June 4, 2012 / 9:26 AM / 8 years ago

UPDATE 2-Portuguese banks turn to bailout fund for capital

* Millennium bcp to draw 3 billion euros from bailout fund

* Banco BPI dto raw 1.2 bln, Caixa Geral de Depositos 1.65 bln

* Millennium to raise further 500 million euros via rights issue

* Banco BPI to raise another 200 mln (Adds details, comment, background)

By Axel Bugge

LISBON, June 4 (Reuters) - Three leading Portuguese banks will draw on funds provided under the country’s 78 billion euro ($96 billion) international bailout to meet tough new capital requirements as they struggle with the country’s debt crisis.

Millennium bcp, Portugal’s largest private bank in terms of assets, said on Monday it would draw 3 billion euros from the bailout fund’s “recapitalisation line”, while Banco BPI will draw 1.2 billion. State-owned Caixa Geral de Depositos will draw 1.65 billion.

The move by the three banks was expected and leaves only Banco Espirito Santo (BES) among Portugal’s leading banks without state funding. BES has said it does not intend to draw on the recapitalisation line after having raised 1 billion euros from shareholders.

“These operations will put Portuguese banks in a solid position compared with other European banks,” Finance Minister Vitor Gaspar told a press conference as he presented the results of the fourth review of the country’s bailout.

Under Portugal’s bailout by the European Union and IMF, 12 billion euros was set aside for the recapitalisation of its banks. Capital injections to the sector will be carried out through special bonds convertible into equity, known as Cocos, which must be paid back in five years.

If not repaid, the state would end up holding about 33 percent of BPI and 40 percent of Millennium, according to Andre Rodrigues, an analyst at Caixa Banco de Investimento.

Portugal’s banks have effectively been cut off from European capital markets for nearly two years since the country’s debt crisis broke out and it entered its worst recession since the 1970s under the weight of sweeping austerity measures.

Shares in Banco BPI surged on the fact that the capital raising was relatively small, while Millennium slipped on the large size of its hike.


“The market believes that BPI will be able to turn the situation around and return the money to the state in the five years under the plan,” said Emanuel Vieira, a trader at brokerage Golden Broker. “In the case of Millennium there were already doubts as it is a much higher amount.”

Shares in Millennium were 1 percent lower at 0.099 euros per share and BPI was 7 percent higher at 0.408 euros per share.

Under the bailout terms, the country’s banks need to have core Tier 1 capital ratios of 10 percent of assets by the end of this year.

Millennium said it would raise a further 500 million euros through a rights issue to shareholders, while Banco BPI will raise another 200 million through the same route.

An analyst who asked not to be named said shareholders were likely to subscribe to both Millennium and BPI’s capital hikes. Angolan oil company Sonangol is a large shareholder in Millennium and is likely to participate, the analyst said.

Millennium said in a statement the capital plan was prepared on the basis it would have to take a further provision of around 450 million euros for risks linked to the deteriorating economic situation in Greece, where it has a unit.

Many economists have said Portugal is likely to need more funding for its bailout, or to extend its terms. Still, the finance minister said on Monday the country had passed the fourth review of the economy under the bailout and the programme remained unchanged. ($1 = 0.8089 euros) (Editing by Greg Mahlich and David Holmes)

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