Santander won the battle of “swaps” with the state. In 2013, the former Finance Minister Maria Luis Albuquerque, said the Lisbon Metro, the Metro do Porto, the Carris and the STCP to fail to pay the coupons of credit hedging contracts made with Santander, not consider valid. But the British justice considered that these swaps are valid.
Payment of 300 million coupons
The immediate impact of the decision of the London court is that those companies may now have to pay to Santander coupons that suspended. This value is about 300 million euros, found the business. With the validity of contracts, companies must continue to meet the costs of these coupons to the end of the duration of these instruments or to any early settlement of “swaps”.
Contacted by Business, the Ministry Finance has not clarified whether the decision of the Commercial Court in London is subject to appeal or if the state has ongoing proceedings against Santander to mitigate the effects of this decision.
If a company has a debt to variable rate may agree with a bank that pays you a coupon if the interest rate exceeds certain value, to prevent an increase in interest costs. In exchange, the company undertakes to pay a coupon to the bank if the rate is below the level set in the contract. Since the financial crisis, the rates hit minimum behind minimum and reached same negative values.
The contracts made with Santander are “snowball swaps,” that if the come down interest rates, leverage losses and payments to do in coupons, without setting a maximum limit to pay. The previous Government considered that these “swaps” were speculative, that public managers were unable to hire and were not made in the best interest of public companies.
But, according to a statement from Santander, ” the Court also recognizes that at the time of hiring all parties had good reason to believe that the contracts would serve the best interests of public companies and it was in this context that were formalized between 2005 and 2007 “.
Responsibilities potential 1.5 billion
Depending on the current values of the fees and the duration of contracts of “swap”, it is estimated the market value of these instruments. It is the potential liability that the company would have to pay if the rates remain at current levels until the end of the contract term.
At the end of 2014, the market values of the nine contracts of these companies with Santander had a negative value of EUR 1.2 billion. However, with increasingly low interest rates, went even negative values, this potential liability will last for 1.5 billion euros.
Before the renegotiation of derivatives contracts over 20 banks in 2012 and 2013, the potential losses reached dye around three billion euros. Following these restructurings, the negative market value fell to 395 million euros in June last year, excluding the nine contracts that were being analyzed in the London court.
Possible negotiation
Santander Totta was the only one of more than 20 banks that have sold “swaps” the public companies that the State did not agree. However, António Vieira Monteiro, president of the bank, showed several times opening to reach agreement with the state. “Banco Santander Totta endeavored to achieve a negotiated solution that, within reason, minorasse losses to the Portuguese State arising from contracts,” the bank said in a statement.
Santander even proposed grant a loan to the Republic to finance the costs of settlement of the contracts. But the proposal was not considered favorable by Maria Luís Albuquerque, and there was not an agreement. Now the government of António Costa, Santander was chosen to buy Banif, has undertaken to finance the state to mitigate the financing needs caused by the cost of resolution of the bank.
In 2013, having already appealed to the British courts, António Vieira Monteiro said in Parliament that “the bank is always willing to negotiate these situations with the Government of Portugal.”
Mario Centeno said this morning in Parliament that is “is more a matter that the Government has to face.” “It is a problem that the executive has to solve,” said the Minister of Finance, after being known the court’s decision. The official stressed, however, that still does not know the details of the decision.
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