Portugal's top bank was under new management on Monday, installing a respected economist as chief executive under pressure from the central bank after worries that the lender's links to the financially troubled Espírito Santo empire had unsettled international markets. An audit of the family-owned holding companies behind Banco Espírito Santo found financial irregularities that raised the prospect of potentially destabilising losses at the country's largest listed bank. The news last week sent Portugal's debt and stock markets into turmoil that spread to Europe as well as other firms in the Espírito Santo family's sphere. Portugal Telecom, waiting to be reimbursed on more than $1bn (£600m) in debt issued by one of the family holding companies, was hard hit.
Pressured by Portugal's central bank, BES announced on Monday that its board had put in place new executives – including economist Vitor Bento as chief executive – hastening changes that were not due to happen until the end of the month in order to distance itself from the family group. Bento is joined by new chief financial officer Joao Moreira Rato, who headed Portugal's IGCP debt agency, and new deputy CEO Jose Honorio. Together they will replace Espírito Santo family members including its patriarch Ricardo Espírito Santo Salgado, who had already agreed to resign, and other board members loyal to the family. With Bento expected to start work at BES on Monday, television trucks started to arrive outside the bank's Lisbon headquarters from early morning.
Portugal's Negocios business newspaper has called on the new management to seek bankruptcy for the Espírito Santo group, and for regulators to open investigations against the former CEO and CFO.
"BES will be saved from the family. But time has been lost and now has to be recovered," it said in a commentary on Monday after warning on Sunday that delays in resolving the issue threatened to throw Portugal back into recession.
BES has insisted that any losses relating to its €1.15bn (£900m) exposure to Espírito Santo holdings would not put it at risk, and the government has said BES – the only major Portuguese bank that did not request state aid under a bailout during the country's debt crisis – is solvent. Lisbon exited the three-year EU- and IMF-funded bailout in May. While investors around Europe worry about the impact of financial problems at BES, the Portuguese public are also coming to terms with the fall from grace of a family that has long been at the heart of the country's business elite.
"It's kind of scary to see these guys, who everyone knew as the owners of Portugal, leaving such a great mess behind. But we all knew the Espírito Santos had nothing holy about them," Luis Palma, a 46-year-old taxi driver said, referring to the family name that translates as the holy spirit. Salgado has said in a newspaper interview that he and the bank had no knowledge of the problems at the Luxembourg-registered Espírito Santo International SA after an audit carried out earlier this year, and made public in May found a "serious financial condition" there.
Reuters contacted ESI for comment but received no reply.
BES shares, which have lost over half of their value in the past month, slumped more than 8% on Monday to €0.44, but the broader market in Lisbon was higher, including Portugal Telecom that rose 3.3% off its all-time lows hit last week.
1 comment:
There is no good solution that can be applied currently. The damage was done during the 'Boom' period when too much money was borrowed and spent on malinvestments (e.g. flipping houses to each other at prices that spiralled ever higher even as the houses themselves remained unchanged) that destroyed huge amounts of value and on public 'Investment' as one G. Brown like to call p*ssing hundreds of billions of pounds away on bribing his target voters with bread and circuses. What we are seeing now is just, to paraphrase Warren Buffet, the tide going out and revealing the damage that has already been done, and who is swimming naked.
Austerity will not make the losses that have already been incurred go away, but neither will anything else. ZIRP and QE will mask the damage for while, but they most certainly will not fix anything.
The Eurozone, entirely due to Bundesbank intransigence, has taken less aggressive measures to mask the underlying issues than the US, UK, Japan and China, and so naturally they are the first to relapse into crisis, but be assured that the rest of the world will follow them once the pallative effects of extraordinary monetary policy lose effectiveness in the face of a dying real economy.
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