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By Andrei Khalip
LISBON, Feb 17 (Reuters) - The Bank of Portugal on Tuesday stuck to a decision to keep a loan linked to Goldman Sachs in a “bad bank” carved out after the rescue of Banco Espirito Santo (BES), putting the central bank and Goldman Sachs on course for a legal battle.
The central bank said any remaining doubts could only be clarified in court. Goldman responded that it intended “to pursue all appropriate legal remedies without delay”.
The Wall Street bank and some of its clients lent BES $835 million in July last year using an entity it created called Oak Finance Luxembourg SA.
The Bank of Portugal rescued BES with a 4.9 billion euro ($5.6 billion) package in August, carving out a working bank, Novo Banco, and a legacy entity that kept the exposure to debts of the bank’s founding Espirito Santo family and is being wound down. BES shareholders were left with the “bad bank”.
Sources told Reuters last month that Goldman had to write down its loan to BES in the fourth quarter, cutting the bank’s profit and some employees’ bonuses, after Portugal’s central bank effectively wiped out certain creditors.
Goldman would not say how much of the debt it still holds.
The central bank said in a statement on Tuesday the Oak Finance loan was not transferred to Novo Banco because it had “serious and well-grounded reasons to consider that Oak Finance acted for the account of Goldman Sachs International”.
“Under the law, loans in these conditions cannot be transferred to a bank in transition,” it said, adding that it had analysed objections by Goldman Sachs with the help of an independent external consultant, but the bank was not convinced that Oak Finance was acting independently from Goldman.
A transfer to Novo Banco, it said, would carry “serious risk of irreparable damage to the public interest”.
“The arguments presented by Goldman Sachs International did not remove the reasons for doubts on which the Dec. 22 decision was based...Any remaining doubts can only be clarified in court.”
A Goldman Sachs spokeswoman said Bank of Portugal’s decision not to restore Oak Finance’s obligations to Novo Banco “is based on factual errors and violates basic principles of due process and fairness”.
“In particular, Goldman Sachs did not hold more than 1.6 percent of the voting rights attached to BES shares. We intend to pursue all appropriate legal remedies without delay.”
Goldman had said the central bank and Novo Banco had initially confirmed the transfer of the Oak Finance loan to Novo Banco, but then retroactively returned these obligations, “which damages multiple investors, including pension funds”.
$1 = 0.8764 euros Reporting By Andrei Khalip; editing by Susan Thomas