Reuters and Bloomberg London and Lisbon
INVESTORS breathed a sigh of relief yesterday after Portugal prevented the collapse of one of its biggest banks, putting some life back into European stocks following last week’s slide and pushing bond yields lower across the board.
Lisbon announced on Sunday a e4.9 billion (R70bn) rescue of the country’s largest listed bank, Banco Espirito Santo, preventing its collapse and potential contagion across the continent’s banking sector.
“The market’s initial reaction is that it’s pretty reassuring to see Portugal moving quickly to rescue Banco Espirito Santo. Overall it eases systemic fears that resurfaced last week,” Saxo Bank sales trader Andrea Tueni said.
The Bank of Portugal’s resolution fund will move Banco Espirito Santo’s deposit-taking operations and most of its assets to a new company, Novo Banco, which it will own outright. The fund will finance the rescue with a Treasury loan to be repaid by Novo Banco’s eventual sale.
Subordinated debt plunged yesterday after the central bank said junior bondholders and shareholders would be left with the most “problematic” assets, including loans to other parts of the Espirito Santo Group and the lender’s stake in its Angolan operation.
Banco Espirito Santo, which tapped shareholders for funds less than two months ago, has been forced to take public money after regulators uncovered potential losses on loans to other companies tied to the Espirito Santo family.
Banco Espirito Santo is 20 percent owned by Espirito Santo Financial Group, part of a chain of companies linked to the bank’s founding family. The largest outside shareholders include France’s Credit Agricole (with a 14.6 percent stake) and Brazil’s Banco Bradesco (with a 3.9 percent holding).
Bank of Portugal governor Carlos Costa had sought to find private investors to inject cash, and had said government funds would be a last resort. The Portuguese government has about e6.4bn remaining from its EU-led bailout in 2011 to fund the injection.
“I was very surprised that they went down the route of a state bailout so quickly,” said Lutz Roehmeyer, a fund manager at Landesbank Berlin Investment. “That suggests that the bank’s situation was much worse than described.”
The Finance Ministry said: “Shareholders, subordinated debt holders, as well as board members or former board members directly involved in the more recent events, and not the taxpayers, will be called to shoulder the losses incurred by a banking business they failed to adequately oversee.”
The bank’s e750 million of 7.125 percent subordinated bonds had fallen 15.3c to 20.5c on the euro to yield 40.7 percent by 10.07am in Lisbon.
Portugal’s benchmark PSI 20 stock index had risen 0.3 percent by 10.01am in Lisbon, after declining in the previous four trading days.
Portugal’s 10-year government bond yield fell 8 basis points to 3.63 percent. Two-year yields fell to their lowest level since 1999.