As illustrated countless times across the globe, investor and consumer confidence “hold the key to the future” of this institution, and perhaps, the Portuguese banking system. Indeed, the concerns and reduced confidence in Banco Espirito Santo has already impacted the greater market, especially in Spain, where fortunes are similar to Portugal’s.11 July 2014 – New York NY - In an effort to reassure investors, Banco Espirito Santo SA, revealed it had 1.18 billion euros ($1.6 billion) of loans, securities and other items linked to Grupo Espirito Santo (its parent) as of June 30. This disclosure follows a missed payment on short-term debt by a member of the Portuguese group.
The nation’s second-biggest bank by market value said it has a buffer of 2.1 billion euros above the regulatory minimum following a capital increase in June. “While this may be enough of a capital buffer to manage the “direct” exposure, the indirect exposure and the fallout from reduced confidence in the institution, its parent, and its ability to service its debts will likely chip away at the capital buffer,” commented Steve Picarillo- President of Creative Advisory Group, Inc). “This begs the question, is this disclosure too little too late?”, he continued, “In my view, the answer is very likely.”
With this additional disclosure, the bank’s and the central bank’s challenge is to continue to reassure the markets about the lender’s solvency. “Nonetheless, the lack of transparency in the corporate structure has jolted investors. Confidence remains on the brink”, Picarillo added.
As illustrated countless times across the globe, investor and consumer confidence “hold the key to the future” of this institution, and perhaps, the Portuguese banking system. Indeed, the concerns and reduced confidence in Banco Espirito Santo has already impacted the greater market, especially in Spain, where fortunes are similar to Portugal’s.
While the bank’s bonds trimmed losses today, with its 7.125 percent subordinated notes increasing slightly to 88.28 cents, to yield 8.82 percent, the securities have however dropped to a record low of 85.89 cents yesterday from 96.06 cents last week. “Oh, remember what can happen to subordinated bonds during a crisis? They can get wiped out, in a number of fashions. But let’s not get ahead of ourselves, just food for thought” Picarillo paused.
Investors continue to have questions about indirect exposure to the group, pending restructuring plans, upcoming management changes and the government’s ability to support the bank, if needed.
The key rule in confidence is to never allow it to dip below the level in which it may recover, quickly. Consumers and investors grow impatient and weary if they have doubts about a financial institution, whether the doubt is real or perceived, it could dramatically alter the path of the bank.
Steve Picarillo concluded, “In my years of being a banking analyst, sitting on the front lines of the credit crisis as it moved across the globe, this situation is far too familiar. We should be concerned. Its time to wave the “caution flag”, before it’s too late.”
Steve Picarillo is a global financial markets, risk and communications executive with exceptional experience in risk analysis of global banking systems and financial institutions. Mr. Picarillo provides analysis and commentary to the financial community, the media, investors and regulators.
For additional information on Steve, please visit his website at www.stevepicarillo.com.
The opinions in this article are the views/opinions of the author and Creative Advisory Group, Inc. (CAG), based on public information and the author’s experience. This is not a recommendation to buy, sell or trade any security, debt or any other financial instrument. The author and CAG do not hold any interest in any of entities mentioned in this posting, and have no plans of entering into any financial trade in the same in the next 72 hours.
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