December 11, 2014 / 10:41 AM / 5 years ago

Espirito Santo group in bad shape for years and chief knew, MPs told

LISBON, Dec 11 (Reuters) - The Espirito Santo Group (GES), whose collapse led to a state rescue of Portugal’s second-largest bank in August, was a financially fragile “house of cards” for years and its chief knew of irregularities there, a former GES shareholder said.

Pedro Queiroz Pereira, chairman of conglomerate Semapa, told a parliament committee he had ordered a team of experts to scrutinise GES accounts after its chief and the Espirito Santo family patriarch Ricardo Salgado tried to sell debt of GES holding companies to Semapa and even win control of Semapa.

Semapa held a stake in ES Control — a top-level holding company of GES — up until a year ago.

“But we concluded that the group’s financial situation was calamitous,” he told the committee in a hearing that lasted until late on Wednesday.

The committee is looking into the circumstances that led to the 4.9 billion euro ($6.1 billion) rescue of Banco Espirito Santo, which was founded by the Espirito Santo family.

Salgado on Tuesday denied any wrongdoing and said everything he did was only meant to help bank clients.

GES’s operations are now under investigation by authorities in Portugal and elsewhere.

“GES had a reason not to join, consolidate its (holding) companies — and that hid a lot of things, for many years,” Queiroz Pereira said, adding that after first discovering the real state of affairs in early 2013 he alerted various top figures at BES.

“I understood things were not running well at GES many years ago, at the start of the century,” he said, adding difficulties became untenable after the 2008 world financial crisis.

Irregularities included problems with asset evaluation, hiding capital losses and potential insolvency, he said.

GES’s debt placements, similar to what Salgado intended for Semapa, left another major company, Portugal Telecom with 900 million euros in defaulted paper in July, souring the terms of its merger with Brazil’s Oi.

Asked by the committee whether Salgado’s allegations could be true that the accountant at one of the holding companies was the key culprit of irregularities and the collapse of the business empire, Queiroz Pereira said: “Nothing was ever done without Salgado knowing.”

“Ricardo Salgado was GES and GES was Ricardo Salgado.”

Salgado said he never ordered hiding any liabilities within the group and blamed the accountant, Francisco Machado da Cruz. The committee said it had been contacted by the accountant who agreed to testify.

$1 = 0.8051 euros Writing by Andrei Khalip; Editing by Mark Potter

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