Mounting alarm over Portugal's Espirito Santo bank roils markets

Thu Jul 10, 2014 4:56pm EDT
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By Daniel Alvarenga and Axel Bugge

LISBON (Reuters) - European and U.S. stock markets fell, and bond yields of Europe's southern nations rose on Thursday as investor fears over financial troubles at the family-owned holding companies behind Portugal’s largest listed bank spilled across markets and borders.

Portugal’s stock market regulator halted trading in Banco Espirito Santo after the shares fell 19 percent.

The sell-off followed a decision by Espirito Santo Financial Group (ESFG), which owns 25 percent of the Portuguese bank, to suspend trading in its shares and bonds due to "material difficulties" at its own largest shareholder, Espirito Santo International (ESI), which is controlled by one of Portugal's most important business clans, the Espirito Santos.

The market regulator said it would ban short-selling in BES stock on Friday.

ESFG, a conglomerate that also owns an insurance company and a Swiss bank, said it was halting trading while it assessed the impact of its exposure to ESI.

The movements in Portugal, which only recently exited an international bailout started at the height of the euro zone debt crisis in 2011, rattled investors continent-wide, and stock markets plunged.

U.S. stocks also fell, joining the European sell-off driven by troubles at the Portuguese bank.

Market volatility prompted Spain’s Banco Popular to call off a 750-million-euro bond issue, and construction firm ACS also withdrew a planned issue. Shares in small Spanish lender Liberbank, which said it had a 0.93 stake in Espirito Santo Financial Group, fell almost 10 percent earlier on Thursday, ending the day down 2 percent. Greece managed to place just half of a planned 3 billion euro bond placement.   Continued...

A man leaves the headquarters of Portuguese bank Banco Espirito Santo (BES) in Lisbon July 3, 2014. REUTERS/Rafael Marchante