The governor of the Bank of Portugal has announced a rescue plan that divides Banco Espírito Santo into a "good bank" and a "bad bank" with a massive injection of funds and a company name change to 'Novo Banco.'
Banking chief Carlos Costa announced that a solution to save the high street banks has been hammered out and involves accessing €4.9 billion from the Troika Resolution Fund to which Portugal has access to help recapitalise its domestic banks.
The ‘bad bank’ will hold the toxic assets, bad loans, bonds due and the mess that is BES Angola all built up at BES under the former stewardship of Ricardo Salgado.
Many of the bad investments are inter-company loans to BES Group companies which the Bank of Portugal now claims 'were hard to spot as many involved overseas companies.'
With this division at BES, the shareholders in BES Group companies will take the losses on the chin while Banco Espírito Santo depositors will be protected. BES, or more properly 'Novo Banco,' should end up with a clean balance sheet and continue trading, much to the relief of account holders.
The BES branch livery will remain as will the staff but the bank assets will be transferred to Novo Banco.
The bad bank will be liquidated and the assets which it holds will be sold off under the management of a specialist administrator.
BES shareholders are likely to lose their total investment and the shares will be delisted after the injection of €4.9 billion which will have to be paid back at some distant point in an unclear future.
The Resolution Fund effectively will be the sole shareholder of BES, which is managed by the Bank of Portugal, so the state now owns BES despite PM Passos Coelho stating that there would be no state bailout for the bank and that this was a matter for its shareholders.
The current management team under Vitor Bento will stay on at BES, but now will be reporting to the Bank of Portugal.
Meanwhile, another subsidiary of Espírito Santo Financial Group has filed for protection from its creditors. Espírito Santo Financial Portugal officially has lodged an application for insolvency for "failure to honor its commitments" and will come under the rules of Portugal's Corporate Recovery and Insolvency Code.
According to a statement sent to the market regulator, Espírito Santo Financial Portugal holds 19.1% of Banco Espírito Santo and an indirect stake in insurance company Tranquilidade via its 45% of PARTRAN which in turn owns 100% of the insurer’s share capital - nobody is claiming this structure is easy to follow.
The request for protection "enables Espírito Santo Financial Portugal to find the best way to deal with the circumstances that led to the inability of the company to honor its commitments."
Last week another subsidiary, Espírito Santo Financière requested protection in Luxembourg, joining Espírito Santo International, Espírito Santo Financial Group, and Rioforte.
Espírito Santo Financial Portugal is the fifth Espírito Santo company to announce insolvency, but the first to do so in Portugal as the others are registered in Luxembourg.
Still no word of apology from Ricardo Salgado...
For background, see: http://www.pieria.co.uk/articles/how_to_rip_off_a_bank_esprito_santo_style
Bank of Portugal Governor's statement, in Portuguese:
