When Banco Espírito Santo was split up and its toxic assets jettisoned, eduardo stock da cunha was parachuted G00D in to rescue the “good” bank. Then things got complicated… SAMARITAN Interview by Brunswick’s alexandra abreu loureiro

hen Eduardo Stock da Cunha Fund, became the sole shareholder. The In the meantime, a socialist-leaning came to the aid of a teetering “bad bank,” containing the company’s government came to power in institution in his native most toxic assets, was left to existing and another domestic bank collapsed, W Portugal, he didn’t bank on shareholders and junior bondholders. throwing more shadows on to Novo that good deed turning into an intense If BES had been allowed to fail and Banco’s future. long-term commitment. go into liquidation, it could have had As interim CEO, Stock da Cunha needs In September of 2014, at the invitation a “devastating systemic effect” on the to provide stability and grow the business’s of Portugal’s , Stock da Cunha whole banking sector, José Berberan value despite these stormy conditions, took temporary leave from his position Ramalho, a Deputy Governor of the fighting each day to deliver for both at to be interim Bank of Portugal, told a parliamentary customers and regulators. Chairman and CEO of the fledgling Novo hearing late in 2014. “It’s a 26-hour-a-day job, I can tell you,” Banco, formed out of the collapse of one he says. Here, he discusses leading a bank of Portugal’s largest lenders, the family-led BES’S FIRST MANAGEMENT team under siege, the pressure of serving many Banco Espírito Santo, or BES. post-bailout resigned after only two stakeholders, and the personal sense of In July the same year, under a cloud months, citing a shifting mandate. Stock duty that drives him. of suspicious accounting practices, da Cunha was tapped to lead the good the bank had reported a 2014 first-half bank, named Novo Banco, until it could Why did you take the job at Novo loss of $4.8 billion. BES, a linchpin of the be sold. Banco? You must have known you were nation’s economy, seemed about to go A year later, the expected sale fell stepping into a hornets’ nest. belly up. through and the search for a buyer I’m attracted to challenges and this is the The central bank stepped in and ground to a halt. Stock da Cunha was kind that happens once in a lifetime. And organized a bailout to salvage the left in a kind of limbo, steering the huge it was a mission, something I could do for retail operation – the so-called “good retail bank toward an uncertain goal, my country. bank.” The family leadership was forced unsure if, or for how long, his term would Basically, I was asked to rescue a out and a separate entity, the Resolution be extended. bank that was tremendously important

MILESTONES ON THE ROAD TO RUIN – AND RECOVERY

Banco Espírito MAY 2014 JUNE Family members, Santo is founded An independent including the CEO of BES, in 1920 and audit finds serious Ricardo Espírito Santo Salgado has roots in the DECEMBER 2013 problems at Espírito (right), give up leadership roles mid-19th century A Wall Street Journal Santo International, businesses of article questions “financial a BES sister unit. JULY Shares continue to fall. patriarch José gymnastics” within the Finances of the BES reports record loss of Maria de Espírito family-led Espírito Santo whole group are €3.6 billion ($4.8 billion) for the Santo Silva group of companies thrown into doubt first half of 2014. Respected economist Vitor Bento named CEO and Chairman

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to the Portuguese financial system of the bank. It seemed best to separate and still on the brink of collapse. It is those roles. one of the most prominent banks for retail and commercial customers Your position was supposed to last only in Portugal. a few months. Are you still determined Before moving to Lloyds in London in to see it through? 2014, I spent 20 years at Santander Group, The sale did not succeed initially, and we the final five as COO and member of the all have had to accept that. As long as I board at Sovereign Bank, Santander’s can, I will continue to have this active retail unit in the northeast of the US, role in helping the bank continue on based in Boston. I took on that role the right track. To the very last minute, when the bank was also in a very difficult my focus will be on creating value for situation. We had to radically change the this bank. bank by cutting costs and headcount by more than 30 percent. Novo Banco is now undergoing a restructuring and a recapitalization EDUARDO STOCK DA CUNHA What attracted you to Lloyds? plan. What will the new bank look like? Lloyds is an amazing institution – a The way I think it should have looked Eduardo Stock da Cunha is retail bank in one of the largest financial a long time ago. This bank can only interim CEO and Chairman of Novo Banco in Lisbon, Portugal. markets in the world, with more than survive – and it will survive – if we He is on leave from his position 20 percent market share in personal keep our competitive advantages or as a Director at Lloyds Banking current accounts and almost 20 percent make them stronger. That means we Group in London. Previously share in small companies and business need to take care of families’ savings he was with financial group banking. When the opportunity arose at and lend money when they need it; Santander in Portugal and Lloyds, I jumped at it. we need to help Portuguese companies its US unit, Sovereign Bank. build exports and reach the appropriate NOVO BANCO What is your role now, at Novo Banco? international markets. Novo Banco was created in My job is to manage the bank and to We are a Portuguese bank, based in 2014 as part of the Portuguese preserve or to increase the value of Portugal, mainly working for Portuguese government-led effort to resolve the franchise. Given the failed sale and companies and households. That is where the collapse of former Banco other public challenges, it is not easy. our competitive strength lies, not in other Espírito Santo. Novo Banco But we are sure that the bank is on markets, where local competition may is the country’s third-largest the right track and will continue to have the advantage. Our strength is in bank by net assets and has regain value. community banking, US-style. almost 2 million clients. Its domestic network has some When I took the job, I had a 580 retail branches and around discussion with the folks at the Resolution But you have had some foreign bidders 6,000 employees. The group Fund – the sole shareholder of the for the company? serves households, Portuguese bank. We agreed that I was in charge, Ownership should and must be exporting companies and the

PHOTOGRAPHS: ZEFERINO SILVA / MARTIN SHIELDS, ALAMY STOCK PHOTO / MARIO PROENCA, BLOOMBERG, GETTY / NOVO BANCO GETTY NOVO BLOOMBERG, / PROENCA, MARIO / PHOTO ALAMY STOCK SHIELDS, MARTIN / SILVA ZEFERINO PHOTOGRAPHS: but that they would handle the sale independent. This is a local bank, in emigrant community.

MILESTONES ON THE ROAD TO RUIN – AND RECOVERY

AUGUST SEPTEMBER MAY 2015 Bank of Portugal Vitor Bento and Bank of Portugal discloses that more his team resign. starts proceedings losses at BES were Eduardo Stock against former BES hidden in deals with da Cunha is named executives, including Swiss group Eurofin interim CEO and Salgado, suspected Holdings. A $6.6 billion Chairman of Novo of “malicious bailout is unveiled Banco by Bank acts” and “ruinous and “good bank” of Portugal management” Novo Banco is born

brunswick review · issue 10 · spring 2016 77 Brunswick is an advisory firm specializing in critical issues and corporate relations www.brunswickgroup.com this space and with these types of customers. may have influenced the bidders, two of whom As long as the new owners understand that were Chinese. and support our mission, it doesn’t matter as long as they comply with the criteria defined What are some of the other hurdles? by the authorities. The stress test was an important one, determining how much additional You have said before that the CEO and chairman capital was required for the bank. Bidders knew the roles should be separate, but you hold both at stress test results would be disclosed in November Novo Banco. Does this bother you? 2015, so it seemed best to wait for those results This is a “bridge bank” arrangement, designed to before continuing with the auction of the bank. The end with the sale of the business, so I’m not that “To the very restructuring plan demanded by EU authorities is concerned. A bridge bank is temporary by law, last minute, another factor. But those uncertainties have been even though it would be preferable to separate clarified now. the CEO and chairman roles. my focus will be on creating value How will you measure success at Novo Banco? The government’s handling of the collapse The first measure of success is that the bank of BES set a precedent in the European for this bank” survives and the second is that it remains a valuable banking system. Are there lessons to franchise. I really think we’ve achieved both of be learned? those. That’s not my victory, but a victory for It’s too soon to tell. It would be wise to wait until Portugal and its financial system, for the bank’s the situation with Novo Banco is resolved and then employees and its customers. calmly, after a lot of discussion, change whatever Third is profitability, which is taking longer needs to be changed. than expected. Success here depends on how we Probably one area that needs to be analyzed very implement the restructuring and the capital plan. carefully is whether there is any conflict of interest Over the long term, we need all three: survival between the central bank, acting as a regulator of the bank, protection of the franchise to ensure and supervisor, and the Resolution Fund, acting as its value, and implementing the restructuring and the lead shareholder, especially if you have people capital plan to make the business profitable. working at both the Bank of Portugal and at the Resolution Fund. You are at Novo Banco on professional leave But again, I think it is very early to judge how from Lloyds. Will it feel dull going back? things were handled. I would wait for this to be No. The important things you bring to resolved and then look at it again. work – seriousness about what you’re doing, acting responsibly with your colleagues, your The recent Portuguese elections have opened shareholders, your customers – those things are a new wave of criticism about the bank bailout. common to everything you do. Could that impact Novo Banco’s future? It has been said that is about Simply put, we don’t know. We Portuguese tend a few people. It’s like a military strike force: the level to punish ourselves by being very self-critical of organization is relatively small, but there is a lot and slow to acknowledge our achievements. of creativity and ingenuity. BES was one of the largest institutions in the By contrast, retail banking requires an army, with system, representing between 16 and 20 percent all the corresponding institutional standards, rules of retail and commercial banking in Portugal. and discipline. Yes, you also need creativity, but It collapsed. Imploded. Yet the banking system you need to apply it in a rigorous way that rewards continued to work normally. I wonder what would all your customers and, by consequence, your have happened in other countries in a similar employees and shareholders. situation? In this case, because of the authorities, That is just as true at Lloyds’ banking operations the employees, the customers, nothing calamitous as it is at Novo Banco. happened; no branches were closed. So we should really celebrate that. alexandra abreu loureiro is a Senior Adviser for Brunswick in the Portuguese-speaking world. It’s true, some events combined to make 2015 She previously served as spokesperson and media more difficult. The bank had more problems than adviser to the Portuguese government on defense initially thought. The Chinese stock market crisis and foreign affairs.

78 brunswick review · issue 10 · spring 2016