BY Matt Atkins
To the relief of anxious investors, Portugal’s central bank has announced measures to prevent the collapse of one of its biggest lenders, Banco Espirito Santo (BES). On Sunday 3 August, the board of directors at Banco de Portugal laid out plans for the €5bn rescue of BES, pulling it back from the brink and easing fears of contagion across Europe’s banking sector. The announcement comes days after the Banco de Portugal offered assurances that BES could raise enough money from private investors to recover from a first-half loss of €3.58bn.
The plan will see BES split into two. Problem assets will be held by the ‘bad bank’ BES. The remaining assets will be held by a ‘good bank’ – the newly formed Novo Banco, run under the supervision of Banco de Portugal. Novo Banco will be made up of BES’s core business of taking deposits and lending to home-buyers and companies. The bank will be receive an initial €4.9bn cash injection from Portugal’s bailout fund and eventually be sold off, with the proceeds used to pay back the loan.
As yet, it is unclear what will happen to the ‘bad bank’, most of which relates to other businesses in the Espirito Santo Group, including tourism, health and agriculture. Shareholders and creditors have been warned, however, that they may stand to lose all of their money.
Banco de Portugal has said customers of BES will be able to conduct transactions normally, and employees will be transferred to the new entity, which will retain the company logo.
“For our customers and staff only one thing has changed — their bank is now stronger and safer than it was before,” said Victor Bento, who will head Novo Banco. “The key uncertainties that have been hanging over the institution for some time have now been removed.”
Press Release: The application of a resolution measure to Banco Espírito Santo, S.A.