Banco Espírito Santo, one of Portugal’s biggest banks, is under new management since Monday (July 14) following pressure from the country’s central bank for BES to be released from the grasp of the financially-troubled Espírito Santo family, the bank’s largest shareholder.
Ricardo Espírito Santo Salgado, outgoing CEO and one of the acting members of the Espírito Santo family (he is great-grandson of the bank’s founder), has been replaced by Vítor Bento, president of SIBS, the entity that manages Portugal’s ATM machines, while João Moreira Rato, the head of the government’s debt agency (IGCP), has taken over as BES’ chief financial officer.
The change of management is hoped to give the bank a fresh start and allow it to regain the confidence of international markets, as the bank is freed from the clutches of family-owned holding companies currently facing financial difficulties.
However, the change, prompted by the Bank of Portugal, came earlier than was expected when BES’ shares began to plummet 17% on July 10. They have since reached their lowest levels since 2012.
Its credit rating was also lowered by both Standard & Poor’s and Moody’s Investors Service on July 11 and German Chancellor Angela Merkel has even referred to BES as an example of “how quickly the so-called markets are roiled, how quickly uncertainty returns and how fragile the whole euro construction still is”.
As evidenced, investors and politicians around Europe remain wary about the impact of BES’ situation and its links to the financial troubles of the Espírito Santo Financial Group (ESFG), which used to hold 25% of the bank’s shares but has since sold 4.99% of its cut.
In an official statement, ESFG said that the sale of 4.99% of its stake in the bank was made to “raise proceeds to enable ESFG to satisfy its repayment obligations under a margin loan.
“The proceeds of the sale, together with certain other collateral held by the lending bank, will result in the full and final payment of the margin loan and fully extinguishes all obligations there under,” it said.
Despite concerns about ESFG, the Bank of Portugal guaranteed on Monday that BES has “enough capital” to compensate any consequences caused by its financial issues.
Portuguese Prime Minister Pedro Passos Coelho has also said that “there is no reason for the state to intervene” as the bank “has a solid capital and a comfortable margin to deal with any eventuality”.
The difficult times for the bank began when an audit to its account found several “irregularities”, including “omissions in the accounting of liabilities” and “overvaluations of assets”.
When word got out that the bank was facing a change in management due to financial irregularities and tensions in the Espírito Santo family over who should take over, Portugal’s debt and stock markets began to shake due to prospects of possible financial losses.
Pressure came quickly from Portugal’s central bank, urging the Espírito Santo Financial Group to appoint a new independent chairman.
The shift in management was only supposed to happen at the end of July, but the Bank of Portugal stepped in and hastened the process to try and get BES back on its feet as soon as possible.
