UPDATE 2-Portugal's BES reports loss as bad debts jump

Fri Jul 26, 2013 2:36pm EDT

Related Topics

* Net loss 237 mln vs forecast 128 mln euro loss

* Overdue loans up 30 pct, provisions soar 75 pct

* Peak in overdue loans seen this quarter or next

* BES looking at Generali's Swiss unit BSI (Adds bad loans peak expected, corporate loans up, BES looking at BSI)

By Sergio Goncalves and Andrei Khalip

LISBON, July 26 (Reuters) - Banco Espirito Santo, Portugal's second-largest listed bank by assets, swung to a bigger-than-expected first-half net loss as provisions for bad loans soared due to a steep recession in the bailed-out country.

BES said in a statement the net loss totalled 237 million euros ($314 million) after a year-ago profit of 25.5 million.

Portugal's worst recession since the 1970s weighed heavily on the bank's first-half results due to continuing corporate insolvencies that affected the bank's impairments and provisions.

Overdue loans jumped 30 percent to 2.85 billion euros at the end of June from the end of last year and the bank's chief executive, Ricardo Espirito Santo Salgado, said they were yet to peak, possibly this quarter.

"We can say today that the peak of overdue loans could happen at the end of the third quarter or the start of the fourth quarter of 2013. It could improve if the signs of recovery translate into a rebound," he told reporters.

Net provisions for bad loans, securities and other assets jumped 75 percent to 747 million euros ($990.86 million), with provisions for bad loans alone making up 553 million euros - a 57 percent rise form a year earlier.

The bank said there were some signs of economic improvements in the second quarter, including a gentle revival in consumption after a long slide. "Portugal may be nearing a recovery phase that we hope could gradually become more consolidated," the bank said in a statement on Friday.

Although loans to private individuals fell 3.6 percent in the first half, credit extended to companies rose 1.2 percent in a sign of recovery, with total loans remaining practically unchanged from a year earlier.

The government still expects the economy to shrink 2.3 percent this year - after last year's 3.2 percent slump - before it returns to meagre growth in 2014, but it has said gross domestic product most likely edged up in the second quarter.

BES said that net interest income - the difference between interest charged on loans and interest paid on deposits - fell 23 percent to 470 million euros from a year earlier.

Analysts surveyed by Reuters had predicted, on average, a net loss of 128 million euros and net interest income of 466 million euros.

Despite the difficult environment, the CEO said, the bank was analysing possible acquisition of Generali SpA's Swiss private bank, BSI, which looks "potentially attractive" to BES.

"We've been invited to look at the BSI prospectus. It is a bank that could be interesting for us," he told reporters. "But at this moment we cannot say anything. We are studying the file ... it could take a couple of months."

Sources familiar with the situation have said earlier that BSI had attracted bids below its estimated 2.3 billion Swiss francs.

A consortium made up of Spanish lender Bankinter and U.S. investment fund Apollo Global Management, as well as Swiss private bank Safra and Chinese investment fund Hony Capital had earlier expressed an interest for BSI.

BES shares had closed 1.1 percent higher on Friday before the results were announced, outperforming the broader market in Lisbon, which was up 0.5 percent. ($1 = 0.7539 euros) (Reporting by Andrei Khalip. Editing by Jane Merriman, Gary Hill)

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