Bank of Portugal to rescue Banco Espirito Santo, create ‘bad bank’
Banco Espirito Santo (BES) is set to be split in two and injected with government money in an attempt to save the floundering Portuguese bank.
The government will inject €4.9bn into the ailing bank, which has seen its share price drop 65 per cent since last Wednesday. Shares were finally pulled during last Friday's trading.
One half of BES will be comprised of the bank's branches, deposits and other healthy assets while the other half will be formed of the toxic elements, including loans that are presumed unrecoverable and the 56 per cent stake in Espirito Santo Angola.
BES's parent company, Espirito Santo International, will be left with the bad bank. The terms of the $4.9bn rescue mean that depositors and senior bondholders will not be exposed, while subordinated creditors and current shareholders may face losses.
Espirito Santo's issues have been well publicised, with confidence in its holding company's ability to service BES's debts waning recently.
Earlier this month 70 year-old former owner Ricardo Salgado, who ran the bank for 23 years, was arrested on charges of money laundering and tax evasion after accounting irregularities surfaced at Espirito's parent company. Mr. Salgado had voluntarily acted as a witness in the investigation before he was arrested.
The bank was family-run until the irregularities surfaced but, as confidence in the bank plummeted, three family members were replaced. The replacements are Victor Bento (chief executive), Joao Moriera Rato (chief financial officer) and Jose Honorio (deputy chief executive).