Lisbon, Portugal (4E) – According to a report from the Wall Street Journal, Credit Suisse funneled billions of dollars worth of securities coming from offshore investment vehicles towards Banco Espirito Santo SA in Portugal. These securities would then be sold to retail customers of the bank.
Unknown to the customers of these investments, the said instruments were loaded with debt issued by companies related to Banco Espirito Santo, whose proceeds were used to fund the operations of the Portuguese giant.
Portuguese regulatory authorities who are now investigating this case have found at least four offshore investment vehicles whose securities, mainly preferred shares of stock, were sold to bank clientele with the assistance of Credit Suisse. These firms were identified as Top Renda, EuroAforro Investments and Poupanca Plus Investments. All had registered addreses in Jersey, the Channel Islands, a known tax haven.
When the debts fell due, there was fiscal dislocation throughout the Banco Espiritu conglomerate and leaving many holders of these vehicles worthless securities. With the financial issues arising, Banco Espiritu Santo was rescued by the Portuguese government. Other companies in the group have either filed for bankruptcy while others were being investigated for fraud as well as accounting malpractice.
Banco Espiritu Santo is the second largest bank in Portugal. As of late, the Portuguese government has pledged a bailout package worth EUR3.9 billion or about USD5.2 billion. Late last year, the markets regulator of Portugal started the review of these offshore investment products when a number of Banco Espiritu Santo customers complained of the confusion about the investment, according to one of the individuals familiar with the ongoing investigation.
The investigation was able to uncover EUR2 billion worth of investment products currently in the market. A great volume was sold to the customers in the early part of 2014, just after the Portuguese Central Bank had ordered Banco Espiritu Santo to limit its transaction with other Espiritu Santo entities.
According to the results of the investigation, the four companies had invested in debt in the bank, a well as the Luxemborg based parent of the bank. Other investments include an Angolan mining and infrastructure company called Escom.
Credit Suisse is involved as it assisted in the preferred share sales of Poupanca, one of the four companies under investigation. The Swiss based bank also paid out the operating expenses of the three aforementioned companies, as well as legal and audit fees, together with the administrative costs of the filings and minimum requirements.
It was also discovered that Credit Suisse had standing agreements since mid-2000′s with EuroAforro and Top Renda. Each of the firms had issued nearly USD2.5 billion of each of their preferred shares under the supervision of Credit Suisse. Overall, the connection with Credit Suisse showed that all four firms under scrutiny were controlled or partially controlled by Eurofin Holding SA, a Swiss financial company. This firm is partially owned by Espirito Santo until 2009 and retained many of the connections with other firms in the Espirito Santo conglomerate.