Montepio bank reduces share capital by 1.2 billion

Montepio’s general meeting today approved a 1.2 billion euro reduction in the bank’s share capital to “cover negative retained earnings”, according to a statement published in the Portuguese Securities Market Commission (CMVM).

Caixa Económica Montepio Geral said that the meeting approved all points that were being voted on, starting with “reformulation of the equity items with the special purpose of reinforcing the funds susceptible to regulatory qualification as distributable, aiming to cover negative retained earnings, by reducing the share capital by 1,210,000,000.00 euros, without changing the number of existing shares and without changing the total net worth, by reducing the unit par value of each share from 1.00 euros to 0.50 euros.

The General Meeting, which was attended by “shareholders representing 99.997% of the respective share capital”, also approved changes to the articles of association to accommodate this reduction.

This operation has already been approved in the Assembly of Representatives of Montepio Geral Mutual Association (majority owner of Montepio Bank), where, according to sources contacted by Lusa, six elected members left the room not to vote on this point, including the five elected by list C in the 2021 elections.

In a statement released last week, the five elements elected by list C — Ana Drago, Josué Caldeira, Carlos Areal, Marta Silva and Viriato Silva — consider that reducing the bank’s share capital is a “financial engineering operation” aimed at “‘cleaning up’ the enormous losses accumulated” in previous years (recorded under the heading ‘retained earnings’).

“List C, for which we were elected, repeatedly made the denunciation of the ruinous management that destroyed most of €1,760 million of members’ savings invested in Banco Montepio between 2011 and 2020. These denunciations were successively silenced or criticised by the current management of the Mutualist Association. Now, the operation to reduce share capital that is underway seems to recognise the inability of the current management of the bank to recover this enormous amount of destroyed savings, which are therefore considered to have been definitively lost,” the statement said.

The five members of the Assembly of Representatives also say that this operation contradicts assertions made by bank and mutualist leaders that “everything was going well” and consider that by “eliminating” losses, they create, in the future, “the illusion of distribution of profits” by Banco Montepio to the Mutualist Association, since “it will no longer be necessary to retain any profits in the bank to reduce the enormous losses recorded in ‘retained earnings'”.

In addition, they believe, this operation will “certainly open the door to the distribution of management bonuses” to the directors.

Ana Drago, Josué Caldeira, Carlos Areal, Marta Silva and Viriato Silva also criticise the fact that Montepio Geral Mutual Association hasn’t taken this issue to the floor of its General Assembly – considering it a lack of transparency towards its more than 600.000 members.

They also refer, in the statement, that a similar operation will take place in Lusitânia, in which 115 million euros “will start counting as capital of the insurance company to, in a second moment, reduce this same capital in the same amount of 115 million euros”. In this way, they say, “the high losses that ruinous management accumulated in Lusitânia at the expense of members’ savings” will be eliminated.

Since Montepio Bank is held in its great majority by Associação Mutualista Montepio Geral (there are participations of Misericórdias, but very residual, that with this operation will be diluted), the meeting only brings together the social organs of the bank and the president of the mutual, Virgílio Lima (representative of the shareholder).

According to the latest accounts released, Montepio Geral Mutual Association had profits of €12.9 million in the first half of 2022 (up from €11.9 million in the same period of 2021).

Banco Montepio, meanwhile, had profits of €23.3 million, compared with losses of €33.0 million in the same period of 2021. The annual accounts for 2022 are not yet known.