Portugal reassures markets on Espirito: shares fall
Shares in the lender were suspended on Thursday after a 17 per cent slump that sent shockwaves around the world
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
Friday 11 July 2014
Stock markets around the world paused for breath as Portugal’s Central Bank managed to reassure investors over the health of the country’s second biggest bank, Banco Espirito Santo.
Shares in the lender were suspended on Thursday after a 17 per cent slump that sent shockwaves around the world amid fears that its troubles could even trigger another eurozone crisis.
Trading resumed after the Banco de Portugal said the bank had sufficient funds to handle losses on loans made to its troubled parent, the Espirito Santo Group “based on the information reported” by the bank and its auditor KPMG. “The safety of the funds entrusted to BES is not undermined and BES depositors may rest assured,” the central bank said.
With the Financial Conduct Authority once again banning any short-selling of Banco Espirito Santo shares, derivatives or credit-default swaps in London, trading reopened calmly, although the stock still lost just over 1 per cent of its value.
That meant a quiet, turbulence free finish to the week on European stock markets, with the broad based Dow Jones Eurostoxx 50 Index moving slightly ahead of Thursday close, gaining about a quarter of 1 per cent.
The panic was in part sparked by the Bank of Portugal’s order of a special audit of the Espirito Santo Group.
Portugal’s second-largest bank said that it had an exposure of €1.2bn (£95m) to companies within the complex web of businesses and was “committed not to increase its total exposure” to either the parent or its subsidiaries.
It added: “The potential losses resulting from the exposure to Grupo Espirito Santo do not compromise compliance with regulatory capital requirements.”
Portugal’s Prime Minster Pedro Passos Coelho also chimed in saying there was “no reason for the state to intervene in a bank which has solid capital and a comfortable margin to deal with any eventuality, even the most adverse”.
The Espirito Santo Group owns a 25 per cent stake in the bank. It was recently diluted through a €2bn (£1.6bn) rights issue.
Although yesterday’s statements have calmed the situation, some still have concerns.
“Although we welcome the latest disclosure from Banco Espirito Santo, which goes some way to enhancing the transparency on its exposure to the wider Espirito group, we still think the situation facing the bank remains precarious given the opacity around its parent’s capital shortfall,” said Ciaran Callaghan, a credit analyst at Merrion Stockbrokers in Dublin.
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