Bank of Portugal outlines rescue plan for BES

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Portugal’s central bank has revealed plans to rescue the country’s second-largest  lender Banco Espirito Santo (BES) by breaking it up into a good and a bad bank and injecting some €5bn.

The bailout plan, which was approved of by the European Commission, will see the bank divided into a good bank for its healthy business and a bad bank for its toxic assets.

The good bank, which will be called Novo Banco, will be loaned €4.9bn from what is left of Portugal’s bailout fund. The move had been expected after BES on Friday reported a record loss of €3.6bn for the first half of the year. Concerns have spread across the financial industry since June, when the bank’s shares plunged 89%.

Carlos Cosa, Portugal’s central bank governor commented on the plan by saying taxpayers will not bear any risk. “The plan carries no risk to public finances or taxpayers. There was an urgent need to adopt a solution to guarantee the protection of deposits and assure the stability of the banking system,” he said during a press conference in Lisbon.

Novo Banco’s chief executive, Vitor Bento added in a statement: “The key uncertainties that have been hanging over the institution for some time have now been removed. Novo Banco is also taking with it a dedicated workforce, a strong customer focus and comprehensive banking services that help to drive the Portuguese economy.”

Bento was named chief executive of BES just three weeks ago as part of a management reshuffle designed to restore confidence in the bank.

In an official statement, the Bank of Portgual explained:  “The Novo Banco will be subject to Banco de Portugal’s supervision and will be obliged to comply with all legal and regulatory rules applicable to Portuguese banks. The by-laws of Novo Banco were approved by Banco de Portugal. The State will bear no costs related to this operation.

“The equity capital of Novo Banco, to the amount of €4.9 billion, is fully underwritten by the Resolution Fund. The Resolution Fund’s sources of funding are the contributions paid by its member institutions and the proceeds from the levy over the banking sector, which, according to applicable regulations, are collected without jeopardising the solvency ratios.”

The morning after the news, Portugal’s main stock market, the PSI 20, fluctuated around zero and 0.27%. Similarly, many other European markets saw a weak opening: the FTSE 100 was at + 0.25% at 6696 points; France’s CAC 40 +0.38% at 4218 points and Germany’s DAX -0.05% at 9206 points.

 

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