Currency Analyst since 2010

Portugal rescued troubled bank

Portugal’s central bank unveiled a plan to rescue the nation’s second-largest lender – Banco Espirito Santo – that has been engulfed by the fall of the Espirito Santo family’s business empire. The state of this bank quickly deteriorated as on Wednesday reported a 3.6 billion euro loss in the first half of the year. BES shares lost 75% of their value in a week.

Now the bank is expected to be split into 2 banks – “bad” and “good”. In addition, the “good” bank called “Novo Banco” will get a money transfusion. According to sources, this will require at least half of the 6 billion euro left from Portugal’s recently exited international bailout program. This way the authorities plan to protect taxpayers from bearing the bailout cost.

On the one hand, the news that the bank is safe and that the depositors have been guaranteed is good. On the other hand, Portugal has now less emergency funds left. It may also worry investors that such a big bank has been hiding its problems for such a long time and raise questions about the condition of other European banks. The ECB is going to conduct banking stress tests soon. If the market feels negative about this whole issue, this may have a negative impact on euro.

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