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UPDATE 2-BES shares tumble as it fails to allay investor concerns
June 30, 2014 / 6:10 PM / 3 years ago

UPDATE 2-BES shares tumble as it fails to allay investor concerns

* Retail customers have 651 mln euros of family company bonds

* BES has about 1 bln euro exposure to family companies

* BES’s Angolan unit guarantee covers 70 percent of loans

* Espirito Santo Group to give restructuring details soon (Adds ban on naked short sales)

By Laura Noonan and Andrei Khalip

LONDON/LISBON, June 30 (Reuters) - Shares in Banco Espirito Santo fell to an 11-month low on Monday after Portugal’s biggest listed bank failed to allay investor concern about the company’s dealings with its founding family and its troubled Angolan operations.

Banco Espirito Santo’s (BES) shares have fallen more than 40 percent since a 1.045 billion-euro ($1.43 billion) share sale on June 11, amid a crisis that saw Portugal’s only banking dynasty lose control of the bank and its patriarch agree to step down as chief executive.

In an eight-minute conference call led by the bank’s chief financial officer, Amilcar Morais Pires - the leading candidate to become its next CEO - BES provided new detail about issues it said had been “impacting” investors’ view of the bank.

BES, which has been embroiled in controversy for selling bonds from a financially troubled company linked to its founding family to retail customers, disclosed for the first time how a large proportion of the bonds have been redeemed since December.

The executives also said the bank had less than 1 billion euros ($1.4 billion) of its own exposure to companies in the wider Espirito Santo Group, and gave details of a guarantee underpinning its troubled operations in Angola.

Shares in the bank closed down 16.5 percent at 0.602 euros, below the subscription price of 0.65 euros for its capital increase. Their intraday fall accelerated after the comments by BES executives.

The declines were so sharp that Portugal’s CMVM market regulator announced late Monday it would ban naked short-selling of shares in BES and Espirito Santo Financial Group (ESFG), a holding company of the Espirito Santo family, on July 1. ESFG shares fell 19 percent on Monday.

Concern about BES also helped push Portuguese government bond yields higher on Monday.

“It was a very short call and little new information,” said Albino Oliveira, an analyst at Fincor brokers. “I guess the main thing causing the fall is that uncertainty will go on for another month until the general assembly that will decide on new leadership at BES.”


Concerns about BES first came to light when a prospectus for its June capital raising referred to the reputational risks linked to selling retail customers bonds that were issued by an Espirito Santo company with financial problems.

The executives said BES’s retail customers were now owed just 651 million euros from the bonds, down from 2.5 billion euros at the end of last year.

After regulators raised concerns about the bond sales, the bank vowed that no customers would lose any money on them. On May 30 Espirito Santo Group (ESG) said that it would no longer sell debt through BES.

BES executive Joaquim Goes said retail customers’ remaining exposure to founding-family companies was split between two entities - Espirito Santo International and Rioforte. The family owns about 25 percent of BES, making it the bank’s largest shareholder.

The bank itself has no direct exposure to Espirito Santo International, but has a 200 million-euro exposure to Rioforte and its subsidiaries and 780 million-euro exposure to ESFG , Goes said.

BES did not clarify the nature of its Rioforte and ESFG exposure and did not accept any questions at the end of the call, which was co-hosted by Goes and Pires.

On the wider group, Goes said: ”The Espirito Santo Group is implementing a reorganisation and restructuring plan. This plan includes the reinforcement of the capital structure as well as the sale of assets among other measures.

“Further details ... are expected to be disclosed by Espirito Santo Group within the next couple of days.”

BES executives also used the call to clarify the situation of its Angolan operations, which were granted a sovereign guarantee in 2013 after it was discovered that part of the loan portfolio did not have an appropriate level of guarantees or collateral.

Goes said the unit, which counts BES as a 55 percent shareholder, had a guarantee covering about 70 percent of its 6 billion-euro loan book, but that the guarantee only extended to specific loans.

The remaining 30 percent of the loan book will be assessed by the European Central Bank as part of its review of the euro zone’s 128 most important lenders, he added.

$1 = 0.7331 Euros Reporting By Laura Noonan and Andrei Khalip; Additional reporting by Sergio Goncalves and Axel Bugge in Lisbon; Editing by Steve Slater and Mark Potter and Larry King

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