LISBON, April 23 Portugal's government hopes to
reach a negotiated solution with foreign and local banks by the
end of this week to minimise potential losses of up to 3 billion
euros from high-risk hedge contracts agreed by public companies
some years back.
Rising debts at public companies, especially in the
transport sector, have hindered Portugal's fiscal adjustment
programme under its EU/IMF bailout secured in mid-2011.
Public companies such as state railway company Refer took
out swap contracts from international banks, including Credit
Suisse and Deutsche Bank and local lenders,
to protect against a rise in Euribor interest rates.
But the move backfired as Euribor rates slumped over the
past few years, exacerbating the debts of the companies and
adding to the state's debt since the companies are mostly owned
by the government or regional authorities.
The finance ministry, in a statement, said that the IGCP
debt agency had concluded that "various of those contracts have
problematic characteristics, since they are not mere hedging
instruments, but incorporate highly speculative structures."
The potential liability for the use of derivative
instruments, contracted under the previous government, could
reach up to 3 billion euros, the ministry said.
As a result, the government opened talks two months ago with
the banks involved, "giving an absolute priority to repairing
the financial losses suffered by the state".
The deadline for the negotiation process is the end of this
week, the ministry said, adding that it would announce the
results of the negotiations as well as "mechanisms needed to
identify those responsible."
It did not provide further details.
International banks involved include BBVA, Credit
Suisse, Deutsche Bank, JPMorgan and Merrill Lynch
, among others. Portugal's Banco Espirito
Santo and Millennium bcp are also involved in the
The companies most exposed to these contracts are the Porto
Metro, the Lisbon Metro, Refer and the Transtejo ferry company
Local media said the Prosecutor General's office was looking
into the possibility of opening a criminal investigation into
Diario Economico business newspaper quoted a government
source as saying some of the swap contracts had already been
renegotiated, while on others the government was ready to defend
its interests in court, if necessary.
The source also said the talks had eliminated the main
danger of a bank demanding a unilateral early termination of the
contract which could lead to major losses for the government.