Periphery stocks plunge over Espírito Santo concerns

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Concerns over the financial health of Banco Espírito Santo, Portugal’s second-biggest bank, have triggered a  decline in in peripheral European stocks.

Banco Espírito Santo had to suspend its shares from trading after they fell by more than 17%. Within a week, the bank lost about one third of its market value.

Shares of the bank had faced difficulties since May 2014, when an audit by the Bank of Portugal into Espírito Santo International SA found the conglomerate to be in a “serious financial condition.”

Espírito Santo International SA owns half of Espírito Santo Financial Group SA, which in turn owns a 25% stake in Banco Espírito Santo.

As the Wall Street Journal reported in December last year, Espírito Santo International SA’s ES Liquidez Fund had exposed retail and institutional investors to significant risk, with four-fifths of its assets consisting of commercial paper issued by the conglomerate. Moreover, it had significantly overstated the value its assets.

The crisis was subsequently triggered by the fact that Espírito Santo International SA had delayed repayments of debt which it had sold to clients of its private bank in Switzerland, Banque Privée Espírito Santo.

Concerns over the liquidity of the Portuguese bank subsequently led to a chain reaction, causing a 4.2% decline of the PSI20, the Portugese stock market index, however, it recovered slightly on the next trading day.

Mona Dohle
Mona Dohle speaks German and Dutch and is DACH & Benelux Correspondent for InvestmentEurope.

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