BES saved by Portuguese government – Danske Bank

FXStreet (Edinburgh) - Arne Rasmussen, Chief Analyst at Danske Bank, comments the recent bailout of the Portuguese Banco Spirito Santo (BES).

Key Quotes

“The Portuguese central bank has taken control of Banco Espirito Santo in a EUR4.9bn bailout in which both shareholders and junior bondholders will take part of the losses under the new EU bank resolution schemes”.

“BES needed fresh capital after the significant write-down of EUR3.6bn and as a last resort the government has stepped in with additional capital”.

‘Under the plan BES will be split in a ‘good’ bank (Novo Banco) and a ‘bad’ bank. The ‘good bank’ will be taken over by the Portuguese central bank's resolution fund, which will receive the money from the government”.

“Here, the government is expected to use half of the EUR6.4bn from the EU/IMF/ECB bail-out money (the EUR6.4bn is part of the original EUR12bn set aside for bank recapitalisation in the EU/IMF/ECB bailout programme of a total of EUR 78bn)”.

“Shareholders and junior bond holders (Tier 1 and Tier 2) will contribute to the losses in full”.

“There is about EUR1.3bn in Tier 1 and Tier 2 bonds. On top of this there is EUR13.5bn in senior bonds and 4.6bn in covered bonds”.

“Novo Banco will be sold to private investors in the future and the proceeds will be transferred back to the government. Hence, the Portuguese tax payer will not be made liable for the losses in BES”.

“This is positive for Portugal and PGBs as there is a solution/plan for BES, which not burden the Portuguese tax payer/economy”.

“This should reduce the uncertainty in the market, even though Portugal is expected to use half of the EUR6.4bn”.