Portugal seizes its largest bank

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Risk markets might get a fillip from this today:

Portugal will spend 4.9 billion euros ($6.58 billion) to rescue its largest listed bank, testing the euro zone’s resilience to another banking crisis just months after Lisbon exited an international bailout.

The rescue of Banco Espirito Santo, which was unveiled after a frenzied weekend of discussions between Portuguese and European Union officials, comes after weeks of increasingly bad news about the financial state of the lender, particularly its exposure to a cascade of companies headed by its founding Espirito Santo family.

Under the plan, Banco Espirito Santo, or BES, will be split into a “good bank”, renamed Novo Banco, and a “bad bank”, which will house BES’s exposures to the troubled Espirito Santo business empire, which last week tipped the bank in to a record 3.6 billion euros loss.

The bad bank’s losses will be born by the bank’s junior bondholders and shareholders, including the Espirito Santo family, which has a 20 percent stake, and French bank Credit Agricole (CAGR.PA) which owns 14.6 percent.

Novo Banco, or New Bank – will be recapitalized to the tune of 4.9 billion euros by a special bank resolution fund created in 2012. The Portuguese state will lend the fund 4.4 billion euros. All of BES’s depositors will be protected as well as all of the bank’s senior bondholders.

Portugal’s central bank, which only days ago said that BES could be recapitalized by private investors, said the plan would involve no cost to the public purse because the loan would be temporary.

Houses and Holes
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Comments

  1. This piece goes into some of the Portugal particulars

    http://www.nytimes.com/2014/08/01/business/international/in-portugal-central-bank-moves-to-clean-up-banco-espirito-santo.html?rref=business/economy&module=Ribbon&version=origin&region=Header&action=click&contentCollection=Economy&pgtype=article&_r=0

    This was in Euromoney the other day

    The spectre of bail in risk across Europe

    http://www.euromoney.com/Article/3361560/Category/17/ChannelPage/0/The-spectre-of-bail-in-risk-across-Europe.html

    If the EU slows down (not that it has any speed up) then the prospect of NPLs mounts.

    One of the other issues that needs to be faced here is that despit the LTRO there are still a lot of nasties on balance sheets across the EU, and somewhere between 5-11% of all lending in the Eurozone is actually lending money put there by the Russian banking system the EU is currently imposing financial sanctions on (Dont get me wrong, I am not saying there is absolutely no reason to impose sanctions – though I think doing so on behalf of Ukraine is simply ludicrous – it is that those sanctions may find a retort which could be painful in the EU).

    They are only small but there are still questions being asked about what is on balance sheets acros the East – Slovenia, Hungary in particular.

    • migtronixMEMBER

      The “sanctions” are a complete joke, you said yourself yesterday where are the sanctions on Israel? The West wants to follow the US hegemon down the road to irrelevance.

      • Israel is the basis of our Judo/Christian-Western culture. It is democratic and free. Surrounded by enemies calling for its destruction. I believe they are entitled to fight for a country of their own and defend it. Are we in Australia are also entitled to do the same – or was this fair land empty when we arrived?

        Or is it because they are Jewish? And in reality, you think it a shame that they even exist? And wouldn’t it just be better if they suddenly disappeared from the annuals of history ?

        Anti-Semitism comes in all guises. I utterly repudiate your suggestion. Indeed, I suggest It would have been better if the Jewish state just moved them on. They didn’t unfortunately. Hence what we have today.

        In fact, Judea was renamed Palaestina in an attempt to minimize Jewish identification with the land of Israel after the Romans crushed a number of revolts there, one in particular killed over a million jews in Jerusalem. The new peoples that moved in were given the name also, which of course is related to the Philistines, an Aegean people – more closely related to the Greeks. Who ruled and dominated the Israelis for a number centuries. History is deep in that region, and not to put a too fine a point on it – conquest is everything. For us -and for them. And this is what it looks like… don’t feel too squeamish. You got a nice house because someone else lost theirs…

      • migtronixMEMBER

        What suggestion? What the fuck are you talking about? Israel and judeaism are not the same thing! And no one gave Australia away, it was taken so the principle of force majour prevails. Democrac? Free? Ask the Arab citizens of isreal how free they are!!

        Anti sémite is what you Arab haters are ffs

      • migtronixMEMBER

        You’re full of it!!!!!!!!

        Our culture is far far far far more Roman than Judeao.

        You’re saying Christians should be trying to protect the people who spit on your lord and saviour?!?!

      • migtronixMEMBER

        And another thing that part of the world was far more stable and tolerant for centuries under the Turks than either the ancient or modern crusades!

      • migtronixMEMBER

        But we’re a good Christian country right research? If a neighbour was in distress and calling out for help we’d surely reach out our hands, because we’re Christian like that huh?

      • General Disarray

        It’s a real shame people cannot question Israel’s actions in Gaza without being labelled an anti-Semite.

        There is no doubt there are some Palestinian nutters who provoke Israel and care little what happens to their own people, but that does not absolve Israel of its actions. 131 Israeli children have been killed by Palestinians since September 2000, 1927 Palestinian children have been killed by Israelis in the same period. If being concerned about those figures gets someone labelled an anti-Semite then so be it.

        Here is an old piece that is still relevant today.

        http://www.theguardian.com/world/2009/jan/07/gaza-israel-palestine

        It’s not a black or white issue.

        http://www.vox.com/2014/8/1/5959635/heres-the-full-text-of-the-deleted-time-of-israel-post-backing?utm_medium=social&utm_source=twitter&utm_campaign=voxdotcom&utm_content=friday

      • I guess we like to see the Israelis as Western and really nice decent people – as we are. I mean, we would never do that would we?

        This is the real politic – don’t sanitise it. Conquest is messy. You do what you can, but understand, its not relativistic. Its totally black and white – its dirty, it ugly and its debasing to all human dignity. Imagine a time instead of Australia being anti-Semitic before the outbreak of WWII (its true – and the worst offender was the US actually), we took in the Jews fleeing Europe – millions of them? You couldn’t argue that Australia would be worse off than it is today…

        Yes – I do think we are highly anti-Semitic, absolutely. We are bombarded daily by media discourse to that effect (especially BBC and Al Jazeera) – and if we are as honest about it, as honest as our fore-fathers conquering this fine nation. We certainly don’t talk in polite circles of society what we did to the populations residing here before us.

        The reality is we don’t care that Arabs kill tens/hundreds of thousands of other Arabs. Heck, we certainly don’t care if US forces accidentally bomb whole Afghan families – its war, and we reason to ourselves that accidents happen. In many cases we reason that they had it coming to them. But our sweet liberal tendencies get picquet when a child losses his or hers life in Gaza. Why is that? Do we really care – or is there something else?

        Realistically, Gaza is and will never be, sustainable. Heaps of room in Saudi Arabia – move them there… In fact, how about we take all the Christians out of Syria, Jordan Iraq, and Lebanon (tens of thousands them them have being killed in the past decade – and not a whisper on Al Jazeera???) to Australia – and re-populate those areas with Palestinians? Or even, take a big bunch of Coptic Egyptian Christians – and repopulate Palestinians there?

        Heaps of options when you think about it…

      • migtronixMEMBER

        Or send the Israelis back to eastern europe? You’re supremely arabphobic and as for conquest is ugly the Israelis didn’t do any without the support of US, that’s not conquest it’s proxy subjugation.

        You can crap on all you want but ONLY Israel gets off Scott free every single time, so fucking spare the contrived history lesson and ask how many of these Ashknazi are even fucking sémites!

        EDIT oh you want to bring the Arab Christians to Australia because Australia is a Christian nation? Yeah real Christian values buddy keep hating Arabs and calling other people bigots…

      • migtronixMEMBER

        Israel, racism and extremism are exploding. It began shortly after the kidnapping of three Israeli boys—Naftali, Gilad and Eyal—in Gush Etzion, that led to the assault in Gaza which has seen over 1,000 killed. A Facebook page calling for the murder of Palestinians went viral. In one photo, a soldier posed broodingly with his gun, the word “vengeance” written on his chest. In another two teenage girls smiled happily with a banner that read: “Hating Arabs is not racism, it’s values.”

        Yeah good guys.

        http://m.vice.com/read/israeli-racism-gaza-kleinfeld-511

      • migtronixMEMBER

        You’re sooooo big on the ADF and how force structures are longitudinal concerns, real politik blah blah blah, OK then WTF were ADF doing in East Timor??? According to you it belong to the Indos. Or do they not deserve because they’re muslim????

      • East Timorese are largely Christian – which is the reason why we are not in Aceh. It is the reason why we care about West Papua and not very much southern Mindanao (beautiful place though – quiet when I was there)

      • Christians understanding is based around passages that indicate that in the end times Israel will be restored. And things will kick on from there…

      • migtronixMEMBER

        Right so at length we arrive at fundamental pentecostalism. Why didn’t you lead with that?

      • No – I don’t think so… as far as I am aware there is only a single Bible translation.

      • RT,

        Time for your meds. What a load of utter drivel. This place was settled 300 odd yrs ago, how long ago did the west steal Palestine from the Palestinians?

        If conquest is everything why the whinge about those who would like to “conquer” Israel?

        Thanks for telling me who’s to blame for the wests culture of greed, the Jews 🙂

      • migtronixMEMBER

        @Research your criticism of the hypocrisy displayed in the media attention is fair, but so what? Since when do 2 wrongs make a right in the “western tradition”?

      • Its double speak. Even though we think something – we are socialised to say something else. But the darkness is always only skin deep. People constantly rant against politicians who do double speak and go back on their promises – but then vote them in anyway!!! Pragmatism – maybe? As Seneca noted – “Human affairs are not so happily arranged that the best things please the most men. It is the proof of a bad cause when it is applauded by the mob….”

        (BTW – how do you do italic font?)

      • @Researchtime,

        Who broke the treaty which allowed the Jewish into the Palestinian lands first.

        Skippy…. those that can’t keep simple contracts are usually not to be trusted.

      • RTime – over the weekend left to grab a bite to eat – a protest city centre: Free Palestine, Israel US Hegemony, blood stained shirts and the ubiquitous Socialist Alliance and various acolytes of the left. United. One voice.

        You’re banging your head against the wall on these threads.

      • @3d1k,

        Is that the best tool you got, the broad brush to smear with?

        Look the King David hotel bombing was arguably the first modern act of terrorism [as its presently defined], not a good look mate. Then if one looks at a map from 1957 and the population distribution by ethnicity, till today, you would see its completely juxtaposed. That’s not even getting into the contrary evidence forensic anthropology observes with the Judaic claims, to this territory i.e. city nation states is the best one could argue which is further acerbated by older claims. That is unless some zealots want to come out of the closet and except their Sumerian ancestry.

        skippy…. 3d1k I understand facts are difficult for your stripe to utilize but, please give it a try some day.

      • migtronixMEMBER

        Sod off 3d! “banging your head on these threads” he was the one that started it!!

        @Research use <em> text for italic </em>

        @firzroy I know that’s what I said

      • 3D – thanks for the kind offer, but not in Perth anymore…

        – hopefully that worked – thanks Migs

  2. migtronixMEMBER

    If anything tells you how broken the monetary system is the “good bank/bad bank” idea does. Who in their right mind would keep their money with the “good bank”?

  3. How is this a bail in? The shareholders and bondholders are taking a hair cut, as it should be. Taxpayers and deposit holders are not contributing. This is exactly how it should work.

    “Who in their right mind would keep their money with the “good bank”?”

    If the old management is running the good bank, nobody. If the old management is being replaced by better management, then the good bank might be OK.

    • If bondholders get hit, this will presumably have the effect of repricing risk in Portugal then Spain etc…

      This could potentially be huge.

      Edit: But you’re right – not sure why this is called a bail in.

  4. “It would have been better if the Jewish state just moved them on.”

    Ah,yes, ethnic cleansing, an oldie but a goodie.

  5. Back on topic:

    “The bad bank’s losses will be born by the bank’s junior bondholders and shareholders, including the Espirito Santo family, which has a 20 percent stake, and French bank Credit Agricole (CAGR.PA) which owns 14.6 percent.”

    They are going after the bondholders! Haha, wonder what this will do to reprice bank bond risks in the EU.

  6. boomengineeringMEMBER

    The Aussie gov’t has been talking about possible bail ins
    of our banks by depositors if need be in future.

  7. Jail every banker involved in wanting a bailout and every politician complicit,just like Iceland did.

      • “And their enablers in the political sphere.”

        Can we start with the silly buggers [ideologues disguised as economists {sociopolitical theorists}] that were payed to validate the free markets are self regulating and self equilibrium memes, and their patrons.

        skippy… you really don’t change anything by jailing people that were indoctrinated, better to go after the priests and their benefactors imo.

    • Our turn will come and it is important that every Australian is educated about the Icelandic solution.

      We all want to grow up and become Icelanders!

      • Exactly and Argentina done it as well.
        Also the Social Democratic structure of Norway shows how government looks after it`s citizens,

  8. seems to me this is definitely a step in the right direction….no? At least a small shift towards letting the market work as it should (creative destruction and all that).

    • migtronixMEMBER

      But remember aj, this time is definitely the last time, because its all going to get fixed…

  9. drsmithyMEMBER

    When the bail-ins come to Australia, I will be fascinated to see if mortgage offset accounts and redrawable sums are considered “savings”.

    • haha – mortgage offsets are in the frame for sure. The fine print on the draw-down would be interesting.

  10. I mentioned this on the “Links” thread, but Garth Turner at http://www.greaterfool.ca has a blog post (“Baleful”) discussing a recently released “bail-in” contingency plan for Canada.

    OK that’s an oversimplification but you should read the post. It could happen here.

    • Let me quote you the relevant bits so that you can gasp in amazement.

      “If a Canadian bank starts to wobble, the feds can ask CDIC (which provides deposit insurance) to set up a ‘good bank’ and transfer over to it all of the viable assets of the failing bank, including deposits. This state-owned bank could run for five years.

      The remaining assets would stay in the ‘bad bank’, which would be liquidated.

      Ottawa would cancel all of the outstanding shares of the troubled bank. Yes, cancel them. Poof.

      People owning bonds issued by the bank could also have their assets cancelled, and converted into common shares.

      This would include new ‘bail-in’ bonds, which are now being offered or designed, by the banks

      Deposits (including those insured to $100,000) would be excluded. Good. But, “the Government plans to undertake a broad review of Canada’s deposit insurance framework by examining the appropriate level, nature, and pricing of protection provided to deposits and depositors.” Let’s see what that comes up with.”

      • If the bank goes to shit, then I don’t see what you expect should happen to shareholders. If you buy shares in a shitty bank you should expect them to become worthless, not hang out for a taxpayer bailout.

        Similarly, if you bought bonds in any other company that became insolvent, you would expect to lose the capital. I don’t see what’s different about a bank.

        The bondholders and shareholders should be doing what any investor does; lean on the board/exec to run a non-“wobbly” bank, instead of a casino backed by the taxpayer.

        Unless they are talking about confiscating/converting depositor money, I’m going to sleep soundly.

      • I don’t think the shareholders have the clout to make the board/exec behave in the majority of cases. Look at how they reject remuneration packages and they still go ahead.

      • @littleguy: In that case, if they think the bank will become “wobbly”, they should sell (or factor the risk premium into their decision to hold), not expect the taxpayer to bail out their investment.

      • Commenter2095:

        no arguments from me: if a bank goes bung the shareholders lose. Though I wonder whether the banks are as large a proportion of the stock exchange in Canada as out here.

        I think the thing that is intriguing is that the Canadians are actively making contingency plans. Now maybe this is purely a reaction to Portugal, or just some pre-emptive prudent planning. But it’s interesting.