The English courts may have just given the final nail in this coffin in the case of contracts hedging risk done along the Santander by public transport companies.
The English court (Court of Appeal) upheld the decision that seven swaps contracts made with the Santander by Carris, Lisbon Metro, STCP and Metro do Porto are valid. And rejected the appeal made by the companies in the Portuguese public before the Supreme Court of the United Kingdom, according to Bloomberg.
in all, there are nine contracts relating to financial instruments in risk hedging (swaps) that have been signed by those companies and which ceased to be paid from September 2013 by order of Maria Luís Albuquerque, the then minister of Finance.
But two of these contracts, one of the Rails and another of the Metro of Porto, were not subject to appeal on the part of transport companies and have become legally binding since march.
The invoice for the current global payments in debt is 440 million euros plus interest. In addition, the companies have still to pay the costs of legal advice, which, according to the Daily News amounted to 11 million euros.
in the Event that the swaps in question were terminated unilaterally by the 30 November, the prejudice to the state-owned enterprises would be of 1,690 million euros.
it is also in the European Court of Justice of the European Union, a process relating to swaps entered into with the Santander by public companies of the Wood. The Court will have to decide if the theme is to be decided in the English courts. Until today, there were in all 13 decisions in several instances in the Portuguese courts in the sense of these swaps have to be decided in the English courts.
When, in 2013, the Ministry of Finance gave the order to swap with Santander were deemed to be invalid, the bank avaçou to the High Court of Justice to advise on the validity of the contracts.
On 4 march this year, the court ruled the contracts as valid. In April, transport companies resort to the Court of Appeal in the case of seven of the nine contracts, swap. Now, the decision of validity was ratified unanimously.
Open to negotiate
The Santander reaffirms this Tuesday in a press release, "the availability that the Bank has always had and continues to have to find a negotiated solution" to these swaps. But wait, "now that they are honored the commitments in relation to swap contracts whose validity has been recognised by the English courts". Or, do you want to receive the missing values since the end of 2013.
This year, the State reached agreement with other banks with which there were contracts swap. But not reached agreement with Santander, whose swaps accounted for 40% of potential losses with contracts swap according to a report from the Agency and Treasury Management of the Public Debt, September 2012.
in This report, the IGCP examines the case of Banco Santander, which includes several contracts of the type ball of snow (snowball), in which the losses are increasing, classified with a very high risk.
These contracts were designed, in theory, to cover the risk of variation of interest rate. Four of the operations reviewed by the IGCP "are very structured, very leveraged, with a timescale very long (2022), and does not contain any kind of 'cap' (limit) to the value of the coupons".
In one of the contracts reviewed by the IGCP, which is entered into by Metro do Porto in January 2007, in an operation "considered to be particularly harmful," the company receives fixed rate of 4.76% and pay a fixed rate of 1.76% plus a variable rate cumulative, indexed to 3-month Euribor rate, the equivalent height of the 26,262%, resulting in a coupon of 23,262% payable in September 2012.
"This operation in particular, and in addition to the negative value of the 'Mark to Market' (loss or gain potential) of 450 million euros, the metro do porto will have already paid to Santander a cumulative value of the order of 20 million euros, given that the differential of interest payable and receivable", refers to the IGCP in the same report.
Who pays
According to the "Daily News" this Tuesday, the invoice to be paid by companies will impact on the budgets of the State, at least since 2014. Contacted the press office of the Ministry of Finance, was available to answer questions about the case.
To the Express, the ex-secretary of State-Deputy and the Budget of the government of Socrates, Emanuel dos Santos, states that "about the impact on the deficit, despite being in financial operations, the fact that they consider it a prejudice final after the court decision, the rules of accounting of the deficit and public debt provide that such losses are included in the deficit of the public administrations".
Of the several missing values, it is to ascertain if all are covered by provisions in the accounts of transport companies. In the case of Metropolitano de Lisboa, has recorded in its accounts 2015 provisions of 2,283 million euros versus 181,5 thousand euros in 2014. And the Metro had still an increase of € 1.96 million of costs related with legal advice in the processes of the swaps.
as for the Rails was in the accounts 2015 a “provision of 611,03 thousand euros, to cover the costs of litigation, and further to 1.02 million euros for late payment interest”. This company refers to in its report and accounts of 2015 that “the liability accrued in respect of these contracts is reflected in the financial statements as of the end of 2015 in the total amount of 39,94 million euros”.
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