The Fate of Portugal’s BPI Bank Lies with Africa’s Richest Woman

One of Portugal’s largest and most venerable banks, the BPI Bank could be brought to its knees, not through bankruptcy or similar problems, but because its operations in Angola would be hamstrung if they lose their link to the Banco de Fomento de Angola (BFA).

In the first six months of 2015, BFA operations made up 70% of BPI profits.  That shows the extent of the BPI’s dependency on this single financial institution in its Angolan operation.  And BPI’s partner in the BFA is none other than Unitel.

Step forward Isabel dos Santos, billionaire daughter of Angola’s President Jose Eduardo dos Santos.  In other circumstances, it might be quite deliciously ironic to see a post-colonial African entrepreneur  – and a female to boot – take down a bank connected to the old boys’ club of Portugal’s well-heeled aristocracy (Santos Silva and Ulrich). In reality, it is much more complicated.

Isabel dos Santos’s holding company Santoro owns 18% of Banco BPI’s shares, with voting rights held directly by the lady herself.   Thanks to the transparency rules enshrined in Article 20 of Portugal’s ‘Codigo de Valores Mobiliarios’ (the Securities Exchange  Code) we know that Isabel dos Santos is a direct shareholder in BPI.

Meanwhile, there is considerable confusion over which version of Unitel (another of Isabel dos Santos’s companies) is the shareholder in the BFA.  The BFA’s annual accounts for 2014 refer to Unitel, S.A.  However there are two Unitel companies: Unitel Telefonica de Angola (whose shareholders are Sonangol, Isabel dos Santos and the former Portugal Telecom) and Unitel International Holdings, which is wholly owned by Isabel dos Santos.  Either way, it amounts to the same thing:  Isabel dos Santos holds the reins.

WIth Isabel in the driving seat both of Santoro and the two Unitel companies, one wonders if there isn’t a conflict of interest.  What is there to prevent Dona Isabel from voting in the BPI’s next general meeting, which has to decide on an issue on which Isabel has already demonstrated a personal interest.  Some argue that Santoro should not even be allowed a vote in the BPI’s meeting on February 5th, 2016.  But this is a legal issue, and it is up to the Portuguese authorities to decide whether to turn a blind eye (as some would argue they have already felt obliged to do in the interest of securing investment into their pauper economy).

The other critical question is even more alarming:  that of Isabel dos Santos’s undue influence over the Angolan banking sector.

Look back at how Isabel dos Santos behaved in the BESA (Banco de Espirito Santo Angola) scandal, in which she held a 19% stake through the Geni Group which turned out to be an extremely significant share holding.  Was there any connection between this shareholding and the eventual demise of BESA, which failed because of its extraordinarily high loan-deposit ratio?  Were any loans extended by BESA to Isabel’s portfolio of companies that went unserviced?  Any, many, none?  The question is left hanging because the situation was not transparent.  All will only become clear when the list of BESA’s largest debtors is made public.

In addition to BESA, Isabel dos Santos also took an interest in BES through her shareholding in the BIC (Banco Internacional de Crédito), and offshore holdings of that group.  For political reasons, these issues have still to be tackled and investigated.

Angola’s BFA was the polar opposite of BESA… it was cautious, solid, traditional and  even in 2004 refused loans to Angolan Ministers unless they had effective securities to back the loans (as I know from personal experience).

It was a bank people trusted.  But what would happen to this bank if its strategic management were handed over to people who administer banks with completely different expectations, or with political objectives?  Take note that Isabel dos Santos is already the head of the BIC, the second most profitable bank in Angola after the BFA.  The only other significant banks belong either to the state or the state-owned oil giant, Sonangol (BPC and BAI).

In conclusion, if Isabel dos Santos were to dominate the BFA, it could be argued that from that moment she would dominate the entire Angolan banking system.   Such a situation should automatically lead to the intervention of the supervisory authorities in charge of ensuring compliance with the competition laws in Angola’s banking system, shouldn’t it?.

Here is the question:  what is the impact on the Angolan economy of having a banking system dominated by a person such as Isabel dos Santos?  Contrary to popular belief, the banking industry does not survive because of money, but because of trust.  Trust in the institutions and trust in the people within those institutions.

As Schumpeter argues, any modern-day economy lives on bank credit.  So if there is trust in the Angolan banking system, then both the economy and loans will expand.  Without trust, there is no credit and the economy contracts. This is the major macro-economic danger of Isabel’s dominance over the banking system:  the diminution of international trust and the drying up of international finance and the money markets which contribute to the liquidity of the Angolan system.

If handing over the BFA to Isabel dos Santos represents a risk for the entire Angolan banking system, there is no doubt that it would represent certain death for the BPI, which would lose in its entirety the profits associated with that activity.   You only have to look at what happened to the dividend rights of PT in Unitel: 345 million Euros between 2011 and 2012, relating to PT”s participation in Angolan enterprises.  Unpaid.  What would happen to the BPI if it ceases to receive the BFA dividends?  It would rapidly go under.

The BPI has a fundamental role in the spider’s web of influence spun by Angola’s first family,  the dos Santos family, particularly in its link to China, via Macau.  Of special interest is the Macau Offshore Branch.  It is a branch which by the end of 2014 had more than 2,000 million Euros in term deposits (just the final value, not the transfer value) and which has the peculiarity that, by not doing any business directly in Macau, is completely opaque.

Perhaps much of the BPI’s future will be diverted there – into business dealings connected to the Macau offshore operation – thanks to a director born in Angola. Let there be no doubt that Isabel dos Santos is extending a financial network across the globe, from Macau to Madeira, which is going to have a dominant role in the economy and finances of both Angola and Portugal.