Espirito Santo: The Full Timeline

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Remember when everyone ignored this story about Espirito Santo in May: "Portugal's Largest Bank "In Serious Financial Condition" Auditor Warns." Good times. Alas, one can only kick the can of Europe's banking sector insolvency so far before everything blows up in everyone''s face all over again and Draghi has to come out of his crypt and spook everyone that he will do "whatever it takes" to ignore reality and just pretend stuff is fixed which carries Europe over for a few more months before the whole charade has to be repeated.

In the meantime, those who would rather ignore Draghi's illusiory European utopia, in which infinite carry trades will magically fix everything, and instead prefer to focus on the reality, here is Bloomberg with the full timeline of how Spain's largest lender "completely unexpectedly" ended up on a death bed.

First, the org chart:

 

Here are ESFG's numerous lines of business:

Since accounting irregularities were identified at Espirito Santo International in May, Espirito Santo Financial Group’s (ESFG) junior debt has fallen by ~95 cents on the euro while Banco Espirito Santo’s (BES) Tier 2 bonds have shed 21 cents over the same period. BES’ and ESFG’s shares have dropped 33% and 53%, respectively, from closing May 20 to closing yday

BES’ two largest shareholders are ESFG, which owns 25%, and Credit Agricole (14.6%)

ESFG is 49%-owned by Espirito Santo Irmaos, which in turn is fully owned by Rioforte Investments, which is fully owned by closely-held Espirito Santo International (ESI)

May 20:

  • External audit concluded ESI in “serious financial situation,” BES said in prospectus for rights offer

June 11:

  • BES CEO Salgado said reduced influence of “core group of shareholders” may imply “governance adaptations

June 19:

  • BES board to resign, Expresso reported; process to approve new governance model concluded by end of July

June 20:

  • Espirito Santo dynasty loosens grip on 94-yr-old namesake bank
  • BES shares suspended from trading at the request of regulators, Euronext said

June 26:

  • Ratings of BES and ESFG placed on review for downgrade at Moody’s

June 27:

  • Luxembourg justice authorities investigating three Espirito Santo holding cos., Reuters reported
  • BofAML cuts BES senior and subordinated bonds to underweight from overweight

June 28:

  • Grupo Espirito Santo invites creditors of ESI to become shareholders in Rioforte, Expresso reported

June 30:

  • Portugal Telecom confirms it held EU897m in CP issued by Rioforte
  • BES, ESFG naked short sales temporarily banned; regulator cites declines in both shares

July 1:

  • BES holds EU980m of debt from Grupo Espirito Santo cos., Diario Economico reported

July 3:

  • ESFG said not under investigation by Luxembourg authorities; ESFG also said:
  • Exposure to Grupo Espirito Santo was EU2.35b as of June 30
  • Exposure to ESI and Rioforte was EU1.37b at end of 2013
  • Borrowing from BES was EU823m as of June 30
  • Borrowing from BES was EU823m as of June 30

July 5:

  • Bank of Portugal said BES will now be ‘perimeter of supervision’ after reduction of ESFG’s voting rights in BES
  • Credit Agricole said it will support ESFG proposals for BES

July 7:

  • Market levels between ESFG and BES T2s widen; analysts flag BES de-consolidation as likely outcome

July 8:

  • Banque Privee Espirito Santo said ESI delays S-T debt payment
  • Banque Privee clients receive proposal to convert GES debt, Expresso reported
  • Portugal Telecom debt deal draws criticism from Brazil’s state development bank BNDES

July 9:

  • ESFG long-term ratings cut three levels to Caa2 by Moody’s; On review for downgrade
  • BES shareholders to vote on new Chairman, CEO and CFO on July 31
  • CMVM probes Portugal Telecom’s Rioforte CP investment, Expresso reported

July 10:

  • ESI considers insolvency request, if it can’t reach debt renegotiation agreement with main creditors, Diario reports
  • ESFG suspends shares and listed bonds on Luxembourg and Euronext stock exchanges

* * *

And as an added bonus, here is ESFG's disclosure on deposits:

Liquidity risk arises from present or future inability to pay liabilities as they mature without resulting in exaggerated losses. Banks, by virtue of their business of providing long–term loans and receiving short–term deposits, are subject to liquidity risk. In recent years most banks have increasingly resorted to obtaining funds from market sources instead of from their traditional sources (retail deposits), especially in countries where savings are typically scarce due to economic stagnation, as is the case in Portugal. It is therefore important for banks to maintain a prudent and sound management of their liquidity risk, particularly in times of market turmoil. Although the ESFG Group puts great effort into liquidity risk management, focusing on maintaining surplus liquidity in the short term, the ESFG Group is exposed to the general risk of liquidity shortfalls and cannot ensure that the mechanisms in place to manage such risks will be suitable to eliminate liquidity risk

And this:

 

You know it's getting bad when Portugal's biggest bank's bond yields are worse than Argentina's

 

Source: Bloomberg