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AgendaJune 1 2016

BESI finds a new lease of life under Haitong Securities

The former head of Banco Espírito Santo’s investment arm, José Maria Ricciardi, talks to Stefania Palma about the parent bank’s turbulent last days and how he hopes to exploit its established European network in his new position as the chief executive of Haitong Bank.
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Jose Maria Ricciardi

In late 2013, tensions among senior management at Portugal’s Banco Espírito Santo (BES) were running high. At a board meeting in Lisbon, the chief executive of BES’s investment bank (BESI), José Maria Ricciardi, wanted to give a vote of no confidence to his cousin and BES president Ricardo Silva Salgado, believing BES’s turmoil at the time to be Mr Salgado’s doing.

“As a member of a board of a bank, when you are confronted with activity that can be criminal or non-ethical, you must combat that, you must put yourself against it, you must denounce it – even if you had nothing to do with it,” says Mr Ricciardi. “At the time it was hard because I was alone. People thought [wanting to vote against Mr Salgado] was awful of me – and when you have family mixed in it is even more difficult. But before belonging to a family, I had a duty to the regulators, the market and other stakeholders.”

Mr Ricciardi could not vote against Mr Salgado in that meeting as only the senior representatives of the five branches of the family – including Mr Ricciardi’s father – had a vote. All five representatives ended up voting in favour of Mr Salgado.

A few months later, 150-year-old BES would collapse amid mounting debts and allegations of fraud.

Legal trouble

According to Mr Ricciardi, others did not follow his lead for fear of losing their jobs in the event that Mr Salgado kept his role as president. “He tried to get me to leave but didn’t achieve it,” he says. “The only way to save BES was to put Mr Salgado out and change [the bank’s] governance. It wasn’t hard to see the situation was unsustainable. If we had done it back then, maybe history would not be the same.”

The international press reported in July 2015 that according to a statement from the prosecutor-general’s office, Mr Salgado was under investigation for alleged offences including forgery, fraud, breach of trust, tax fraud, corruption and money laundering.

At an earlier parliamentary hearing Mr Salgado denied any wrongdoing and said that “no one in management or from my family took a penny”, according to the Financial Times.

The newspaper reported last December that Mr Salgado had been released from house arrest, but that a number of civil claims for damages had been added to one for €105m filed by US and European investors claiming they were misled by the prospectus in subscribing to a €1bn capital increase in mid-2014. Mr Ricciardi and Haitong are also being sued in this case. Haitong’s lawyers have described the case as “completely groundless”, while Mr Ricciardi’s lawyers have said the prospectus was subject to regulatory control and set out BES’s economic and financial situation “truly and correctly”.

A new life

In 2015, distancing himself from Mr Salgado seemed the wise option for Mr Ricciardi. First, when BES assets were split off into a good bank – Novo Banco – and a bad bank, BESI fell within the healthy category. What is more, in late 2015 Haitong Securities acquired BESI as part of its global expansion plans. “Haitong wants to become a global investment bank in the next decade,” says Mr Ricciardi.

BESI has since rebranded as Haitong Bank, with Mr Ricciardi as CEO. “A friend of mine phoned me when we signed this deal and said: ‘It looks like [you got on] the last American helicopter leaving Saigon while still having people shoot at you from the ground’. Some people say it is almost a miracle we are here. I think we worked very hard. Even when BES went into bankruptcy, BESI was never recapitalised by the state, it never needed a cent. When we were acquired by one of the biggest investment banks in China, people were surprised," he says.

BESI is transforming under its new ownership, although going from being the investment banking arm of a commercial Portuguese bank to becoming part of a large Chinese investment banking group is a big change. 

“Business is less credit driven and more fee driven now,” says Mr Ricciardi. “We now originate to distribute, not to accumulate. It’s a different approach to business. Now there are more capabilities in distribution and syndication. There is not so much growing the balance sheet through credit.” 

Specialist subjects

Meanwhile, Haitong Bank is itself restructuring. It is cutting businesses without strong revenue potential, such as cash equities, while investing in more promising sectors such as mergers and acquisitions, debt capital markets, fund management and a new fixed-income, currencies and commodities (FICC) team in the US. “A bank of our size cannot be very good in all sectors. Haitong Securities might have wider business scope in Asia, but here [in Europe] we must specialise in four or five sectors,” says Mr Ricciardi.

Fixed income, for example, offers strong growth opportunities, according to Mr Ricciardi. Haitong Bank plans to bulk up its FICC business through a potential acquisition in the long term and by building a team of up to 20 people in the US. “We are recruiting a very important team in the US specialising in fixed-income activities for emerging market borrowers from South America, eastern Europe and Africa,” says Mr Ricciardi.

To serve these emerging market clients, Haitong Securities is keen to capitalise on BESI’s existing network in Europe, Middle East and Africa and Latin America. “If someone wants to make a bond issue or initial public offering, I am in a position to say: ‘If I am on your syndicate I can place a part of this deal with Asian investors.’ Similarly, I can tell banks in Hong Kong or Shanghai that I can help them place deals with European investors too,” says Mr Ricciardi. “This is really one of the key factors of this acquisition.”

Around the time Mr Ricciardi spoke to The Banker, Haitong Bank was placing “an important bond issue” from a Polish borrower in London and had recently closed a mandate for a Chinese company buying a European firm’s South American assets. Exact details of the deals were not disclosed.

Global route

Despite economic and political volatility in parts of Latin America, Mr Ricciardi remains optimistic about the region. Even Brazil, where president Dilma Rousseff has been suspended from office, could be removed from power in six months’ time and is to stand trial, accused of manipulating the government budget – and the gross domestic product has contracted by 3% to 4% since the beginning of 2015 – does not worry him.

“Brazil is going through a perfect storm. But I think now is the best time to invest because you can buy very good Brazilian companies for 25% of their value of two years ago,” says Mr Ricciardi. “Investments need to be done now, not when everyone is happy about Brazil and prices are going up again.”

Haitong Bank’s global links could grow further as it looks to expand in the Middle East via Dubai and in Africa via Johannesburg. Dubai will be key to wealth and fund management, while Johannesburg will help Haitong Bank do business with other markets such as Portuguese-speaking Angola and Mozambique.

Haitong Bank’s project finance department will also reinforce links with its parent company. Before the acquisition, Haitong Securities was not a key player in this market, unlike BESI. “We can do a lot in Asia but also here in Europe, where a lot of infrastructure in transport or energy needs to be modernised,” says Mr Ricciardi.

But to continue growing in the project finance space, Haitong Bank will need to adapt to tighter regulation. Today, banks are not allowed to have a large asset-liability mismatch. This means that project finance deals, which tend to be long term, cannot be funded by short-term debt. “Banks need to rotate these credits much more,” says Mr Ricciardi. “They either place them directly with institutional investors who like long-term investment or they transform them into project bonds. This is what our FICC team is going to do.”

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