Sat, Jul 12, 2014 - Page 15 News List

Portuguese bank debt shakes markets

CONCERNS OVER SOLVABILITY:Shares in BES bank plummeted, shaking global stock markets, after it said its debt exposure to the Espirito Santo group was at US$1.6 billion


Portugal’s largest listed bank, Banco Espirito Santo SA (BES), whose shares have plummeted, shaking global stock markets, said early yesterday its exposure to debt in the Espirito Santo group rose to 1.18 billion euros (US$1.6 billion) at the end of last month.

“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 the bank, the country’s biggest lender, after its shares plummeted by 17.24 percent to 0.50 euros.

Trading was halted ahead of “important information” to be published by the bank, the market regulator had said.

Concerns about the lender, erupting less than two months after Portugal exited a three-year, 78 billion euro international bailout, sent shockwaves through Lisbon and other fragile southern European markets.

When stock markets closed, Portugal’s PSI index had fallen by 4.18 percent, Spain’s IBEX-35 had dropped 1.98 percent, and Italy’s FTSE MIB had skidded 1.9 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.

“Investors are concerned about the solvability of BES and the impact it could have on the whole country,” said Renaud Murail, manager at France-based stock brokerage Barclays Bourse.

Banco Espirito Santo shares were suspended from trade just hours after its main shareholder, Espirito Santo Financial Group, voluntarily withdrew its own shares from the market, citing “difficulties” at ESI.

Espirito Santo Financial Group said it was “assessing the financial impact of its exposure” to the troubled ESI, which is under investigation by Luxembourg authorities and is reportedly seeking to restructure debts estimated at more than 7 billion euros.

The IMF on Thursday said that Portugal’s financial system still had trouble spots after the international bailout, amid worries over a major Portuguese bank that roiled European stock markets.

“Pockets of vulnerability remain, warranting corrective measures in some cases and intrusive supervision in others,” the IMF said in a brief statement.

The IMF, which participated in Portugal’s rescue along with the European Commission and the European Central Bank, said it does not comment on individual financial institutions.

Portugal just emerged in May from the three-year, 78 billion euro IMF-EU bailout program that it sought as the country reeled from soaring borrowing costs on markets amid Greece’s debt crisis.

In its statement, the IMF highlighted that the Portuguese banking system “has been able to endure the crisis without significant disruption.”

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