(Repeats to add bullet points)
* State aid pondered to complement cash call
* BES still working on fully private option
* Source says 3 bln euros required, hard to avoid state aid
By Sergio Goncalves
LISBON, Aug 1 Portuguese authorities are
considering using public funds to help keep the country's
largest listed bank solvent, sources said on Friday, as the
lender's plunging shares put its plan to raise new money from
investors in doubt.
Banco Espirito Santo was still trying to convince
investors to take stakes and shore up its finances in a fully
private capital increase that should kick off soon.
Two sources with knowledge of the situation told Reuters,
however, that Portuguese authorities consider the use of a
"mixed solution", combining state aid with private capital, may
be hard to avoid after the bank's massive loss to clean up its
balance sheet, which some analysts fear could still be
One source said BES is likely to need another 3 billion
euros ($4 billion) after the 3.6 billion euro half-year loss it
posted on Wednesday wiped out its capital buffers and reduced
its solvency ratio below that required by the Bank of Portugal.
The scramble to save BES is the most dramatic fallout yet
from a months-long saga involving the crumbling business empire
of Portugal's most prominent Espirito Santo family, which
founded the bank more than a century ago.
So far, five family companies have filed for creditor
protection after defaulting on their debt.
Prime Minister Pedro Passos Coelho told reporters his
government was closely following the situation but declined to
comment on the prospects of state aid.
"Now the supervisor, the Bank of Portugal, has to monitor
and propose what is needed," he said. "The government will take
all measures necessary to maintain financial stability."
Portugal's securities market regulator CMVM suspended
trading in BES shares on Friday afternoon after they plummeted
40 percent following a 42 percent drop on Thursday.
They were suspended awaiting new information from the bank,
but CMVM did not specify when that could be.
With the market closed, BES has at least until Monday
morning to reply.
A BES spokesman would not say when it was likely to provide
new information nor whether it would spell out any concrete
He would not comment on state aid, referring to Chief
Executive Vitor Bento's statement on Wednesday that BES expected
to raise private cash after some investors showed interest in
taking significant stakes.
PROBLEMS IN MARKET
Not helping the bank's case is the fact that since it last
pulled off a billion euro capital increase in early June, its
shares have lost 89 percent of their value.
Investors began dumping the shares after Wednesday's
revelations of massive losses, which were attributed largely to
the bank's exposure to its founding family, and of potential
illegal activity, which BES and regulators vowed to investigate.
Among the revelations were two letters of guarantee issued
by the bank to creditors of the Espirito Santo group that were
never registered in the lender's accounts.
"The market is concerned that there won't be enough private
interest ... that the auditing by the Bank of Portugal could
uncover more bad news," said Albino Oliveira, an analyst at
The Bank of Portugal has previously said it prefers a market
solution, but it has a bank recapitalisation line available to
guarantee BES solvency.
Government and central bank officials would not comment.
A third source said the Portuguese government last week
liaised with officials of the European Central Bank to reassure
them that it still has access to 6.4 billion euros to
recapitalise its banks, if needed. The ECB will take over
supervising large lenders across the euro zone on Nov. 4.
Portugal's two other major listed banks took almost 6
billion euros from the bailout line at the height of the
country's crisis in 2012.
They have since started to repay the loans, and one of them,
Banco BPI, has fully repaid its 1.5 billion euros owed to the
state. The banks have also made hefty interest payments on those
Although the leftist opposition has warned that using public
funds to help a bank in the austerity-weary country would have
political consequences for the government, analysts see
sufficiently strong political arguments to justify state aid.
"I think all political and economic players understand that
allowing BES to collapse would have a devastating effect on the
economy," said Filipe Garcia, head of the Informacao de Mercados
($1 = 0.7445 Euros)
(Additional reporting by Daniel Alvarenga, writing by Andrei
Khalip; editing by Jane Baird)