Goldman Sachs said on Tuesday it would “pursue all appropriate legal remedies without delay” after the Portuguese central bank confirmed a decision that is likely to impose losses on the Wall Street bank and its clients.
The Bank of Portugal rejected Goldman’s appeal against its decision in December to place in a so-called “bad bank” an €835m loan made by Goldman and some of its clients to the collapsed
Banco Espirito Santo.
“Evidence provided by Goldman Sachs International has not removed the reasons for doubt, in fact and in law, on which the Bank of Portugal’s decision of 22 December was based,” the central bank said in a statement.
It added: “Any remaining doubts can be resolved only in court, as the Bank of Portugal cannot, when there is doubt, allow a transfer to go ahead, which, in practical terms, would be irreversible, at the serious risk of causing irreparable harm to the public interest.”
In a terse response, Goldman said the Portuguese confirmation of the December decision was “based on factual errors and violates basic principles of due process and fairness” and legal action would follow.
A person familiar with the matter said Goldman would start legal proceedings in England and Portugal, “including immediate suspension of the decision”.
Goldman and some of its clients lent €835m in July to Banco Espirito Santo, via Oak Finance Luxembourg, a vehicle set up to sell notes to investors backed by the loan.
After BES reported an unexpectedly large first-half loss of €3.6bn later that month, the central bank stepped in to save Portugal’s biggest listed lender by assets, carving it into a surviving
good bank and run-off bad bank.
It decided the Goldman loan would stay in a “bad bank” of toxic assets, making it much less likely to be repaid.
Goldman had condemned the initial decision as a breach of earlier promises and threatened legal action but the Bank of Portugal has pushed ahead regardless.
The US bank said the decision was based on a faulty premise, including that Goldman owned more than 2 per cent of BES, whereas its voting interest was no more than 1.6 per cent of the failed bank’s shares.
Investors, including Dan Loeb’s hedge fund Third Point and Brazilian investment bank
BTG Pactual, had already
filed a legal challenge against the Portuguese central bank over its restructuring of the distressed lender.
The European Commission approved the Bank of Portugal’s intervention. The investors argued that the approval was made with “unprecedented haste” and included “numerous manifest errors of law”.
