Monday 22 April 2019

Portugal steps back from Irish-style bank collapse

A demonstrator at a union-led protest in Lisbon yesterday. Photo: Rafael Marchante
A demonstrator at a union-led protest in Lisbon yesterday. Photo: Rafael Marchante
People queueing at ATMs after market jitters were eased

Thomas Molloy

A BANK scare in Portugal that was eerily reminiscent of the beginning of Ireland's own banking sector collapse has sent ripples of concern throughout Europe.

Stock markets around the world only steadied yesterday after the Portuguese government and central bank were forced to assure investors that the southern European country's financial system was sound.

"It is important that Portuguese and foreign investors... remain calm about the bank and our financial and banking system," Portuguese prime minister Pedro Passos Coelho said in Lisbon.

Some European countries abandoned long-planned fundraising operations, although the National Treasury Management Agency (NTMA) was able to sell bonds worth €500m at its regular monthly bond auction for a record low cost to the taxpayer.

This was the strongest sign yet that Ireland is no longer classed together with Portugal and Greece in the minds of foreign investors. "In many ways the NTMA market engagement was the most meaningful to date," Dublin-based analyst Ryan McGrath from Investec Stockbrokers said.

But worries about the spillover effects of trouble at a 130-year-old Portuguese business empire had earlier sent global markets into a tailspin.

An audit found a "serious financial condition" at Espirito Santo International – a vast conglomerate with holdings in banks, hotels and healthcare which is near the top of the family business pyramid.

The scandal marks a slide in fortune for a bank viewed as one of the most resilient lenders in Portugal.

Banco Espirito Santo was the only one of the top-listed banks in Portugal not to receive an injection of state capital during the country's sovereign debt crisis.

The concern sparked a rout in global markets on Thursday, pushing up borrowing costs in most small countries – but not Ireland – and reviving memories of the region's debt crisis.

A late-night statement from the bank partially steadied market jitters yesterday in Portugal and beyond.

Portugal's stock exchange rose yesterday after days of declines. Shares in the bank opened up 11pc when trading resumed after a suspension, though the stock then seesawed.

European markets edged higher, and Italy enjoyed record low borrowing costs at a bond auction, shrugging off fears that had weighed on the sovereign debt markets earlier in the week.

Phoebus Theologites, chief investment officer at SteppenWolf Capital, said the crisis showed problems remain in the euro zone.

"This correction only serves as a reminder that nothing is yet fixed in the euro zone and that, no matter how much money the ECB ends up printing, it will not jump-start the euro zone's economies because the eurozone's troubled banks will need to absorb much of this money for their balance sheets," he said.

"But this does not mean we will get contagion or a crash."

Irish Independent

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