Portugal to rescue BES using remaining bailout money

Sun Aug 3, 2014 1:06pm EDT
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By Sergio Goncalves

LISBON (Reuters) - Troubled Portuguese lender Banco Espirito Santo is expected to be split into "bad" and "good" banks under a multi-billion euro state rescue plan being hashed out by Lisbon and EU authorities, people familiar with the talks said on Sunday.

The plan, aimed at saving a bank that has been engulfed by the fall of the Espirito Santo family’s business empire, includes using at least half of the 6 billion euros left from Portugal’s recently exited international bailout program, these sources said.

The bailout money will be used to finance a special bank resolution fund set up by Portugal in 2012 that will in turn inject money into the new Banco Espirito Santo, or BES, "good bank", these people said.

BES shares would be delisted under the plan, with shareholders likely to lose their investment, they added.

One source said the injection could be of at least 4 billion euros. It was not clear how the bad bank would be handled.

The plan, which is also being worked on by officials from the European Central Bank and European Commission, was due to be announced late on Sunday evening. Details were still being hashed out and an announcement could be postponed until Monday, the people familiar with the talks said.

The use of the bank resolution fund – which will eventually have to reimburse the state after recouping money from future investors – is aimed at limiting the political fallout of using taxpayer money to prop up a bank at a time when Portugal is only just emerging from a deep economic downturn, they added.

The scramble to save Portugal’s largest-listed bank by assets comes after BES last week posted a deeper than expected 3.6 billion euro loss and said it was exposed even more deeply than originally thought to a cascade of bankrupt companies belonging to its founding Espirito Santo family.   Continued...

A man passes by an office of Portuguese bank Banco Espirito Santo (BES) in downtown Lisbon August 1, 2014. REUTERS/Hugo Correia