The tragedy of Espirito Santo? It was as bad as other banks


The story at Banco Espirito Santo just gets worse and worse. Authorities have been combing through the family-owned Portuguese bank’s affairs since the summer after a black hole was discovered in its finances and it required a €4.9bn bailout to prevent it totally collapsing.

It has now been revealed that the bank is being investigated for money-laundering in Switzerland, Venezuela, Portugal, Angola and Libya, where according to a report the bank might have been moving money for some of Muammar Gaddafi’s cronies.

It would be easy to argue that this lax behaviour is in some way connected to the bank being family-controlled. It does seen that Ricardo Salgado may have had too much power in the business and that there was insufficient oversight of its affairs because people trusted the family.

And some will no doubt believe that more shareholder oversight would have made it impossible to use a complex system of offshore vehicles to hide the bank’s true state, which led directly to its collapse.

But the problems at Espirito Santo are less to do with it being family owned, and more to do with it being part of the modern banking system. Don’t forget that six banks were fined £4.3bn just last month for trying to fix the foreign exchange markets. Earlier this year, Credit Suisse paid a $2.6bn fine for running tax evasion schemes, while BNP Paribas paid $8.8bn for money-laundering.

Goldman Sachs, Societe Generale, Lehman Brothers and various hedge funds and private equity groups dealt with Gaddafi. Espirito Santo was hardly uniquely bad.

The tragedy of Banco Espirito Santo seems to be that some at the bank got dazzled by the glamour and the big bucks to be made playing fast-and-loose with the rules, and dragged it into the sleazy system of international banking. After all, someone helped them move all that money offshore. The slow and steady principles of traditional family ownership would have prevented all this.

Espirito Santo had a lot of problems, but one was that it was not enough of a family firm.