproductive investments.
First of all, let me mind about the plan on itself and how it developed in BPP recent history.
BPP is one of Portugal’s investment banks (and probably one of the largest that dedicates solely to this kind of operation, without the deposits & loans safety net that the main consumer banks in Portugal have), mainly responsible for private fortunes investment management. With its current size and shape, it poses little risk to the Portuguese banking system altogether. And at a first instance, the State ruled out any intervention to help this bank, based on this justification – and, lets be honest about it, it was a decision that made sense. Without any signicant risk to the majority of the populations savings (and the participants on it being warned and admittingly running the risks a higher payout implied) and the overall banking safes and loans system, it made little sense for the State to be running into higher external debt compromises (in an already over indebted economy) to safeguard such an entity.
Still, some days later of Banco de Portugal announcement that it would not extend its safety umbrella to Banco Privado Português, the same entity (BdP) sponsored a ‘privately ran’ refunding programm to secure BPP. On this programm, the major Portuguese private banks (some of which are dangerously tied to the Government, like Caixa Geral de Depósitos and Banco Comercial Português) lended the required amount to BPP, and then, using the stately developed safety net, refinanced themselves through signed off State secured credit lines.
I don’t think I need to stress how a… curious move this is. First of all, the State (already debt-buried due to a latent bad management over the last 50 years) is applying the Portuguese People money (ours, the one we all pay in our taxes) to safe a non-strategical bank – let me point out that (if you haven’t by now) I would have a different approach for a bigger, more risk-systemic prone institution. Portugal should take a closer look to its debt level – that is dangerously high! That means carefully judging what investments to make and loans to take.
Then, as Expresso title refers to, the institutionalised fear of bankruptcies in Portugal – from which this case is an example. I am not for bankruptcies. But the point is, they exist for a reason – it is the way the economy gets rid of unproductive investments. When a State acts to prevent them, it is maintaining economic garbage that weights in the overall system, consuming useful resources that could be more value generating elsewhere.
This fear of letting the economy flow (and act on a paternalistic way towards private investment), laggards Portugal’s development. It is on the root of our extremely low economic growth over the past 30 years. It is true that Portugal (unlike most of Western countries) is not on a recession – but, the point is, we don’t experience (and aren’t expected to) any GDP growth over 1% in the last few years and foreseable ones.
The US are on the midst of a major economy crisis. But, read my words, they will come out of it as a rocket in just a few years (I would say 2). Portugal, on the other hand, is maintaining GDP value – but will keep as a slow laggard once the storms calms down. And you don’t change things if you don’t let the economy follows its course and acts on unproductive investments.
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