Exclusive: Goldman writedown of Portugal loan hurts profit, bonuses

Wed Jan 14, 2015 1:28am EST
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By Lauren Tara LaCapra

NEW YORK (Reuters) - Goldman Sachs Group Inc had to write down its loan to the troubled Portuguese bank Banco Espirito Santo SA in the fourth quarter, cutting the bank's profit and some employees' bonuses, people familiar with the matter told Reuters.

The writedown came late in the quarter after a Dec. 22 decision by Portugal's central bank that effectively wiped out certain Banco Espirito Santo creditors.

On Christmas Eve, a group of senior Goldman executives held a conference call to discuss the writedown and how it would affect employee bonuses, people familiar with the matter said. About 15 to 20 people worked on the Banco Espirito Santo deal, but because of the way Goldman structures its bonuses, up to 50 people in the broader group will be affected.

Goldman and some of its clients lent Banco Espirito Santo $835 million in July using an entity it created called Oak Finance Luxembourg SA. The Bank of Portugal stepped in with a 4.4 billion euro ($5.2 billion) bailout of Banco Espirito Santo in August and split it into two parts - a new, healthy bank called Novo Banco, and a legacy entity that is being wound down.

Banco Espirito Santo's collapse came after it unveiled losses on loans made to an assortment of companies run by its founding family. The broader Espirito Santo group, which included tourism, health and agriculture companies, sought bankruptcy protection and began liquidating last year. Portuguese prosecutors have since launched an investigation into the company's collapse. New management put in place at Banco Espirito Santo by the central bank has said they suspect the lender engaged in illegal behavior.

Goldman officials believed that the Oak Finance loan would be protected in the new structure, in part because a senior Bank of Portugal official said so in writing, Goldman spokeswoman Fiona Laffan said. But on Dec. 23, Novo Banco said in a regulatory filing that the Bank of Portugal decided not to transfer the Goldman-backed loan to the new entity.

As a result, the prospects of Goldman and its clients being repaid have dimmed and Goldman's finance staff had to write down the value of the loan.

It could not be learned how much of the $835 million loan came directly from Goldman Sachs, how big the writedown was, or how much bonuses would be affected. Laffan declined to provide those details, as did other sources who requested anonymity because they were not authorized to discuss the matter publicly.   Continued...

Traders work on the floor of the New York Stock Exchange near the Goldman Sachs stall July 16, 2010.  REUTERS/Brendan McDermid