Portugal’s government has announced a €4.9 billion plan to save family-controlled Banco Espirito Santo, the country’s largest listed bank, after a series of financial scandals threatened to run the 94-year-old lender into the ground.
But while taxpayers and senior creditors will be protected in the package, shareholders, particularly the Espirito Santo family, and junior bondholders will be left with toxic assets.
The rescue plan sees Banco Espirito Santo (BES) split into two banks. Deposits, senior debt, and most assets will be transferred to Novo Banco, which will be owned by the Bank of Portugal and eventually sold to private investors. A “bad bank” will eventually be wound down.
BES found its self at the centre of an investigation in June when a $1 billion rights offering reduced the Espirito Santo family’s ownership stake from 54% stake to 46%, while bringing to light financial irregularities.
Third-gen chief executive Ricardo Salgado was removed from his position and questioned on charges of money laundering and tax evasion at the bank’s holding company, Espirito Santo International.
Last week, BES’s shares dropped 75% forcing regulators to suspend trading after it reported a record net loss of €3.58 billion, and the Espirito Santo family dropped off Portugal’s rich list for the first time in 10 years.
An unnamed member of the family, which has recently looked to bankruptcy protection, told Bloomberg he expected that the rough patch to be short-lived.
A statement released by the finance ministry read: "Shareholders, subordinated debt holders as well as board members or former board members directly involved in the more recent events, and not the taxpayers, will be called to shoulder the losses incurred by a banking business they failed to adequately oversee.”
The bailout plan was struck after Portuguese and European Union officials held emergency meetings over the weekend to discuss the worsening state of affairs at the soon to be delisted bank.
The Portuguese government will use remaining EU and IMF funds used from Portugal’s international bailout – a decision made to avoid the political backlash that would come from having used public money.