Portugal's PM tries to soothe investors; BES says can cover any losses

Fri Jul 11, 2014 3:43pm EDT
 
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By Sergio Goncalves and Laura Noonan

LISBON (Reuters) - Portugal's government and central bank assured investors on Friday that the southern European country's financial system was sound, aiming to quell worry about the spillover effects of trouble at the Espirito Santo business empire.

"It is important that Portuguese and foreign investors... remain calm about the bank and our financial and banking system," Portuguese Prime Minister Pedro Passos Coelho told reporters in Lisbon.

Recent disclosures of financial irregularities at a web of family-held holding companies behind Portugal's largest listed bank, Banco Espirito Santo, have raised questions about potentially destabilizing losses at the bank and other companies in the family's orbit. That worry sparked a rout in global markets on Thursday, pushing up bond yields and reviving memories of the region's debt crisis: Some European companies even abandoned long-planned fundraising operations.

In a statement late on Thursday night, BES insisted that any losses relating to the bank's 1.15 billion euros exposure to Espirito Santo holdings would not put it at risk. The bank said it had 2.1 billion euros in capital above minimum regulatory requirements as of March 31, taking into account a further 1 billion raised via a June share sale.

The statement partially steadied market jitters on Friday in Portugal and beyond. European markets edged higher and Italy paid record low yields at an auction, shrugging off fears that had weighed on the sovereign debt markets earlier in the week.

Portugal's PSI index closed up 0.6 percent. BES shares opened up 11 percent when trading resumed after a suspension, though the stock then seesawed, closing down 5.5 percent, despite a ban on short selling in the stock.

Portugal's CMVM market regulator said on Friday it had extended this "shorting" ban on BES shares for two more days.

  Continued...

 
A man uses an automated teller machine of Portuguese bank Banco Espirito Santo in downtown Lisbon June 20, 2014.  REUTERS/Rafael Marchante