(Repeats with graphic)
By Laura Noonan and Andrei Khalip
LONDON/LISBON, July 7 The naming of the first
CEO from outside the founding clan of Banco Espirito Santo (BES)
has reassured investors, but he will be under pressure to
explain how Portugal's biggest bank will recover nearly a
billion euros lent to family-controlled firms.
BES nominated respected economist Vitor Bento on Saturday as
CEO, just five days after revealing it was owed 980 million
euros by firms controlled by the founding Espirito Santo family,
700 million more than had been disclosed when it raised 1.045
billion in new capital from shareholders on June 11.
The weekend nomination of Bento, a former head of Portugal's
debt agency, signalled a break from the past. Shares in BES
were lower on Monday but had risen last week as it
became clear that new management was likely to be named. The
share price had lost 30 percent since early June.
The bank has been under scrutiny for weeks after reporting
"material irregularities" at a holding company of the Espirito
Santo family, which founded the bank in the 19th Century but
surrendered control as part of last month's capital increase.
Family patriarch Ricardo Espirito Santo Salgado stepped down
as CEO last month. The Bank of Portugal, as regulator, had urged
the bank to name an independent CEO. Bento, 60, is expected to
be confirmed as new boss at a shareholder meeting on July 31.
"There is a perception that this (Bento) is what the Bank of
Portugal wanted and the market hoped for," said Andre Rodrigues,
an analyst at Caixa Banco de Investimento.
The Espirito Santo clan still holds a 25 percent stake in
the bank through a holding company, the Espirito Santo Financial
Group (ESFG) whose interests range from insurance to hotels and
Investors, who spoke to Reuters on condition of anonymity,
said the firm had still not fully explained all of the debt to
family-controlled holding companies.
"There is a good deal more that needs to come out in terms
of intra group debt and guarantees," one investor, who sold his
holdings of BES bonds in recent weeks, told Reuters.
Investors and analysts have also pinpointed BES's Angolan
subsidiary, which has more than 2 billion euros of funding from
the Portuguese bank, as cause for concern.
However, BES stock has supporters, such as London-based
Citigroup analyst Stefan Nedialkov who rated it a strong buy
last week, arguing that the worst news was already accounted for
in the share price.
A FAMILY AFFAIR
The bank revealed on June 30 that it was owed 980 million
euros by family-controlled companies, including 780 million
euros of direct exposure to ESFG and unspecified ESFG
subsidiaries, and 200 million euros owed by a company called
Rioforte, which in turn owns 49.25 percent of ESFG.
Investors said they were concerned not only by the size of
the exposure but also by the absence of a detailed breakdown of
who the loans are to.
"If the debt is to trading companies, I'm fine with that, if
the debt is to holding companies, there's no obvious assets and
recoverability," said one analyst, a view echoed by several.
In the May capital raising documents, BES said that none of
the loans to related parties were subject to individual
impairment, meaning they had no specific evidence that any of
them would not be repaid in full.
Any related party loans granted after March 2014 had to pass
through a newly-created Related Party Transactions Control
Committee. BES did not answer questions on what level of
scrutiny was present before this committee was established.
Another worry lurking for investors is Angola, the former
Portuguese colony where BES has a 55 percent stake in a bank
with a 6 billion euro loan book.
The Angolan state has guaranteed 70 percent of the bank's
loan book, but several investors and analysts said this did not
give them much comfort, citing a lack of information about its
legal basis and Angola's poor credit rating.
BES's holding in the bank is only worth a few hundred
million euros, but BES confirmed to Reuters that it has more
than 2 billion euros of cash placed with the Angola bank. In an
extreme situation, that liquidity could be hard to get back.
"The biggest concern for investors is that BES has more
liabilities than they had recorded and too few assets and the
guarantee from Angola is not very assuring," said a London
portfolio manager who would not disclose if he has BES exposure.
However, last month's recapitalisation gives the bank the
ability to withstand some losses, both on its loans to family
companies and its exposure to Angola.
Dublin-based Merrion Stockbrokers told clients the bank
should still have a capital buffer of 1.5 billion euros even if
it is forced to write off 25 percent of its Angolan loans and
half its intergroup liabilities.
($1 = 0.7331 Euros)
(Additional reporting by Axel Bugge in Lisbon; Editing by Peter