Credit Agricole Faults Deception by Espirito Santo Family

Credit Agricole SA, the second-largest shareholder in bailed-out Banco Espirito Santo SA, was unaware of misconduct at the Portuguese bank, according to its top executive.

The Espirito Santo family, which controlled the lender, “deceived” Credit Agricole, Chief Executive Officer Jean-Paul Chifflet told journalists on a conference call. The French bank, which yesterday wrote off its 14.6 percent stake, is weighing legal options to defend its interests, said Chifflet.

His remarks show the rising tensions over governance failures at the Portuguese lender, which was kept afloat with a 4.9 billion-euro ($6.6 billion) rescue that will leave shareholders and junior bondholders with losses. Portugal’s regulators and prosecutors are looking into the circumstances that led to the near collapse.

Chifflet’s comments are “a way for Credit Agricole to create a barrier and to protect preventively,” said Anis Bouayad, founder of Strategie Alliance, a consulting firm in Paris.

Credit Agricole helped the Espirito Santo family regain control of their namesake bank in the late 1980s after Portugal’s government started selling the companies it seized in 1975. Credit Agricole has been an investor in the lender since 1990, and had five directors on the Lisbon-based bank’s board, or a fifth of the total, at the end of last year.

“Chifflet mentioned that they were misled, which is possible,” said Sebastien Mena, a lecturer at Cass Business School in London. “It is, however, less credible since Credit Agricole and Banco Espirito Santo have been in this ‘partnership’ for about 25 years.”

Objective Analysis

Asked to comment, Ricardo Salgado, Banco Espirito Santo’s former CEO and a great-grandson of the founder, stuck to a statement from Aug. 4 that he will wait until the “context allows for an objective and serene analysis of what led to the sharp drop in the value of BES and the consequent state intervention.”

Credit Agricole’s second-quarter profit was nearly wiped out by 708 million euros in charges related to the Portuguese bank, the company reported yesterday.

The Bank of Portugal said on July 30 there are indications of “seriously harmful acts of management” at the lender, and a failure to comply with the central bank’s directives. It said it’s reviewing the actions of various individuals, including Salgado, who was replaced by Vitor Bento as CEO last month.

A Credit Agricole spokesman declined to comment on the Bank of Portugal’s review of Banco Espirito Santo management, referring to Chifflet’s remarks. Credit Agricole blames “bad practices that were unknown to us and outside of any governance procedure” of the Portuguese bank, Chifflet said.

Rights Offer

Banco Espirito Santo, which tapped shareholders for funds two months ago, has been forced to take taxpayers’ money after regulators uncovered potential losses on loans to other companies tied to the Espirito Santo family.

Portuguese prosecutors are investigating information about Grupo Espirito Santo provided by the country’s Securities Market Commission, the Prosecutor General’s Office said on July 29. The securities regulator, known as CMVM, sent prosecutors information that could show abuse of trust and inside information, CMVM Chairman Carlos Tavares alleged on July 24.

Banco Espirito Santo plunged 73 percent in Lisbon trading last week before trading was suspended on Aug. 1. The bank had a market value of 675 million euros.

Banco Espirito Santo is 20.1 percent owned by Espirito Santo Financial Group, part of a chain of companies linked to the bank’s founding family. The lender’s outside shareholders also include Brazil’s Banco Bradesco SA, which has a 3.9 percent holding.

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