Portugal's biggest bank in €4.9bn bailout

Tuesday 05 August 2014 11.41
Bank of Portugal Governor Carlos Costa announced details of Portuguese bank bailout
Bank of Portugal Governor Carlos Costa announced details of Portuguese bank bailout

Portugal's central bank has said it decided to rescue troubled lender Banco Espirito Santo in a €4.9bn recapitalisation to be pumped into the healthy part of the bank that will be separated from its compromised assets.

"The Bank of Portugal decided today to apply to BES a resolution measure. Most of the activity and the assets of BES will be transferred to a new bank, called 'Novo Banco', properly capitalized, and purged of problematic assets," Bank of Portugal Governor Carlos Costa told reporters.

The move comes less than three months after the country left its EU/IMF bailout programme.

"In this way, and as a consequence of the decision, it completely and without a doubt puts aside, any chance of there being losses for depositors," Mr Costa added.

Current shareholders in BES and holders of subordinated debt will be responsible for the risks in the "bad bank" mainly associated with the crumbling business empire of the bank's founding Espirito Santo family.

The money comes mostly from the country's international bailout, which had a €6.4bn line available for bank recapitalisation, via a bank resolution fund set up by Portugal in 2012, Bank of Portugal Governor Carlos Costa said.

The scramble to save Portugal's largest-listed bank by assets comes after BES last week posted a deeper than expected €3.6bn loss and said it was exposed even more deeply than originally thought to a cascade of bankrupt companies belonging to the Espirito Santo family.

Those disclosures, and the announcement that authorities were looking into possible illegal activity at the bank, have  scared away investors ahead of a planned capital increase by BES over the next few weeks.

Portugal exited its €78bn international bailout in May, and still has €6.4bn from an original €12bn bank recapitalisation line received under the programme.