Losses on loans to the troubled business empire of its founding family will not put Banco Espirito Santo (BES) at risk of running short of capital, the bank said late on Thursday night.
Shares in Portugal's largest listed bank were suspended on Thursday after plunging as much as 19 per cent in morning trading amid fears about its exposure to companies in the wider group controlled by the powerful Espirito Santo clan.
The ripples of the crisis extended to other vulnerable euro zone countries. Spain's Banco Popular called off a €750 million bond issue, and Greece managed to place just half of a planned €3 billion bond issue.
The interest rate on Portugal’s 10-year bond rose from recent lows to above 4 per cent.
In a late-night statement that paved the way for the bank’s shares to resume trading on Friday, BES attempted to diffuse a situation that many feared was spiralling out of control.
“BES Executive Committee believes that the potential losses resulting from the exposure to Espirito Santo Group do not compromise the compliance with the regulatory capital requirements,” the bank said, adding that it had €2.1 billion extra capital beyond regulatory minimums as of March 31st.
Since then, the bank has raised €1.045 billion in a June share sale that saw the Espirito Santo family lose control of the bank and prompted its patriarch, Ricardo Espirito Santo Salgado, to step down as the bank's chief.
Nonetheless, concerns about its financial position mounted as other companies in the Espirito Santo empire showed signs of distress.
On Thursday, Espirito Santo Financial Group, which holds a 25 per cent stake in BES and is the bank's largest shareholder, asked for its shares to be suspended on Thursday due to "material difficulties" at its own largest shareholder, Espirito Santo International (ESI).
BES said on Thursday night that it is "waiting for the release of the restructuring plan of Esprito Santo Group in order to assess the potential losses related to its exposure." That restructuring is expected to be announced imminently.
The bank’s statement also gave the most detailed breakdown yet of its exposure to other Espirito Santo group companies, but revealed slightly higher levels of exposure than those disclosed on a conference call on June 30th.
The latest revelations put BES’s total exposure for Rio Forte (a holding company owned by ESI), ESFG and their subsidiaries at €1.15 billion euros as of June 30th. On a conference call on the same day, the bank detailed €980 million of exposure to Rio Forte and ESFG.
The guarantees underpinning the lending were revealed for the first time in the latest statement, which showed guarantee worth €17.6 million for €1.15 billion of lending.
The latest statement lists the loans and other exposures by named borrowers within the Espirito Santo company structure, in a move that may appease analysts who were critical of the absence of a detailed breakdown on the June 30th call.
Further detail on BES’s financial situation will be given on July 25th when the bank releases its half-year results. Shareholders will meet six days later to vote on a new chief executive and new directors, after family members said they would step down from the bank’s 25-man board.
Reuters
