Portugal averts BES disaster with rescue and new bank

GMT 09:18 2014 Tuesday ,05 August

Arab Today, arab today Portugal averts BES disaster with rescue and new bank

BES (Espirito Santo Bank)
Lisbon - AFP

Portugal's prime minister narrowly averted a national disaster and a fresh eurozone crisis by launching a new bank as part of a rescue totalling nearly 5.0 billion euros for Banco Espirito Santo.
Wielding new EU rules to shield taxpayers and governments from near-bankrupt banks, Portugal and the European Union moved fast to pre-empt a collapse of confidence when markets and banks opened for business Monday.
The bank was in dire straits after reporting a record loss last week on top of insolvency for its three holding companies amid allegations of accounting fraud.
Its share price plunged and trading was suspended.
Portugal's Finance Minister Maria Luis Albuquerque insisted that those responsible for the financial irregularities behind the BES debacle "should face severe penalties".
"There must be an enquiry," she added in a television interview.
The rescue, announced late on Sunday, immediately pushed down Portugal's critically important borrowing rates on the eurozone debt market, where the country has only just won back fragile credibility after exiting a three-year international aid programme.
The European Commission lost no time in clearing the rescue as meeting EU competition rules, and said it would "restore confidence in financial stability" and avoid the risk of "systemic effects".
The incoming head of the Commission, Jean-Claude Juncker, said in Athens that the situation in Portugal remained "fragile", adding that "we must remain vigilant... Across Europe, we could be affected by things which we cannot predict".
- Reduced cash buffer -
Banco Espirito Santo is the third-biggest bank in Portugal, playing a role across the economy with major interests in insurance, property, tourism and the health sector.
The rescue helped push up prices on European stock markets, where investors had been worried about possible knock-on effects if the bank crashed.
Portugal emerged from a three-year bailout by the International Monetary Fund and EU only in May, and was winning praise as a success story for reforms imposed by the eurozone in the midst of its debt crisis.
The BES crisis put this newfound confidence in jeopardy.

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