European stocks, which slumped Thursday, rebounded slightly early Friday. Shares in Banco Espirito Santo, which plunged 17% before trading was suspended Thursday, rose in Lisbon Friday as the stock resumed trading.
So what’s going on and why does it matter? Here are four reasons to stay calm:
1. It’s a local problem: Banco Espirito Santo (BES) may be a big player in Portugal, but it accounts for less than a fifth of the country’s total banking assets and only 0.25% of the eurozone banking sector.
France’s Credit Agricole (CRARF), a much bigger international bank, stands to lose heavily on its 15% stake, but BES does little international business. Analysts at Commerzbank reckon 72% of the bank’s loans are domestic, with Angola (12%) and Spain (6%) its only significant foreign markets.
2. Regulators are on the case: Portuguese authorities have already forced the bank to raise €1 billion to strengthen its finances, and are in the process of overseeing the appointment of new management. That will end the control of the Espirito Santo family and improve corporate governance at the bank.
Those measures should provide insulation against further problems in the wider Espirito Santo group, which has been rocked by revelations of financial irregularities and the possibility of default.
Still, investors will want clarification quickly from the bank on the extent of its exposure to those risks.
3. Europe is getting its act together: Eurozone banks are still far from perfect but they’ve come a long way in the last two years. EU leaders have given themselves the tools to calm market panic by creating a permanent bailout fund — the European Stability Mechanism — and putting in place the essential elements of a banking union.
4 reasons to stay calm over crisis-hit Portuguese bank BES
July 11, 2014 by Leave a Comment