Portugal PM tries to soothe investors on BES worries

July 12, 2014 - 1:01:21 am

LISBON: Portugal’s government and central bank assured investors yesterday that the southern European country’s financial system was sound, aiming to quell worry about the spillover effects of trouble at the Espirito Santo business empire.

“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 told reporters in Lisbon.

Recent disclosures of financial irregularities at a web of family-held holding companies behind Portugal’s largest listed bank, Banco Espirito Santo, have raised questions about potentially destabilising losses at the bank and other companies in the family’s orbit. That worry sparked a rout in global markets on Thursday, pushing up bond yields and reviving memories of the region’s debt crisis: Some European companies even abandoned long-planned fundraising operations.

The bank said it had €2.1bn in capital above minimum regulatory requirements as of March 31, taking into account a further €1bn raised via a June share sale. 

The statement partially steadied market jitters yesterday in Portugal and beyond. European markets edged higher and Italy paid record low yields at an auction, shrugging off fears that had weighed on the sovereign debt markets earlier in the week. 

Portugal’s PSI index was up 1.5 percent at 1300 GMT. BES shares opened up 11 percent when trading resumed after a suspension, though the stock then seesawed — reducing those gains, then climbing again, before falling back. By 1300 GMT it was up just 0.8 percent.

Market unease lingered because many questions remain unanswered.

An audit found a “serious financial condition” at Espirito Santo International SA — a vast conglomerate with holdings in banks, hotels and healthcare which is near the top of the family business pyramid. ESFG later said ESI had overvalued its assets and failed to recognise losses and debts, but the reasons it got into such a financial mess are unclear. Investors are also in the dark about the size of any potential losses.

And while BES gave the most detailed breakdown yet of its exposure to other Espirito Santo group companies, the bank said it could not assess the potential losses until a restructuring had taken place at its largest shareholder Espirito Santo Financial Group, and at other family holdings under the ESI umbrella.

That restructuring plan is not finished yet, but could be announced as early next week, according to a person with knowledge of the operation. It is likely to include swapping some of the debt issued by ESI and Rio Forte into equity in those companies, as well as pushing out repayment dates on other debt. Some non-financial assets, including the Tivoli hotel chain in Portugal and Brazil, could also be sold.

“We welcome the additional visibility provided with yesterday’s release on the group’s exposures...though there was no clarification on whether there are provisions made on these exposure,” BPI analyst Carlos Peixoto said. Reuters

 

BES puts debt exposure at €1.18bn

LISBON: Portugal’s largest listed bank Banco Espirito Santo (BES), whose shares have plummeted shaking global stock markets, said yesterday its exposure to debt in the Espirito Santo group rose to €1.18bn ($1.6bn) at the end of June. “Banco Espirito Santo awaits the publication of the restructuring plan for the Espirito Santo group in order to be able to estimate the potential losses associated with its exposure,” the bank said in a statement

Lisbon stock market regulators on Thursday suspended trade in BES, the country’s biggest lender by capitalisation, after its shares plummeted by 17.24 percent to €0.50. Trading was halted ahead of “important information” to be published by BES, the market regulator had said.

Concerns about the lender, erupting less than two months after Portugal exited a three-year, €78bn ($106bn) international bailout, sent shockwaves through Lisbon and other fragile southern European markets.

When stock markets closed, Portugal’s PSI index had lost by 4.18 percent, Spain’s IBEX-35 index had dropped 1.98 percent, and Italy’s FTSE MIB had skidded 1.90 percent.

Major markets across Europe also fell back, and stocks in New York opened lower on the Portugal bank scare but later recovered to end with modest losses.

The Portuguese bank has been hit in particular by suspicion that a holding company, Espirito Santo International (ESI), covered up a 1.3 billion euro hole in the accounts. AFP

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