PORTUGUESE BANKERS OPTIMISTIC

C O N F I D E N T I A L LISBON 002707

NOFORN
SIPDIS

COMMERCE DEPT FOR ITA/MAC:DCALVERT

E.O. 12958: DECL: 11/14/2018
TAGS: ECON EFIN PO
SUBJECT: PORTUGUESE BANKERS OPTIMISTIC

REF: A. LISBON 02666

B. LISBON 02694

Classified By: AMBASSADOR THOMAS STEPHENSON FOR REASONS 1.4 (B,D)

SUMMARY
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1. (C) Portuguese financiers continue to express cautious
optimism about the Portuguese financial markets and to
support the leadership demonstrated by the U.S. Treasury
Secretary and Portuguese Finance Minister. Ambassador
Stephenson met with four leading Portuguese bankers who are
concerned about Portugal's troubled export markets and agree
governments should support the development of emerging
economies and innovation rather than resort to protectionist
measures and overregulation. They say banks will soon begin
to access the GOP line of credit to increase capitalization
and do not foresee additional bank nationalizations in the
near future. All agree that the Portuguese financial sector
would benefit from consolidation. End summary.

BANKERS REMAIN CAUTIOUSLY OPTIMISTIC
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2. (C) The Ambassador hosted a second breakfast meeting on
November 13 to discuss the global financial crisis and the
situation in Portugal with a different group of financiers
from those at the October 23 meeting (Ref A). Attending were
Carlos Rodrigues of Banco de Investimento Global (BiG),
Fernando Oliveira of Banco Caixa Geral de Depositos (CGD),
and Jose Cerezo and Nestor Paz-Galindo of JP Morgan Chase
(Heads of Financial Institutions for Portugal and Iberia,
respectively). Like the financiers in the October 23
meeting, this group expressed cautious optimism about the
Portuguese financial markets and agreed with the ambassador's
opinion that Portugal's conservative policies of the past
were to thank for its relative stability today.


3. (C) Rodrigues of BiG expressed support for the U.S.
Treasury Secretary's change in approach for the intervention
in U.S. financial markets, from the purchase of distressed
assets to equity investment in U.S. financial institutions.
Rodrigues and the others questioned the wisdom of allowing
Lehman Brothers to fail, but all agreed that the U.S. is
fortunate to have such an experienced Treasury Secretary in
this crisis and complimented his flexibility in adjusting the
approach. The group also agreed with Oliveira when he
expressed strong support for Portuguese Finance Minister
Teixeira dos Santos.

EXPORT CONCERNS AND FEARS OF PROTECTIONISM
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4. (C) Oliveira of CGD said Portugal continues to be
relatively stable, but he is concerned about the export
sector. Spain, with an economy in recession and facing
rapidly increasing unemployment, accounts for approximately
30 percent of Portuguese trade, and Portugal will face
greater difficulty if it cannot find alternative export
markets. To that end, Oliveira said CGD and other banks have
been establishing new credit lines with emerging economies
such as Angola, Mozambique, and South Africa. Oliveira and
the others fear some countries may resort to protectionist
measures to support their own industries but say governments
should instead work to reinstill confidence in financial
markets and seek new opportunities for business. The group
agreed with the Ambassador who said he also feared
overreaction in the establishment of additional regulation,
which could stifle entrepreneurship and innovation vital to
pulling world economies out of their current difficulties.


5. (C) The Ambassador asked if banks would begin to access
the 20 billion euro fund established by the GOP to increase
bank capitalizations, and the group unanimously agreed that
they must, and publicly-held and widely-respected CGD must be
the first to do so, to set a strong example for other banks.
Rodrigues said he was surprised and concerned when three of
the largest Portuguese financial institutions publicly stated
they would try to avoid accessing the fund the day after its
announcement by the Finance Minister, and that it is critical
that there be no stigma attached to banks who apply for the
funds. Oliveira replied that CGD is preparing to access the
GOP fund very soon.


6. (C) Regarding CGD's assumption of management for
recently-nationalized BPN (Ref B),Oliveira said CGD's goal
is to ready BPN for reprivatization. If that is not
feasible, other options would be to breakup the troubled bank
or permanently integrate it with CGD. All agreed that BPN's
troubles are due to mismanagement and "criminal" malfeasance,
and they do not foresee additional nationalizations in the
near future.

FINANCIAL CONSOLIDATION WELCOMED
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7. (C) The bankers also said they expected, and hoped for,
consolidation of Portuguese financial institutions.
Rodrigues said Portugal would benefit from consolidation, as
there are "too many institutions with too little cash, who
don't know what they are doing." All agreed that the lack of
liquidity and rapidly declining consumer demand are the most
serious problems facing world financial markets.

COMMENT
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8. (C) Despite the recent BPN nationalization and continuing
concerns about liquidity, financiers here express cautious
optimism about the future. The unanimity of the group
regarding their need for the 20 billion euro fund is
striking, and we expect to see a number of other institutions
applying for the funds once CGD has done so. All agree that
world markets are in for a prolonged and painful period of
deleveraging, but they remain confident that Portugal will be
less impacted than its European neighbors and that U.S.
leadership will eventually restore global financial
stability. End comment.
STEPHENSON