Tuesday 23 May 2017

Analyst warns EU rescue may not solve Portuguese funding issues

Charles Penty, Christian Vits and Jeff Randow

A European Union bailout for Portugal may fail to deliver the access to funding that the domestic banks need to bolster the country's economy.

"The big problem for the Portuguese banks is wholesale funding as they haven't been able to issue medium or long-term debt for a year now," said Antonio Ramirez, an analyst at Keefe, Bruyette & Woods in London. "I would be sceptical that the news from Portugal will help, because it didn't for the Greek and Irish banks."

Mr Ramirez's comments came as European Central Bank council member and former Bundesbank president Axel Weber said euro-area nations must ensure that bondholders share the costs of future crises.

"Private creditors must participate appropriately in bearing the cost of crises -- only then will they penalise mistakes from the very beginning," Mr Weber said.

"The regulatory framework and incentives for market players have to be adjusted to reduce the vulnerability of the financial system to crises and to lower the need for state rescue measures, increasing the ability of the system to self-stabilise."

Drought

Portugal will start negotiations with the EU and the International Monetary Fund this week on a rescue package estimated at €80bn.

No Portuguese bank has sold debt in the so-called wholesale market since a unit of Spain's Banco Santander auctioned covered bonds in March 2010, according to Florian Hillenbrand, a UniCredit analyst who tracks the market. The drought would likely continue until bond yields decline, he said.

The request for aid may put yields "more in line with the reality of the country's risk and the risk of the banks", Banco Espirito Santo chief executive Ricardo Salgado said.

"Banks will have more liquidity to finance the economy, as they won't suffer from the continuous draining of liquidity that was going to the state in the last few months," said Antonio de Sousa, chairman of the Portuguese banking association. (Bloomberg)

Irish Independent

Promoted articles

Also in Business