Saturday 22 November 2014

Portugal's Banco Espirito insists family losses will not put bank at risk

Published 11/07/2014 | 11:27

Losses on loans to the troubled business empire of its founding family will not put Banco Espirito Santo at risk of running short of capital, the bank has said.

Shares in Portugal's largest listed bank were suspended on Thursday after plunging as much as 19 percent in morning trading amid fears about its exposure to companies in the wider group controlled by the powerful Espirito Santo clan.

The ripples of the crisis extended to other vulnerable euro zone countries. Spain's Banco Popular called off a 750 million euros (£595.55 million) bond issue, and Greece managed to place just half of a planned 3 billion euros bond issue.

The interest rate on Portugal's 10-year bond rose from recent lows to above 4 percent.

In a late-night statement that paved the way for the bank's shares to resume trading on Friday, BES attempted to diffuse a situation that many feared was spiralling out of control.

"BES Executive Committee believes that the potential losses resulting from the exposure to Espírito Santo Group do not compromise the compliance with the regulatory capital requirements," the bank said, adding that it had 2.1 billion euros (£1.67 billion) extra capital beyond regulatory minimums as of March 31.

Since then, the bank has raised 1.045 billion euros in a June share sale that saw the Espirito Santo family lose control of the bank and prompted its patriarch, Ricardo Espirito Santo Salgado, to step down as the bank's chief.

DETAILED BREAKDOWN

Nonetheless, concerns about its financial position mounted as other companies in the Espirito Santo empire showed signs of distress.

On Thursday, Espirito Santo Financial Group, which holds a 25 percent stake in BES and is the bank's largest shareholder, asked for its shares to be suspended on Thursday due to "material difficulties" at its own largest shareholder, Espirito Santo International (ESI).

BES said on Thursday night that it is "waiting for the release of the restructuring plan of Espírito Santo Group in order to assess the potential losses related to its exposure." That restructuring is expected to be announced imminently.

The bank's statement also gave the most detailed breakdown yet of its exposure to other Espirito Santo group companies, but revealed slightly higher levels of exposure than those disclosed on a conference call on June 30.

The latest revelations put BES's total exposure for Rio Forte (a holding company owned by ESI), ESFG and their subsidiaries was 1.15 billion euros as of June 30. On a conference call on June 30, the bank detailed 980 million euros of exposure to Rio Forte and ESFG.

The guarantees underpinning the lending were revealed for the first time in the latest statement, which showed guarantee worth 17.6 million euros for 1.15 billion euros of lending.

The latest statement lists the loans and other exposures by named borrowers within the Espirito Santo company structure, in a move that may appease analysts who were critical of the absence of a detailed breakdown on the June 30 call.

Further detail on BES's financial situation will be given on June 25 when the bank releases its half-year results. Shareholders will meet six days later to vote on a new chief executive and new directors, after family members said they would step down from the bank's 25-man board.

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