Ailing Portuguese bank’s shares sink after losses

BARRY HATTON
Associated Press

LISBON, Portugal (AP) — The woes of troubled Portuguese bank Banco Espirito Santo deepened Thursday as its share price plunged on the Lisbon stock exchange, a day after it reported a record half-year loss of 3.58 billion euros ($4.8 billion).

The exchange suspended trading in the bank’s shares for 90 minutes after the market opened, giving investors a chance to digest the results announced late Wednesday. But the stock immediately sank in a sell-off, dropping by more than 50 percent in volatile early trading before recovering to a loss of around 25 percent by midday. The bank’s share price, which four months ago was around 1.3 euros, fell as low as 0.17 euros.

The fall began after an audit discovered accounting irregularities at the bank’s parent company and gathered momentum after three of the Espirito Santo family’s holding companies requested bankruptcy protection. Police suspect the former chief executive, Espirito Santo family patriarch Ricardo Salgado, of fraud, money-laundering and forgery. Police searched the Lisbon head office of the Espirito Santo’s non-financial holding company Rioforte on Wednesday.

The bank’s new board said its recovery plan will include a recapitalization and sale of non-strategic assets. Portuguese officials have indicated private investors are standing by to invest in the bank, but the surprising size of its losses could force Banco Espirito Santo to seek government help, too. The government says it has 6.4 billion euros available to recapitalize the bank if necessary. The bank’s leverage ratio is now 5 percent — below the minimum 7 percent demanded by the Bank of Portugal.

After the losses were announced, the Bank of Portugal stripped the Espirito Santo family’s holding company of its voting rights at the bank. It also suspended the three board members in charge of supervision, auditing and risk management, after auditors discovered a 1.5 billion-euro black hole in mid-July.

The half-year results suggested illegal activity had taken place at Banco Espirito Santo, the central bank said in a statement. The regulator has already ordered a forensic audit of the bank which could be used for a prosecution.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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