The Bank of Portugal has instructed Portugal’s banks to make a provision of 50% on any unsecured exposure to the Espírito Santo Group.
The central bank, led by Carlos Costa, sent his edict as the Espírito Santo Financial Group last week joined Rioforte and Espírito Santo International in applying for protection from its creditors under the laws of Luxembourg.
The instruction from Costa was a general one to all banks operating under his regulatory shield and showed for the first time the level of damage expected by the central bank as the Espírito Santo crash starts to hit home.
Since June 17th 2014 when BES raised additional capital by issuing shares to a willing market, it has lost €3.4 billion, a decline of 53.7% in its share price. This means the bank has lost three times the amount it raised as its involvement and exposure to group companies has been punished by the market.
The Bank of Portugal confirmed that ordinary depositors in BES are guaranteed up to €100,000 each by the Deposit Guarantee Fund and in case of failure the shareholders of, and creditors to, BES will bear any losses.
The Bank of Portugal however is not responsible for insurance contracts, pension funds or retirement savings plans, the supervision of these products lies with the Insurance Institute of Portugal.
The central bank reckons that BES has the capacity to absorb potential losses that it may incur with its exposure to the non-financial area of the Espírito Santo Group. In doing so the high street BES may emerge in an emaciated form, or be seen as a take-over target.
