This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Banco Espirito Santo Receives $6.6B Rescue

BRUSSELS (The Deal) -- Portugal's central bank late Sunda took control of Banco Espirito Santo in a European Commission-approved, 4.9 billion euro ($6.6 billion) rescue that will force shareholders and junior debtholders to shoulder losses.

Under the plan, problem assets -- including loans to other parts of the beleaguered Espirito Santo Financial Group and the lender's stake in Banco Espirito Santo Angola -- will be placed in a "bad bank," with a new lender, dubbed Novo Banco, taking the "good" assets.

"Shareholders, subordinated debt holders as well as board members and 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," Portugal's Finance Ministry said in a statement.

The remaining assets, including all deposits with Banco Espirito Santo, will be integrated into Novo Banco, whose 4.9 billion euros in equity capital is fully underwritten by the Bank of Portugal's Resolution Fund.

Read: Microsoft Surface Tablets Now in Use on NFL Sidelines

The Resolution Fund will finance the rescue with a temporary Treasury loan, to be replaced later by interbank loans. Bank of Portugal Governor Carlos Costas has said that government funds would be used only as a last resort, referring to the unused 6.4 billion euros from Portugal's 2011 international bailout led by the European Union.

Novo Banco will be subject to the central bank's supervision and obliged to comply with all legal and regulatory rules applicable to Portuguese lenders, Banco de Portugal said late Sunday.

The central bank insisted that nothing changes for the customers. "The measure ensures the continuity of the institution's activity, being the best to protect the depositors and other customers of the institution and financial stability," it said.

The European Commission quickly approved the plan, which it said is adequate to restore confidence in financial stability and to ensure the continuity of services and avoid potential systemic effects.

"In its assessment, the Commission acknowledged that that a disorderly resolution of BES could create a serious disturbance in the Portuguese economy and that the creation of the Bridge Bank is suitable to remedy that disturbance," it said shortly after midnight local time on Sunday.

To limit distortions of competition, Novo Banco's business will be limited and a "prudent pricing policy" implemented, the EC added.

The rescue move came three days after Banco Espirito Santo posted a first-half net loss of 3.58 billion euros and reveald that its common equity Tier 1 ratio had fallen below Portugal's minimum requirement.

Read: Warren Buffett's Berkshire Hathaway Has the Most Cash in America

The lender, an affiliate of three Espirito Santo Group companies currently under court protection from creditors, also said that writedowns and contingency costs reached 4.24 billion euros.

Banco Espirito's second-quarter net loss amounted to 3.49 billion euros as it increased lending to the Espirito Santo Financial Group and its subsidiaries, namely ES Financiere and ES Bank Panama. As of June 30, the exposure amounted to 927.6 million euros, compared with 416.2 million euros on March 14 and 301.3 million euros at the end of 2013.

Luxembourg's commercial court has accepted requests for protection from creditors made by Espirito Santo Group companies Espirito Santo Financial Group SA, Luxembourg-based Rio Forte Investments SA and Espirito Santo International SA.

Espirito Santo International owns 39% of Espirito Santo Financial Group SA, which is Banco Espirito Santo's largest shareholder with a 20% stake.

On Sunday, the Bank of Portugal noted that there was increasing pressure on Banco Espirito Santo cash flows, and that problems at the bank endangered the stabilitiy of the national payment and financial systems.

Banco Espirito Santo is Portugal's third-largest banking group, with 80.2 billion euros in assets and 36.7 billion euros in customer deposits as of June 30, according to the European Commission. Banco Espirito Santo operates in 25 countries and employs almost 25,000 people.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $129.36 0.00%
FB $79.60 0.00%
GOOG $573.64 0.00%
TSLA $199.56 0.00%
YHOO $42.62 0.00%

Markets

DOW 18,203.37 -85.26 -0.47%
S&P 500 2,107.78 -9.61 -0.45%
NASDAQ 4,979.9010 -28.1950 -0.56%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs