(Adds background, detail,)
By Laura Noonan
LISBON, July 24 The biggest shareholder of Banco
Espirito Santo sought creditor protection on Thursday,
putting an immediate stay on more than 1.5 billion euros ($2
billion) in claims and raising uncertainty about the bank's
Espirito Santo Financial Group is the third
Espirito Santo family company to seek protection in less than a
week, as problems escalate for the prominent Portuguese family
since accounting irregularities were identified in one of its
holdings earlier this year.
The ESFG filing could have the most profound impact yet for
the prized asset of the family network, Portugal's largest
ESFG is the largest shareholder of BES, with a 20 percent
stake. It has also borrowed more than 800 million euros from
BES, which was founded by the family in the 19th century.
ESFG also set aside 700 million euros last year to make sure
that commercial paper issued by family companies and placed with
retail clients of the bank would be repaid. It is unclear
whether that provision would now be at risk.
Portuguese authorities have been trying to draw a
distinction between the financial problems at the family
businesses - holding companies with interests in tourism, health
and real estate - and any repercussions for BES, which has said
it is covered for any losses from exposure to the family
On Thursday, a bank spokesman said the lender had no comment
on the ESFG filing.
In a statement, ESFG said it had applied for controlled
management because it was unable to meet the obligations of its
commercial paper programme - a form of short-term borrowing -
and other debts.
ESFG had unsecured external debt of 830.2 million euros at
the end of June and also had guaranteed 470 million euros
borrowed by two subsidiaries, according to a statement released
by BES on July 3.
Ciaran Callaghan of Dublin-based Merrion Stockbrokers said
that when BES releases its results next week it is expected to
take previsions for its exposure to family holdings.
"ESFG debt has been pricing in some type of default," he
added, pointing out that ESFG has yet to unveil a planned
Luxembourg law allows controlled management for companies
unable to meet their obligations due to temporary financial
difficulties, and in circumstances where controlled management
would help them get the most value from their assets.
Earlier on Thursday, Reuters reported that some owners of
ESFG bonds had been told that they could not use their option to
convert the bonds into BES shares at this time.
After its BES stake, ESFG's next most important asset is
Portuguese insurer Tranquilidade, which had a book value of 515
million euros at the end of last year.
Fears about the bank's links to the Espirito Santo family
group wiped more than 50 percent off BES's market value in the
last month, after the family's empire ran into problems.
The situation was made public in late May after a central
bank-ordered audit uncovered material accounting irregularities
at one of the family's main entities.
($1 = 0.7426 Euros)
(Reporting By Laura Noonan; Editing by Alessandra Galloni and