Portugal’s president said on Monday that fallout from the financial troubles of the founding family of Banco Espirito Santo SA (BES) could affect the wider economy, while the bank said it was appointing a special financial adviser to help boost its capital structure.
Portuguese President Anibal Cavaco Silva is the first high-profile politician to speak of a possible economic impact from the Espirito Santo crisis, after the family asked for creditor protection for one of its key holding companies on Friday last week.
Another of the family’s companies, Rioforte SA, last week failed to repay on time more than US$1 billion in debt owed to Portugal Telecom, which had a knock-on effect on the latter’s merger with Brazil’s Grupo Oi, forcing it to take a cut in its stake in the new entity.
“If some citizens, some investors suffer significant losses [from the Espirito Santo group] they may delay investment decisions, or some of them may find themselves in very big difficulties,” Cavaco Silva said in comments during a visit to South Korea, which were aired on local television.
“We cannot ignore that there will be some impact on the real economy,” he said.
In Lisbon, Portuguese Economy Minister Antonio Pires de Lima said that a crisis engulfing the BES group could affect the country’s recovery, but insisted Portugal’s “upturn is stronger.”
“The crisis in the Espirito Santo group will not do us good, but the recovery is stronger and it is there to stay,” he told journalists on Monday.
The turmoil at Portugal’s largest lender comes at a delicate time for the country, which has just come out of a joint EU-IMF rescue program despite a surprise drop of 0.6 percent in its GDP in the first three months of the year.
Many analysts fear the knock-on effects of the crisis could further undermine Portugal’s faltering economy, one of the weakest in the eurozone. The economy is expected to grow by 1 percent this year, the first year of growth since 2011.
BES is under scrutiny following disclosures of financial irregularities at the Luxembourg-based Espirito Santo International SA (ESI), which filed for creditor protection on Friday. ESI indirectly owns 49 percent of the company that holds the Espirito Santos’ stake in BES.
BES was controlled and managed by the Espirito Santo family until just a few weeks ago, but they have since reduced their stake and left top jobs at the bank. Respected economist Vitor Bento is the new chief executive after Ricardo Espirito Santo Salgado, the family patriarch, resigned from the position.
Bento told clients in a message on Monday that he was “working hard to regain the confidence of markets, to generate sustainable benefits and to open a new chapter for the bank.”
The bank also said on Monday that it was finalizing the appointment of a special adviser who would help it to better structure its capital base.
Portugal’s central bank has said BES has enough capital to cope with any losses resulting from the fallout of the financial troubles of the family, whose companies owe the bank 1.2 billion euros (US$1.62 billion), and that it could tap private investors if there is a further need.
BES raised 1.045 billion euros in a capital increase last month, but subsequent details about its lending to Espirito Santo family companies and its troubled operations in Angola raised fresh questions about whether it needs more.