Lisbon, Portugal (4E) – Banco Espirito Santo SA was taken over by Portugal’s central bank following an approval of a 4.9bn-euro ($6.6bn) bailout to rescue the lender, a move that will bring losses to junior bondholders and current shareholders.
The move came as unexpected given that only a few weeks ago the central bank said Banco Espirito Santo’s capital was sufficient to withstand shocks from its Luxembourg-based parent that ran into problems after some accounting irregularities were discovered by an auditor.
Banco Espirito Santo’s deposit-taking business and most of its assets will be transferred by the Bank of Portugal’s Resolution Fund to a new company, Novo Banco. The rescue will be financed by a Treasury loan that will eventually be repaid by proceeds of the Novo Banco’s sale.
Junior bondholders and shareholders of once the nation’s biggest lender by market value will be left with the most “problematic” assets, according to a statement by the central bank. Under the bailout plan, senior bondholders and depositors will be spared.