July 28, 2014 / 10:56 PM / 5 years ago

Bank of Portugal says BES loss can be remedied by capital hike

LISBON, July 28 (Reuters) - Portugal’s central bank said late on Monday that if Banco Espirito Santo posts a loss larger than its existing capital cushion of 2.1 billion euros ($2.8 billion), a capital increase will be used to guarantee adequate solvency levels.

Earlier, Expresso newspaper’s online edition said BES was likely to report a loss of around 3 billion euros on Wednesday after having to assume additional debt liabilities linked to the troubled Espirito Santo group of its founding family. BES officials were not immediately available to comment.

Three of the Espirito Santo family holding companies, including ESFG, which holds a 20 percent stake in BES, have requested creditor protection this month.

“Regarding media reports on a possible negative result at BES... the Bank of Portugal reiterates that if any insufficiency of the current capital cushion is verified, the interest shown by various entities in taking a large position in BES indicates that a private solution for a capital increase is doable,” the central bank said in an emailed clarification.

“As the last resort, if needed, the public recapitalisation line is available ... in any case, the solvency of BES and safety of funds entrusted to the bank are guaranteed.”

Bank of Portugal chief Carlos Costa has already said he expects international investors to step in if BES, Portugal’s largest bank by assets, were to need additional capital. BES already raised 1 billion euros in a capital increase completed on June 11.

Problems have been escalating for the family that founded the bank more than a century ago. Earlier this year, accounting irregularities were identified in one of its holdings.

The potential losses at BES, which put its direct exposure to family holdings at 1.15 billion euros, prompted a brief sell-off in international equity markets earlier this month.

The bank has said it has 2.1 billion euros in capital above minimum regulatory requirements to deal with any losses. But it has not been able to quantify the potential losses, because it is awaiting a restructuring of the Espirito Santo holding companies to do so.

There are also concerns about BES’ Angolan business BESA which has a loan-book covered by an Angolan state guarantee until mid-2015. ($1 = 0.7442 Euros) (Reporting By Andrei Khalip; Editing by David Gregorio)

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