| LISBON, July 25
LISBON, July 25 Banco Espirito Santo is
expected to hike provisions for exposure to its largest
shareholder Espirito Santo Financial group, after the
Espirito Santo family company sought creditor protection.
ESFG, which holds a 20 percent stake in Portugal's largest
bank by market value, sought protection on Thursday, creating
uncertainty about the implications for BES.
The bank's links to the Espirito Santo family group and its
troubled holding companies have wiped out around 50 percent from
BES' market value in the last month. The shares fell 9 percent
on Friday after a two-day rebound.
Problems have been escalating for the family that founded
the bank more than a century ago since accounting irregularities
were identified in one of its holdings earlier this year.
Analysts said EFSG's move to seek creditor protection could
ultimately require BES to make provisions against possible
ESFG has borrowed more than 800 million euros ($1.07
billion) from BES and also had set aside 700 million euros to
make sure that commercial paper (short-term debt) issued by
family companies and placed with retail clients of the bank
would be repaid.
"We expect the bank to reflect significant provisions when
it reports half-year results," wrote Ciaran Callaghan, senior
credit analyst at Merrion Stockbrokers. "We doubt that BES will
be able to rely on ESFG to help reimburse retail clients for
much of their losses."
BES is due to publish its earnings on Wednesday after having
postponed the release from Friday
"All eyes are on the results, which are supposed to show
what the consequences of ESFG and other holdings seeking
creditor protection are for BES," Albino Oliveira, an analyst at
Fincor brokers, said. "It's a guessing game before then."
Carlos Tavares, the head of Portugal's CMVM securities
market regulator, said on Thursday the results would likely
contain additional important information to what is currently
known to the market, but would not specify.
BES on Friday declined to comment on the outcome of ESFG's
creditor protection move for its accounts, but reaffirmed its
commitment to repay all the retail clients.
One analyst in Lisbon, who declined to be named, estimated
BES' first-half-loss could exceed a billion euros if it has to
make new provisions. A number of analysts had estimated the
bank's first-half loss at up to 200 million euros ($268.90
"At the upcoming results on July 30, there may be some
initial steps to provision and ring-fence the exposure to the
wider Espirito Santo group," Nomura analysts wrote on Friday,
adding: "Given the scale of the exposure, BES could seek to
strengthen the capital buffer by raising additional equity."
Bank of Portugal Governor Carlos Costa has already said he
expects international investors to step in if BES were to need
BES has said it has a 2.1 billion euro capital buffer over
the minimum regulatory capital requirement, which should be
enough to absorb its exposure to family debt.
The bank already raised 1 billion euros in a capital
increase completed on June 11.
Another analyst in Lisbon, who did not want to be named,
said the ESFG move had been largely priced in, but if BES losses
next week reflect a much larger exposure to the family holdings
than initially thought, BES shares could take a new heavy blow.
"Additional direct exposure and the risk of litigation by
institutional clients against the bank is what could really
drive the stock down," the analyst said.
Also on Thursday, a judge named the family's patriarch and
former BES chief Ricardo Salgado as a suspect in a separate,
long-running money-laundering investigation.
There are also concerns about BES' Angolan business BESA
which has a loan-book covered by an Angolan state guarantee
($1 = 0.7438 Euros)
($1 = 0.7447 Euros)
(Reporting By Andrei Khalip and Laura Noonan. Editing by Jane