Portugal

A panel of the International Swaps and Derivatives Association today ruled that the Portuguese central bank's decision to break up Banco Espírito Santo won't trigger a payout on insurance-like contracts linked to the stricken lender's debt, the Wall Street Journal reported today. ISDA was asked on Monday to rule whether the Portuguese Central Bank's decision to split BES into two would qualify as a bankruptcy credit event, meaning that any contracts on BES debt—known as credit default swaps—would be activated.

Portugal’s central bank stepped up efforts to clean up the troubled lender Banco Espírito Santo and end its family control after the bank reported a stunning first-half loss of $4.8 billion that will force it to raise more capital, the International New York Times reported. After the bank’s earnings report, the central bank issued a statement ordering Banco Espírito Santo to raise more funds and announced the suspension of three members of the Espírito Santo family, which has controlled the bank for generations.

Banco Espírito Santo has posted a first-half net loss of €3.58bn that exposes the full extent of the Portuguese lender’s exposure to the financial woes engulfing its main shareholder, the Espírito Santo family group, the Financial Times reported. BES, Portugal’s largest listed lender by assets, said “extraordinary events” had resulted in impairment and contingency costs totalling €4.25bn and had cut its capital strength to below the regulatory minimum. The record loss wipes out BES’s existing capital buffer of €2.1bn and implies that it will have to raise fresh capital.

Portugal's central bank said late on Monday that if Banco Espirito Santo posts a loss larger than its existing capital cushion of 2.1 billion euros ($2.8 billion), a capital increase will be used to guarantee adequate solvency levels, Reuters reported. Earlier, Expresso newspaper's online edition said BES was likely to report a loss of around 3 billion euros on Wednesday after having to assume additional debt liabilities linked to the troubled Espirito Santo group of its founding family. BES officials were not immediately available to comment.

Espírito Santo Financial Group SA, which holds 20% of Portuguese lender Banco Espírito Santo SA, has filed for creditor protection in Luxembourg, becoming the third company in the group to do so in less than two weeks, The Wall Street Journal reported. "Espírito Santo Financial Group SA has asked the Luxembourg courts for controlled management following the company's conclusion that it is unable to meet its obligations under its commercial paper program and obligations associated with the company's stand-alone debt obligations," it said in a statement.

Espirito Santo International, one of the holding companies of Portugal’s Espirito Santo banking family, filed for creditor protection in Luxembourg on Friday as the business empire’s problems also spilled over to Angola, where the central bank said the local unit of Banco Espirito Santo would need more capital to deal with bad loans, the International New York Times reported.

Banco Espirito Santo (BES) could be sued over a loan that one of its founding family's holding companies failed to repay to Portugal Telecom, sources said on Thursday, as credit rating agencies downgraded the bank and its key shareholder. Still, Finance Minister Maria Luis Albuquerque said the problems faced by BES, Portugal's largest listed bank, and the family's Espirito Santo Group did not pose an imminent danger to the country's financial system and reiterated the government did not plan to use public funds to help the bank.

Portugal Telecom and Oi of Brazil said on Wednesday that they had renegotiated the terms of their planned merger to salvage a deal threatened by the financing problems of the Espírito Santo group, which is controlled by Portugal’s most powerful family, the International New York Times reported. As part of the revised merger plan, Portugal Telecom will receive a 25.6 percent stake in the merged entity, down from almost 40 percent when the deal was announced in October.

Some large shareholders in Grupo Oi SA could sue partner Portugal Telecom SA if a debt investment made by the latter ends up in default, which could delay the companies' planned merger, a source close to the deal said, Reuters reported. Shareholders of Rio de Janeiro-based Oi want to push Portugal Telecom to take a smaller stake in the company resulting from the merger, depending on the outcome of the debt negotiations later on Tuesday, said the source, who declined to be identified because of the sensitivity of the issue.

Investors received a jolt on Thursday when shares of Portugal’s second-largest bank, Banco Espírito Santo, were suspended from trading, prompting fears that the bank might need to be rescued, the International New York Times reported. The move sent high-flying stocks and bonds in Portugal plummeting, forced two Spanish companies to suspend bond offerings and brought concerns over the health of Europe’s banking system. As markets from Germany to Greece wobbled, the tumult was a reminder to investors as to how quickly bad news can spread in the euro zone.