UPDATE 1-Portugal's BES launches rights issue, posts Q1 loss

Thu May 15, 2014 5:43pm EDT

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(New throughout, adds capital increase, details, updates share price)

LISBON May 15 (Reuters) - Banco Espirito Santo, Portugal's largest listed bank, launched on Thursday a capital increase of up to 1.045 billion euros, hoping to take advantage of Portugal's economic recovery after the bank posted a loss in the first quarter due to impairments for bad loans.

In the rights issue, BES will offer shares at a price of 0.65 euros per share, representing a discount of about 34 percent on Wednesday's closing price.

Shares in BES slumped 5.54 percent on Thursday to close at 1.058 euros a share as investors anticipated the announcement. Shares also had slumped a day earlier.

"The rights issue will allow BES to further strengthen its capital ratios, leveraging on its competitive position to take advantage of the recovery of the Portuguese economy and to expand its international units," the bank said in a statement.

Portugal's economy has begun a shaky recovery after its debt crisis and will exit an international bailout on Saturday.

The CMVM market regulator had said on Wednesday that BES had submitted a plan for a capital increase.

On Thursday, BES also announced a first-quarter net loss of 89.2 million euros, in line with expectations, as impairments for bad loans weighed on the results.

The bank said the cost of provisions for bad loans rose 47.6 percent to 276 million euros, driven by deleveraging after Portugal's debt crisis.

Net interest income, the difference between interest charged on loans and interest paid on deposits, rose 21.7 percent to 270 million euros.

Analysts surveyed by Reuters had predicted, on average, a net loss of 88 million euros and net interest income of 274 million euros.

Portugal emerged from a deep recession in the second quarter Of 2013, but banks are still struggling in the short term with the effects of the worst downturn since the 1970s in the bailed-out country.

Analysts have said Portugal's banks want to raise capital to accelerate the repayment of contingent convertible bonds, or CoCos, to the state. Such expensive financing was extended to Portugal's banks under the country's bailout.

The head of BES said in February that if there was a need to raise capital, there was available cash in international markets. (Reporting By Axel Bugge and Sergio Goncalves; Editing by David Gregorio)

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