Banco Espirito Santo deal eases market fears
Portugal's rescue of Banco Espirito Santo may have eased some doubts about Europe's banking industry by showing investors how the European Union's thinking has evolved on handling failing lenders.
The decision to shield some creditors spurred a rally in bank stocks and Portuguese assets yesterday as it demonstrated authorities were able to shutter a bank without sparking a fresh bout of market tensions that have roiled Europe since 2009.
Instead of forcing losses on unsecured depositors and other senior creditors, as was required of Cyprus, Portugal is following Spain's gentler approach that focused losses on junior debt and stockholders.
"This is bad for the bank's shareholders and creditors, but good for the wider banking industry," said Stefan Bongardt, a banking analyst at Independent Research in Frankfurt.
Borrowing costs for Portugal fell yesterday, while Portugal's main stock index rose, both signs of investor confidence.
"The systemic euro crisis is over," Holger Schmieding, chief economist at Berenberg Bank, said. "While the euro zone still has issues, it now has a well-oiled machine to deal with them. The vicious contagion risks - the hallmark of the euro crisis - can be kept at bay."
Portugal unveiled a €4.9bn bailout that will leave shareholders and junior bondholders with losses, while sparing senior creditors and depositors in Banco Espirito Santo. (Bloomberg)