New Zealand government fund to sue Portuguese central bank over lost loan

The New Zealand government's main pension fund Thursday said it was joining legal action against Portugal's central bank after losing 150 million U.S. dollars loaned to a collapsed commercial bank.

The New Zealand Superannuation Fund confirmed it was one of a number of investors taking legal action against the Bank of Portugal in relation to a complex loan arrangement through Goldman Sachs-organized Oak Finance.

The Oak Finance loan, totaling 784 million U.S. dollars, was made to Portugal's Novo Banco and on to Banco Espirito Santo (BES), which collapsed last year amid a mass allegations of financial wrongdoing.

The fund was seeking to overturn a December 2014 decision by the Bank of Portugal, which decided the loan was "related party lending" on the basis that Goldman Sachs had interests in both Oak Finance and BES.

Fund Chief Executive Officer Adrian Orr said the Bank of Portugal's decision was wrongly based on a view that Goldman Sachs, which arranged the loan, was both an associate of Banco Espirito Santo and had in fact made the loan.

"As Goldman Sachs has said publicly and to the Bank of Portugal, Oak Finance was an independent entity from Goldman Sachs International. We understand that at no point did Goldman Sachs hold a participatory interest in more than 2 percent of Banco Espirito Santo's shares," Orr said in a statement.

"Legally, the loan arranger's shareholding in Banco Espirito Santo should not be the basis for treating the Oak Finance loan as related party lending."

The fund was protected against the risk of Banco Espirito Santo defaulting through the purchase of credit insurance, but this had apparently been negated by the bank of treating the Oak Finance loan differently to all other senior debt obligations.

"The Bank of Portugal's retrospective decision puts our liquidity provision activities with respect to Portugal and potentially other jurisdictions at risk, given the apparent unreliability of debt provision and credit protection policies," said Orr.

The matter would likely to take considerable time to resolve.

"We are not entering into these legal proceedings lightly and have made the decision only after exhausting all other options."

While the Oak Finance investment was significant in dollar terms, it represented just 0.7 percent of the 27 billion NZ dollars (20.37 billion U.S. dollars) of the superannuation fund, which was established by New Zealand government to help pay its universal retirement pension.

The fund had written off the loan as a precaution and its value would ultimately be determined by the outcome of the court case. Endi