Recapitalization Box: Government admits “talks” with the ECB – Observer

On June 8, the European Central Bank (ECB) sent a letter to the Caixa Geral de Depósitos (CGD) where it said in black and white, that the public bank needed “urgent to develop and submit to the ECB an alternative plan” public recapitalization of the bank. On Monday, the government acknowledged the content of the letter, but categorically denies the existence of any alternative plan. He explains: the “talks” were held with European leaders allowed clarify doubts the ECB

Observer, official source of the Ministry of Finance points out that the letter in question was sent to 8 June 2016. and, from there to here, they were held “numerous conversations” between the parties involved – the ECB, Ministry of Finance, Government and CGD. If, at the time, the ECB made a recommendation that an alternative plan was found for the recapitalization of the case, today’s understanding of the ECB “would be different,” admits the office of Mario Centeno.

In this sense, reiterates the Ministry of Finance today, “a half months” after sending the letter, “there is no requirement” to “submit an alternative plan” for the recapitalization of the public bank.

the Observer We had access to the letter that the European Central Bank sent to the directors of Caixa Geral de Depósitos (CGD). In that letter, the ECB responsible make it clear that CGD needs to develop urgently and submitted to the ECB an alternative plan for meeting capital requirements, if the recapitalization by the government is not possible. ” And raise a number of questions.

The full letter

Read here the letter sent by ECB to Caixa Geral de Depósitos.

“the purpose of the letter is to draw attention to some important points related to the process of nomination and selection of new members of the Board of Directors and Executive Committee of Caixa Geral de Depósitos.

in a meeting held on May 31, 2016 in Lisbon, Mr. [Joseph] Matos [executive president of box] showed concern with the current situation, where there is a potential risk that the Executive Committee is not able to manage the bank and its subsidiaries effectively because the mandates of all members the Board of Directors expired at the same time in December 2015 and two current executive directors board of directors resigned.

the recent layoffs leave the Executive Committee with only four members, which is the minimum number to the quorum. In addition, the General Meeting of May 25, 2016, the current members of the Board of Directors issued a statement expressing concern about the delay and uncertainty around the process of choosing the new members of the Board of Directors and Executive Committee.

we are also concerned about the possibility of the bank being in a potentially dangerous situation due to the lack of leadership and strategic direction. Although we have not received the due process of any candidate, the Portuguese media have begun to write news about the possible composition of the Board of Directors and the CGD management team. Regarding this issue, we emphasize the following:

• It should be implemented a formal succession plan to ensure that the mandates of all members of the Board of Directors and the management does not come to an end ( again) at the same time. According to best practices, the mandates of the Board members should be staggered, as is already provided for in the statutes of CGD. This would avoid a repeat of the current situation, in which the terms of all members of the expired Board of Directors at the same time, in December 2015.

• As for the size of the Board , an excessively high number of members may hamper discussions. The SSM expects the size of the Board does not negatively affect its operation. In this regard, we discourage CGD to have [an administration with] more than 15 members. International best practices, which are also poured in Article 88 (1) (e) of CRDIV, make it clear that the Chairman and CEO positions should not be exercised by the same person.

• in our opinion, the government should think about the best way to ensure that their interests as owner of the bank, are represented on the Board of Directors. An example of the importance of this issue is the recent situation in which the shareholder has not always responded quickly and comprehensively to questions and strategic issues impacting the bank (eg succession and capitalization planning).

• in view of the size and complexity of the bank, the fragility of its financial situation, and supervisory issues and governance that need to be answered, the Board of Directors and the new management team should have experience, knowledge and a successful curriculum in the following areas: (i) rationalization and cost cutting; (Ii) reduce the high level of credit risk and other unprofitable assets; (Iii) correct and prevent internal control and compliance with regulatory failures; (Iv) make more robust mechanisms of internal control; (V) promote interaction and effective cooperation between the executive and non-executive members of the Board, including the Audit Committee and the Risk Committee; (Vi) manage and effectively control the network operations abroad; (Vii) ensure that the bank has a solid structure of information technology.

Finally, due to the significant uncertainties surrounding the recapitalization of the bank by the government (matters relating to state aid concerns tax), CGD needs to develop urgently and submitted to the ECB an alternative plan to cover capital needs if the recapitalization by the government is not possible.

we ask you to deliver a copy to shareholder of the bank as soon as possible. “