New Zealand’s largest pension fund has joined a lawsuit against Portugal’s central bank after incurring a $150 million loss from loans to a collapsed bank.
Adrian Orr, CEO of the NZ$27 billion (US$20.3 billion) New Zealand Superannuation Fund, said the pension had been treated “unequally and unlawfully” by the Bank of Portugal after it ruled against returning the loans to investors in December.
NZ Super loaned the money to Banco Espirito Santo alongside other investors through an independent entity known as Oak Finance, in an arrangement set up by Goldman Sachs. The bank collapsed last summer with its debt obligations transferred to a newly-established “good bank”, Novo Banco.
“We are not entering into these legal proceedings lightly and have made the decision only after exhausting all other options.” —Adrian Orr, NZ SuperThe Bank of Portugal then ruled the loans should be returned to Banco Espirito Santo. It argued that a small shareholding by Goldman Sachs made the investment bank an “associate” of Banco Espirito Santo, despite it not having made the loan directly.
“As Goldman Sachs has said publicly and to the Bank of Portugal, Oak Finance was an independent entity from Goldman Sachs International,” Orr said in a statement. “We understand that at no point did Goldman Sachs hold a participatory interest in more than two percent of Banco Espirito Santo’s shares.”
The loan was aimed at providing liquidity to Portugal’s banking system, Orr added, and was protected by the purchase of credit insurance. However, this protection became invalid after the central bank’s ruling. NZ Super has written off the investment as a precaution, according to the New Zealand Herald. The loan made up less than 1% of NZ Super’s assets, and was part of a wider credit strategy that Orr said had been running successfully for several years.
Russel Norman, a New Zealand Green Party MP and spokesperson for economics and finance, told the newspaper that “taking these high risk investments is probably not appropriate.”
“This is a very standard, insured, investment activity globally that keeps the financial world liquid,” Orr said. “The Bank of Portugal’s actions, however, in treating the Oak Finance loan differently to all other senior debt obligations, appear to have had the effect of negating this insurance.”
“We are not entering into these legal proceedings lightly and have made the decision only after exhausting all other options,” he added.