The results are out, and they are at the far end of the city’s worst expectations. In the first six months of the year Banco Espírito Santo, run until recently by Ricardo Salgado, has managed to accumulate eye-watering losses.
The bank’s trading statement reported that this loss was due to ‘extraordinary factors.’
Lisbon had expected losses of €3 billion in a worst case scenario but the management at last has come clean in a 'kitchen sink' job, throwing every traceable loss into the accounts so that things can only get better.
"Factors of an exceptional nature that occurred during the current year determined the accounting for losses, impairments and contingencies which resulted in an impairment of €3.577 billion, (-€3.488 billion in Q2)."
The statement issued by the bank, now led by a professional new director Vítor Bento, was published on the Market Regulator’s website.
Since the first half of 2013, the net income of BES has been negative, by €237.4 million. Without these extraordinary losses the trading loss would have been ‘only’ €255.4 million.
BES Angola dented the overall accounts, particularly through the "cancellation of uncollectible interest on loans" and mysterious "provisions for tax contingencies" and the exposure to Grupo Espirito Santo which was BES’s main asset.
The "deterioration of the loan portfolio" and "recognition of impairment on participation in Portugal Telecom" which has lost much of its market value, are other factors cited by the document issued by the bank.
Altogether, the cost of contingencies and impairments totaled €4,253,500,000.
The operating costs of the bank under Ricardo Salgado rose 5.7% to €594.8 million due partly to "the costs of early retirement of 139 employees.”
With these impairment charges, even after the recent capital increase of €1,045 million, BES now shows a ratio of financial strength well below the minimum necessary, i.e. the bank’s Tier 1 ratio currently is 5% against the Bank of Portugal’s required 7%.
The current board is saying all the right things about reimbursement and has decided to sue former directors if they are proven to have committed offences which cost the bank money.
New Chief Exec. Vitor Bento is joined by Joao Moreira Rato as Chief Financial Officer and Jose Honorio as duputy Chief Executive. These three replace the last vestiges of the Espirito Santo family at BES.
"The Board is committed to establish all the facts and intends to take all available measures to recover the maximum possible amount and to seek reimbursement for damages caused by any unlawful conduct by individuals or entities, through various means and instances."
This will include Ricardo Salgado, but there is a queue as Salgado already is being questioned by a judge over his role in some of the more inventive BES money laundering operations.
For a market summary from BES in English, see:http://web3.cmvm.pt/sdi2004/emitentes/docs/FR51560.pdf
For the full horror story in Portuguese, see: http://web3.cmvm.pt/sdi2004/emitentes/docs/FR51559.pdf
Comments
So BES could still bring down the EU Banking System !!
And Argentina today shows the Portuguese and Greeks that the default option - even X2 - is not necessarily the end of the road.
Which with over 230 billion to pay off - much of it 'lent' by other EU countries, will become an increasingly 'attractive' outcome to Portugal.
Check out Forbes's take on BES from a few hours ago ...
http://www.forbes.com/sites/marcelmichelson/2014/07/31/portugals-bes-proves-weakest-link-in-eu-banking-system/
Ed.
Very unlikely, Ed that this is all the bad stuff !
There will be any number of 'non-existent' shell companies, all paid for non-existent services. Each of these will need to be tracked down and its non-activity proved.
Also - as criminality is involved why would the previous management - the Portuguese super elite - make any attempt to dig themselves in deeper ?
Relying instead on classic Portuguese legal fudge ... to get a conclusion that 'It was all just bias and competitors machinations'
So everyone important is let off but for example, some low life bank doorman or two - as with Casa Pia - being imprisoned for the multi-billion frauds and tax evasion.
Serve him right the elite will say - he was always intended to take my bullet !!!