Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Investment Lessons From the Portuguese Bank Panic

Stock-Markets / Credit Crisis 2014 Jul 20, 2014 - 12:29 PM GMT

By: Money_Morning

Stock-Markets

Shah Gilani writes: So what if there was some momentary panic over some bank in Portugal last week?

So what if contagion fears spilled out across the globe and markets tanked?

It's all better now. Everything has been cleared up. Really, it was nothing.


How do we know it was nothing? Because the bank's regulators and the country's central bank, Banco de Portugal, are telling us so.

It's all contained, they say.

We got similar assurances from the U.S. Federal Reserve and U.S. bank regulators after Bear Stearns collapsed. After Lehman failed, we were assured everything would be contained.

If you are reassured, don't read on, because I'm going to ruin your day.

Banco Espirito Santo: Bring in the Clouds

Banco Espirito Santo SA is the largest lender in Portugal. It's also the second-largest bank in Portugal in terms of its market valuation. Well, maybe not any more.

Whatever Banco Espirito Santo is - or was - it definitely isn't transparent.

Banks are supposed to be transparent. At least that's what we expect them to be.

And if we can't see through them, and of course we can't, we expect their regulators to have X-ray vision. After all, we count on regulators and central banks (the ultimate regulators) to safeguard us from bad banks.

Then again, some people depend on winning the lottery as their retirement plan.

Banco Espirito Santo is 25% owned by Espirito Santo Financial Group. Espirito Santo Financial Group is 49% owned by Espirito Santo Irmaos SGPS SA. Espirito Santo Irmaos SGPS is wholly owned by Rioforte Investments SA. Rioforte Investments is wholly owned by Espirito Santo International.

That's transparent, right?

Espirito Santo International, the top dog in the food chain, said on July 8 that it missed payments to some investors holding its short-term commercial paper. Oops.

Panic ensued because Espirito Santo International controls Banco Espirito Santo, and creditors of International could go after assets of Banco Espirito.

That's just the tip of the iceberg - there's more.

The collective group of Espirito Santo companies and Rioforte has borrowed a lot of money from Banco, its clients, and its depositors.

Retail clients of Banco Espirito Santo were sold 255 million euros of Espirito Santo International's commercial paper, 342 million euros of Rioforte's paper, 44 million euros of Rioforte subsidiaries' paper, and 212 million euros of commercial paper and bonds issued by Espirito Santo Financial Group and its subsidiaries.

Institutional clients of Banco Espirito Santo are holding 511 million euros of Espirito Santo International's debts and 1.5 billion euros of Rioforte paper.

And there's the bank itself. Banco Espirito, in the spirit of lending to family, lent Espirito Santo Financial Group and Rioforte more than 1.1 billion euros.

So here's why there's nothing to worry about.

Despite Banco Espirito itself having a 517.6 million euro loss in 2013, it says it's got a 2.8 billion euro cushion. It always says it's cushioned up. In fact, back in 2011 when panic was sweeping the European banking system and the International Monetary Fund and the European Union rolled out a massive bailout fund, Banco Espirito was the only one of Portugal's three biggest banks to not take any money on account of its determination to prove to markets it was in fine shape, thank you. Sound familiar?

Despite Banco Espirito having a 6 billion euro-plus book of loans to companies and borrowers in Angola (a former Portuguese colony), of which 84% are now characterized as "bad loans," it says it's got a 2.8 billion euro cushion.

Despite what may look like a lack of transparency, which hopefully I've cleared up for you, if Banco Espirito Santo's regulators and the Banco de Portugal say there's nothing to worry about, and they should know because they obviously didn't see any of this coming, then there's nothing to worry about and this is already all contained.

We can all sleep better now.

More from Shah Gilani: Facebook wants us to believe their news feed experiment is no big thing - but here's why we should all be concerned about this...

Source : http://moneymorning.com/2014/07/14/banco-espirito-santos-newfound-clarity-just-makes-things-foggier/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules