Espírito Santos and Queiroz Pereiras: Duel of two dynasties

Ricardo Salgado went to war with a rival pillar of the Portuguese business establishment in his frantic efforts to shore up Espírito Santo group. But Pedro Queiroz Pereira had the last laugh….

For a man steeped in family honour, there is a rueful irony in the fact that it was a dynastic feud that ultimately proved instrumental in bringing down Ricardo Salgado and the Espírito Santo name.

In 2001, one of the country’s leading businessmen and a long-standing associate of the Espírito Santo clan, the industrialist Pedro Queiroz Pereira, first became aware of intriguing movements in the share registers of companies around his family’s corporate jewel, Semapa, which dominates Portugal’s pulp, paper and concrete industries.

‘Pequepe’ or PQP, as he is known to the Portuguese, had noticed that a stake in a key holding company of his empire was acquired by what appeared to be a Luxembourg shelf company called Mediterranean, which was represented in official filings by a nominee company owned by Ricardo Salgado’s Banco Espírito Santo.

The Espírito Santos and the Queiroz Pereiras have long been the titans of Portugal Inc. They have a shared history over decades of doing deals, and often with each other, at the intoxicating nexus where business acumen meets proximity to power, most significantly as the financiers and builders of dictator Antonio de Oliveira Salazar’s Estado Novo regime, which ruled Portugal from 1932 beyond Salazar’s death in 1970 to the toppling of his successor Marcello Caetano in the Carnation Revolution of 1974.

Once vigorous competitors in Portuguese banking, the two families became partners in the early Salazar years of the 1930s, where they became the regime’s favoured business clans and erstwhile allies. There were few transactions either family would turn down when the junta showed up to deal. For example, in the late 1940s, when Salazar decided he wanted a world-class hotel to host visiting dignitaries and the international investors who would modernise his regime, he turned to the two families to finance and build the Hotel Ritz.

Now the Four Seasons Lisboa, the hotel holds prime position over the capital’s most prestigious address, the magnificent Marques do Pombal Square named for the 18th century ruler who rebuilt modern Lisbon after its devastating 1755 earthquake. Today, the square is home to the headquarters of businesses at the heart of Portugal Inc, many of which find themselves uneasily tangled in the messy tentacles of the Espírito Santo scandal.

But the two clans’ formative deal came in 1937 when they merged their respective banks, Banco Espírito Santo and the Banco Comercial de Lisboa to form Banco Espírito Santo e Comercial de Lisboa (BESCL). Though crossholdings were maintained despite disagreements between the clans through the 1950-60s, BESCL would later become Banco Espírito Santo, as if to underline the Espírito Santo family’s paramount role in the merged bank, and in Portuguese finance.

Finding themselves somewhat eclipsed, the Queiroz Pereiras developed their empire in industry, where they dominated the cement and pulp and paper sectors. When the Salazar-Caetano dictatorship was toppled in 1974, various regime cronies were arrested by the new democrats, and their empires nationalised.

The Queiroz Pereiras were among them, their businesses seized as various family members fled to exile in France and Brazil, including the young Pedro Queiroz Pereira, the clan’s presumptive heir but better known as an aspiring rally driver. The Espírito Santos’ BESCL bank was also seized but Ricardo Salgado, then a rising 35 year-old executive in the family bank, slipped detention to exile himself abroad as well, moving between Brazil, the UK, Switzerland and Luxembourg, where he set up Espírito Santo International Holdings, the family’s new corporate vehicle. Portugal’s post-dictatorship democracy matured through the 1980s, and the economy normalised under the wing of European benevolence.

By the early 1990s the Espírito Santos and Queiroz Pereira clans were back in business in Lisbon, and with a new generation – PQP and Ricardo Salgado – at the helm of each clan and determined to restore – and exceed – their families’ former glories. PQP was back in the cement business, creating Semapa – which would eventually take over the old 1950s family holdings – while Ricardo Salgado took the helm of Banco Espírito Santo, which he had bought back in a sweetheart deal from the state.

A veteran Lisbon banker explains: “At the time the Portuguese government felt it owed something to the Espírito Santo family because the government had seized it in the past. There was a kind of guilt complex from the state. The family bought the bank and the insurance company (Tranquilidade) with zero equity. Everything was leveraged, the finance provided. The government made some of the other Portuguese banks lend them money.”

The Espírito Santos had made some influential – and wealthy – international contacts from their time in gilded exile. People like the Rockefellers in the US and France’s venerable Crédit Agricole also stumped up cash to help Salgado buy back the family jewels. So did the Queiroz Pereiras, renewing a business relationship between the rival families from the 1930s. And that’s the way things stayed for the best part of the 1990s and into the 2000s.

By now a liberal democracy, Portugal had joined the European Economic Community, the forerunner of today’s European Union, in 1986 and through the 1990s enjoyed the fruits of Brussels’ largesse, booming with huge investments in infrastructure, industry and tourism.

These were golden times for the two business clans, with Semapa pouring much of the cement of this fast-track development while Banco Espírito Santo financed it courtesy of Ricardo Salgado’s assiduous networking of Portugal’s new political class, much as his father and grandfather had done back in Salazar’s day.

By the mid-2000s, both Semapa and BES would be ranked in the top 20 of Portuguese businesses. By all accounts the two patriarchs, PQP and Salgado, enjoyed a cordial relationship, if not as close as that of their fathers and grandfathers. The straight-talking PQP has a reputation as a doer, a no-nonsense builder of assets in contrast to the profile of the elusive, the charitable say charming, Salgado, who effected a more aristocratic air and whose best work was done out of view.

Then came the activity in PQP’s Semapa empire, which Salgado observers today believe was an early signal that the Espírito Santo empire wasn’t as solid as Salgado would have the market believe. Says one banker: “He never created much value over time and it wasn’t much shared with minority shareholders.” Another banker describes Salgado’s modus operandi as ‘skimming’.

By all accounts a personally charming man, Salgado gave the impression of effortless outward calm; aristocratic, ambassadorial and distinguished when the reality was, certainly in recent times, of frenetic activity just below the surface, the family enterprise barely solvent if at all.

His high water mark came in 2007, just before the Portugal’s eurozone crash, when BES shares peaked, making him a notional billionaire. A family insider says this was the only time over the last 20 years “when the family was in the black”. By then a Luxembourg-based entity called Mediterranean was accumulating shares in various companies associated with PQP’s Semapa group.

This niggled at PQP. Banco Espírito Santo was cited in official filings as its representative and, naturally, PQP asked his old sparring partner, BES chairman Salgado, what he knew of it. Nothing, came the answer. PQP declined to speak to Euromoney but a close associate who recently dined with him picks up the story he was told by PQP himself. Portugal Inc can be messy.

In common with many corporate dynasties, crucial shareholdings in the Queiroz Pereira empire are spread across various members of his family, where 65 year-old PQP holds court as the patriarch rebuilding the family empire. His family, in turn, have links to Salgado’s Espírito Santo clan via residual business and personal connections dating back to the two families’ eight-decade long relationship, not least the 1991 funding of Salgado’s re-entry to the bank his ancestors built from a modest lottery and forex stall in 1869.

“There are connections everywhere,” says the PQP associate, “that’s one of the big problems with Portugal, we’re too small, there’s not enough of us.” Over the years, various cash-strapped PQP relatives had sold their interests in the Semapa-based empire, but usually with PQP’s knowledge and blessing.

But there were also stakes which PQP did not know had been sold on, and his suspicions coincided with the appearance on company registers of this undisclosed Luxembourg entity, Mediterranean, notionally clients of Salgado’s BES. Through the 2000s, whenever the holding edged up, PQP repeatedly inquired of BES, only to be constantly reassured it was a long-term investment by “very private Norwegian and British interests”. BES, he was guaranteed, was simply a “postbox”.

By 2011, these ‘private investors from Luxembourg’ had built a stake variously measured at between 15%-20%. Crucially, at the same time, tensions were simmering between some of the Queiroz Pereira relatives. The patriarch PQP suspected they were selling to this secretive Luxembourg player.

Family matters would come to a head in early 2012 when ‘Mediterranean’ moved to have a representative appointed to a key Semapa-related board. Soon after, in June, the Espírito Santo group announced that it, in fact, was the owner of ‘Mediterranean’.

PQP’s instincts had been sound. Salgado and the BES group had been building the stock all along, in a move that appeared to be aimed at forcing a merger between the two clans, the Salgado financial empire and the cash-heavy Queiroz Pereira industrial interests.

Says a banker: “Looking back, this was very strange because Salgado was a money man. He had no real experience about how to run a factory.” Says the PQP associate. “It’s now clear that he (Salgado) was trying to get hold of the cash flow, so he could kick the can down the road.” Though Espírito Santo had initially portrayed the holding as a recent purchase, it became increasingly clear to many in Lisbon that this was an attempt at a creeping takeover of Semapa by Ricardo Salgado.

As PQP saw it, one of Portugal’s most famous business clans was under siege by another. If inter-clan relations had been strained over the years, they were now positively poisonous. Once Salgado’s tactics became known, Pereira lawyered up, hurling legal volleys at Salgado by dusting off his clan’s long-standing position as a shareholder in the Espírito Santo entities, positions dating from that fateful bank merger of the 1930s, and the friends-and-family round of the Salgado’s BES repurchase 60 years later.

Salgado also got hostile with PQP, hiring lawyers while – most galling of all for PQP – making one of the backroom manoeuvres he was famous for, recruiting PQP’s own share-owning sisters as allies in the takeover battle, splitting the Pereira clan. “He decided to go to war,” says Salgado’s biographer, Maria Joao Babo. “He needed to, but that war was expensive.”