Portugal announces US$6.6b plan to save ailing Banco Espirito Santo
Print Edition
A NEW Portuguese bank appeared yesterday from the ruins of a collapsed business empire, and declared on its website it was now “stronger and safer.”
But investors rattled by the eurozone’s latest financial drama will need more reassurances.
Portugal’s biggest banking scandal, which compelled authorities on Sunday to put up 4.9 billion euros (US$6.6 billion) to prevent the collapse of Banco Espirito Santo, raised questions about how regulators were hoodwinked. It will also focus minds on the European Union’s yearlong health check on the banking sector, whose results are due in October.
The debt crisis that battered nations sharing the euro has ebbed in recent months, but investors remain wary. They fear more nasty surprises could be around the corner, and the Banco Espirito Santo scandal is fueling concerns.
Barclays analysts predicted investors will “remain guarded about risks,” while CMC Markets UK said Lisbon’s difficulties demonstrated “the major surgery that Europe still has to undergo with respect to its economic and banking problems.”
The European Central Bank, the eurozone’s main regulator, is currently examining the books of more than 100 of the bloc’s top banks. The goal is to weed out the lame ones, helping ensure financial markets have faith in the banking system.
The Banco Espirito Santo case could undermine that effort.
Portuguese authorities sought late on Sunday to extinguish the wildfire by splitting the lender into two banks: a new one, called Novo Banco, which keeps the company’s healthy businesses and will later be sold, and a “bad bank” that will hold toxic assets and keep the Banco Espirito Santo name. The latter will liquidated once its bad investments are dealt with.
Officials had last month tried to halt the bank’s collapsing share price by insisting it had sound finances and that private investors were ready to take over. That was until the true picture emerged last week: the bank reported a record half-year loss of 3.6 billion euros, trading in its shares was suspended, and the Espirito Santo family’s three main holding companies asked for bankruptcy protection.
Ponzi scheme
Bank of Portugal Governor Carlos Costa said on Sunday that officials had been duped by a type of Ponzi scheme whereby cash and debts were shifted around the Espirito Santo family’s global empire.
The bank’s activities “were in clear violation of Bank of Portugal rules” and used “fraudulent schemes,” he said.
Police suspect former Chief Executive Ricardo Espirito Santo Salgado, who stepped down last month, of fraud, forgery and money laundering.
Just as worryingly, Costa said an audit of Banco Espirito Santo by the central bank had found problems 11 months ago, but that the central bank had attempted to ring-fence them.
It remains unclear why action to shore up the bank was not taken then.
European stress tests of banks in 2009, 2010 and 2011 fell short of convincing markets. Some banks passed the tests on paper but needed bailouts soon afterward. Banco Espirito Santo passed them all and was the only major Portuguese lender to not require any public aid during the country’s bailout.
Simon O’Connor, a spokesman for the EU’s economic and monetary affairs commissioner, said Banco Espirito Santo was a special case. Its woes shouldn’t be taken as a sign of systemic weakness, he said.
The rescue money will come from a special fund set up during the eurozone crisis. That means Portugal doesn’t have to raise taxes or apply for more help from the EU.
Shareholders and junior bondholders, including some major companies such as Portugal Telecom that held the bank’s commercial paper, will bear the brunt of the losses. The cash injection is a loan and will be repaid with interest, with no cost to taxpayers, Costa said.
Still, almost 5 billion euros is a big number in Portugal — roughly equivalent to the annual budget for the country’s schools and universities.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
