Brussels, 11/07/2014 (Agence Europe) - The European Commission said it “does not see cause for undue concern” on Friday 11 July in the light of the problems facing Portugal's biggest bank, Banco Espirito Santo (BES), that emerged on Thursday. On Thursday morning, BES' main shareholder, Espirito Santo Financial Group (ESFG) had sales of its shares suspended after they fell more than 8% because of problems with the holding company that controls the group, Espirito Santo International (ESI) which failed to reimburse bonds held by clients in Switzerland and announced that it would shortly be revealing a restructuring plan for its debt, estimated at nearly €7 billion. ESI is reported to have covered up losses of €1.3 billion.
EBS tried to reassure the markets on Thursday by talking figures and explaining that its exposure to debt held by other companies in the Espirito Santo group stood at €1.8 billiion at the end of June. The bank said that any potential losses would not prevent respect of the regulatory capital ratios as it had financial reserves that were €2.1 billion higher than the required minimum. Shares in the bank fell by 17.4% to €0.50 on Thursday, forcing the Portuguese stock exchange to suspend sales.
Simon O'Connor, a European Commission spokesman, refused to comment, but said that the Portuguese financial system had been significantly strengthened in recent years and “we are confident that any problems in the system will be managed in a timely and efficient manner, and we take note of the statement by Bank of Portugal and the prime minister, Pedro Passos Coelho. We do not see cause for undue concern here”.
The Portuguese prime minister swept aside any notion of a public bailout, saying there was no need because the bank has solid capital and a comfortable margin for dealing with any eventuality. Bank of Portugal said that BES has enough reserves to deal with any negative impact of exposure to the rest of the group.
Collateral damage led to a 4.218% fall in the Lisbon Stock Exchange, a 1.98% fall in the Madrid Stock Exchange and a 1.9% fall in the Milan Stock Exchange. Ten-year Portuguese bond yields rose to 3.984%, the highest for two months. Yields on Spanish and Italian bonds also rose. (EL)