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Portugal Contagion Spreads: Espirito Santo To Default On Portugal Telecom Loan, Business Lending Drops Most On Record

Tyler Durden's picture




 

Despite reassurances from US asset-gatherers and TV 'personalities' that Portugal must be fixed (because US equities are up), it is anything but. Today's triple whammy from the 'recovered' Portugal starts with Banco Espirito Santo bonds and stocks hitting new record lows (down over 10% more on the day). The contagion has rippled across to Rioforte, which controls Grupo Espirito Santo's non-financial arm - and is likely to default on a EUR 847 million payment to Portugal Telecom. And just to add further salt to that wound, Portuguese business lending in May collapsed at a record pace (down 8.23%). But apart from that, yeash Portugal is all fixed and their sovereign bonds are worth every penny...

 

Step 1 - Banco Espirito Santo bonds and stocks continue to collapse...

 

Step 2 - The Contagion spreads to the rest of Portugal...

  • Rioforte, which controls Grupo Espirito Santo’s non-financial arm, is likely to default on 847m-euro payment due to be made to PT today, Folha de S.Paulo reports, without saying where it got the information.
  • Payment is part of 897m-euro debt to PT
  • Negotiations are still underway
  • Rioforte has been trying to sell assets over last few days to enable it to make the payment
  • Co. has potential to raise 300m euros from sales of assets, including Tivoli hotel chain
  • Rioforte, PT seek solution to enable loan payment, without changing terms of merger w/Oi
    Zero

 

Step 3 - Credit Creation is collapsing as business lending plunges by its most on record...

 

*  *  *

But apart from that Portugal is fixed

 

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Tue, 07/15/2014 - 08:30 | 4958499 firstdivision
firstdivision's picture

" likely to default on a EUR 847 million payment to Portugal Telecom"

but have no fear, this ISDA will state this will not trigger any CDS's related to this loan.

Tue, 07/15/2014 - 08:35 | 4958519 LawsofPhysics
LawsofPhysics's picture

Corporate bond holders to get the shaft?  inquiring minds want to know.  What's going on with Detroit these days?

Tue, 07/15/2014 - 08:41 | 4958535 GetZeeGold
GetZeeGold's picture

 

 

Howsa bout we stop screwing around and go in for the big fix this time?

Tue, 07/15/2014 - 08:46 | 4958547 pods
pods's picture

Need to dust off the "ringfence."

Or maybe Mario can just opine about how he COULD rigngfence it all in 15 minutes if needed?

pods

Tue, 07/15/2014 - 09:11 | 4958631 philipat
philipat's picture

Here's a great idea for a new CDS based on who defaults first, Portugal or Argentine? Payout will be in naked paper Gold shorts....

Tue, 07/15/2014 - 09:29 | 4958680 negative rates
negative rates's picture

Prepare for the dervatives default, their is no other reasonable option unless you include Mr. Bondy.

Tue, 07/15/2014 - 09:17 | 4958645 Ghordius
Ghordius's picture

wouldn't that be like shooting with bazookas on sparrows? Mario's silver tongue is a para-monetary asset. to be used sparingly, otherwise it depreciates

Tue, 07/15/2014 - 08:44 | 4958542 Latina Lover
Latina Lover's picture

Gold is down 2.5% after a mysterious seller dumped 1.37 billion AU futures.  So, everything is OK with Portugal, nothing to see here, move along... central banks wouldn't never steal your funds via bail ins.

Tue, 07/15/2014 - 09:06 | 4958617 GetZeeGold
GetZeeGold's picture

 

 

Yesterday called.....it said you could come back to the future.

Tue, 07/15/2014 - 08:31 | 4958503 fonzannoon
fonzannoon's picture

It's articles like these that make me feel good about owning a diversified combination of U.S stocks and bonds. 

Tue, 07/15/2014 - 08:47 | 4958551 Sudden Debt
Sudden Debt's picture

No AIG stocks? I bet they'll have some new crap that is linked to everything yet again.

Tue, 07/15/2014 - 11:49 | 4959279 StacksOnStacks
StacksOnStacks's picture

"Bears Stearns is fine." - Jim Cramer

Tue, 07/15/2014 - 08:37 | 4958509 Tjeff1
Tjeff1's picture

They will fall like dominoes:

https://www.youtube.com/watch?v=1qoq9jIjpNM

Tue, 07/15/2014 - 08:34 | 4958513 Winston Churchill
Winston Churchill's picture

As non contagious as a case of the "Black Death".

No worries ,the great fire of New York(2014) with deal with it.

Tue, 07/15/2014 - 08:34 | 4958514 LawsofPhysics
LawsofPhysics's picture

"credit creation is collapsing"  -  So what, there is no real energy that goes into "creating" credit today, nor are there any real collateral requirements...

This should end like it always does....  bail-in bitches, no one in management loses any wealth or their job...

Tue, 07/15/2014 - 08:35 | 4958516 Squid Viscous
Squid Viscous's picture

bullish, and the squid had great earnings... i'm even more all in than I was yesterday

Tue, 07/15/2014 - 08:35 | 4958517 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Yes you can default. Just do it.

Tue, 07/15/2014 - 08:35 | 4958520 Ban KKiller
Ban KKiller's picture

Non GAAP, crooked accountants, to the rescue! Buy, buy, bye, bye.

Tue, 07/15/2014 - 08:36 | 4958522 Captain Obvious.
Captain Obvious.'s picture

"Contagion", where have I heard that word before? Ah Yes-now I remember.

Tue, 07/15/2014 - 08:36 | 4958526 Non Passaran
Non Passaran's picture

The second chart is looking very bullish, it's time to buy a crapload of out of money calls!

Tue, 07/15/2014 - 08:37 | 4958527 Dr. Engali
Dr. Engali's picture

Where's my bazooka when I need it?

Tue, 07/15/2014 - 08:42 | 4958538 buzzsaw99
buzzsaw99's picture

the ecb or imf will buy them

Tue, 07/15/2014 - 10:12 | 4958825 HardlyZero
HardlyZero's picture

Argentina --> Bulgaria --> Portugal --> Austria --> ?

It's a mess !   

Cyprus paved the way.

 

Bulgaria central bank starts talks about European supervision

http://www.reuters.com/article/2014/07/15/bulgaria-banking-cenbank-idUSL6N0PQ2RZ20140715

Tue, 07/15/2014 - 08:44 | 4958543 youngman
youngman's picture

There a re plenty of people with experience to ask for advise.....Puerto Rico..Detroit..Chicago..they all keep it going even though they are broke..I am sure they can sell more bonds too...its just the interest rate that people are chasing..not the quality of the borrower..sell sell sell..and the rate chashers will buy buy buy

Tue, 07/15/2014 - 08:49 | 4958556 Ghordius
Ghordius's picture

"Despite reassurances from US asset-gatherers and TV 'personalities' that Portugal must be fixed (because US equities are up)..."

irksome, all those US "TV personalities" constantly telling that "Europe is fixed" or similar rah rah bla bla like "they must fix it for us". particularly for us europeans

yet... lo and behold: in Europe, failures are possible. though of course derivatives make what would be a partial, localized affair a Potential Big Thing

remind me, when are we going to segregate all this casino-mentality betting affair called derivatives from sound banking? because let's be frank: if we continentals do it first, the very same TV personalities are going to attack us for being "all socialists" and "anti-capitalists". and if we do it first, we'd have to close our borders for foreign capital, or a similar permutation of an escalation from currency wars to "capital wars"

Tue, 07/15/2014 - 08:53 | 4958569 buzzsaw99
buzzsaw99's picture

i'd be happy if anyone anywhere would just let it burn. the longer they fight it, the worse it will be in the end.

Tue, 07/15/2014 - 09:12 | 4958634 Ghordius
Ghordius's picture

what? no patriotic bone in your hideosly deformed avatar body? remember that some US "strategists" think that if all the others crash and burn first... then US malinvestments don't count anymore, and everything flees to safety - aka USD assets

the same reasoning that led to many "short victorious wars", to Dr. Krugman's diatribes against the EUR and in favour of an intergalactic war, etc. etc.

meanwhile Tyler (bless his little soul) is still riding on the "business lending drops most on record" horse. I repeat my humble opinion to it: you can lead the horse to water, but you can't make it drink. the real european economy is based on SMEs, particularly in the South, like in Portugal. their funding is based on bank loans. and european SMEs don't want to increase their lending, in fact, they are busy paying back

Tue, 07/15/2014 - 08:53 | 4958570 d edwards
d edwards's picture

If I remember my espanol "Espirito Santo" translates "Holy Spirit."

 

Looks like they could use some divine intervention!

Tue, 07/15/2014 - 09:40 | 4958694 Tall Tom
Tall Tom's picture

Did not downarrow you but...

 

People in Portugal speak..er...um...Portuguese and not Spanish. Yes they are both Latin languages but they have marked differences.

 

With that you are still correct in the translation of Espirito Santo.

 

By the way they are having a Divine Intervention...

 

Using the name of the Holy Ghost to commit fraud, theft  and deception on a massive scale is rather blasphemous. To blaspheme the Holy Ghost is actually the only unpardonable sin.

 

They have set upon themselves Worldly Destruction and Eternal Hellfire for doing that. I am utterly astonished that an earthquake does not crack the foundations and a subsequent fire raze and level that Bank. Of course this has just begun and it is nowhere near over.

 

It is just not the type of Divine Intervention for which you were hoping.

 

Be careful of what you ask from God. You may just get it.

Tue, 07/15/2014 - 15:47 | 4960251 Miffed Microbio...
Miffed Microbiologist's picture

Yeah, I found that out the hard way. A friend of mine who spoke fluent Italian and I were traveling in Italy. When we flew to Palermo I was worried how we were going to communicate. He laughed at me confidently he could get us around. Trying to get coffee after the first few minutes after landing, he looked at me and said " I think were kinda fucked."

Miffed;-)

Tue, 07/15/2014 - 12:18 | 4959407 Emergency Ward
Emergency Ward's picture

In Spanish, espíritu santo is the holy spirit or the holy ghost.  This words are similar but not the same in Portuguese.

Wed, 07/16/2014 - 03:20 | 4961839 Tall Tom
Tall Tom's picture

From Google Translate the English Translation of espirito santo is Holy Spirit.

 

https://translate.google.com/#pt/en/espirito%20santo They translate the same.

Tue, 07/15/2014 - 11:59 | 4959316 jzz
jzz's picture

To Gordius.

From all the comments I've read so far (for last 6 years on ZH) yours was always sticking out. And I don't mean it in positive way. Comments were too offten fervently biased as anti American and so pro Europe.

My question to you is ....are you on the payroll from Bruxelles ? Cause only deaf and blind person can't figure out by now  that the whole EU project is child between banks and big bussiness (read Germany and used to be France) Well that is what USA is all about so........what is your point .....?

Tue, 07/15/2014 - 08:57 | 4958588 Bernoulli
Bernoulli's picture

This is not true! Portugal is safe and sound. All is well. I read it on the German government website in March 2014.

http://www.bundesregierung.de/Content/EN/Artikel/2014/03/2014-03-18-coel...

So stop the doomsday reporting, ZH, this is really not fair.

/s

 

Tue, 07/15/2014 - 09:09 | 4958626 All is chosen
All is chosen's picture

Mafia familia banana republicana reigns supreme.

Come on guys, restart the revolution, but this time complete the purge.

Tue, 07/15/2014 - 10:27 | 4958687 alexdg
alexdg's picture

There are talks about ESFG selling their insurance business Tranquildade, but it's valued at a paltry 300M eur and at distressed times they'll probably get even less for that. 

Meanwhile daily financial newspaper "Negócios" has published an article stating that BES has a total exposure of 3B eur in loans to it's Angolan unit BESA. BESA has been a zombie bank since the financial crash in 2009. At the time crude (Angola's main export, representing 95% of the countries revenue) had fallen from $140 a barrel down to $40. The Angolan Central Bank (BNA) said they had plentiful reserves to weather the storm, but it didn't take long before they had to put in capital controls and individuals and companies where stranded holding on to Kwanzas or supposed dollars accounts in banks and no way of getting them out of the country. It is said that at the time the elite of the country took out huge loans at BESA and quickly wired the money abroad, basically draining all of BNA's reserves and hence action by the central bank in capital controls. Ever since 2009 BESA has been a zombie bank, customers with large deposits were basically stranded only allowed to wire very small amounts at a time with daily and weekly limits. 

http://www.jornaldenegocios.pt/empresas/banca___financas/detalhe/bes_tem...

The news coming from Angola is that the Govt will probably nationalise BESA, but details are still lacking. It could be that not all creditors will be guaranteed. If so, BES will take another hit on it's loan book in addition to the very probable hit it will take from all of the GES (Espirito Santo Group) financing deals. Last Thursday night BES issued a statement opening their book on the exposure they have with GES, claiming that even in a 100% writedown their CT1 would still be above required limits. If they take another 3B eur hit it is pretty obvious that the CT1 will be in serious distress, making a Govt/State intervention increasingly likely, something that would very untimely for Portugal given that has lost the Troika umbrella. I recall that Troika set up a 12B Eur package for bank recapitalization, at the time BES said the didn't need one, so financing this aid thru the deficit would be painful at this time. Then again the Angolan Govt might actually do good on those BESA loans, probably in exchange for more political and influence cloat in Portugal, given that the President's daughter (Isabel dos Santos) and the state owned oil company Sonangol already own about substantial stakes in: major portuguese banks BCP Millennium and BPI, 2nd largest telco NOS, and plenty of real estate country wide.

The Espirito Santo Family is practically wiped out of their "own" bank. They owned 25.1% of BES but 5% has been margin called by Nomura and the remaining 20% is earmarked as guarantee on bonds issued by ESFG, that means they have 0.1%. The way things are going, Portugal Telecom will take a serious hit on those ~900M eur invested in 3month Commerical Paper at RioForte. Indeed they know this themselves and stated yesterday afternoon that they would be willing to rollover that debt for an additional 12 months as to give GES time to recover. Sounds pretty desperate indeed.

 

Tue, 07/15/2014 - 15:03 | 4960043 All is chosen
All is chosen's picture

Good info. Thxs.

Tue, 07/15/2014 - 09:38 | 4958697 astoriajoe
astoriajoe's picture

"

  • Co. has potential to raise 300m euros from sales of assets, including Tivoli hotel chain"

That's gotta be liquid, right? Almost like treasuries.

Tue, 07/15/2014 - 12:28 | 4959447 syntaxterror
syntaxterror's picture

Relax. Everyone gets a bailout. Never fear. Back to your trading terminals.

Forward!

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