Portugal 'Dead Cat Bounces' After Reassurances From Central Bank

Tyler Durden's picture

Banco Espirito Santo stocks and bonds are up notably this morning following comments from the Portuguese Central Bank that shareholders are interested in injecting more capital into the failed bank. This has - for now - reassured investors that a bail-in won't be necessary but, as Jefferies notes, "it's hearsay for the moment but it’s helpful." Chatter that "someone" is willing to throw another EUR 2 Billion at this "troubled" financial entity was enough to spur risk-on buying in most of European stocks with Portugal PSI20 surging almost 4%. The question is - after all this additional capital (at what will likely be a major haircut to current equity prices), who will do business with this bank (and why?) after already suffering through the fear of deposit confiscation or debt haircuts?

 

As Bloomberg notes,

Portugal’s central bank said shareholders are interested in injecting more capital into Banco Espirito Santo SA after a second affiliate failed to repay short-term debt.

 

Bonds and shares in the Lisbon-based lender jumped following the comments from Bank of Portugal Governor Carlos Costa. Rioforte Investments SA, a holding company in the Espirito Santo group, missed a 847 million-euro ($1.2 billion) payment of commercial paper yesterday.

 

Investor concerns that bondholders would take losses should financial problems within the Espirito Santo group spill into the bank prompted a 25 percent slump this month in the lender’ssubordinated debt through yesterday. Its shares lost more than 40 percent of their value.

 

“There are certainly shareholders interested in participating in a capital increase,” Costa told Portuguese broadcaster TVI. The bank has a “capital cushion to deal with the risks with which it’s confronted,” he said.

 

Banco Espirito Santo Sub bonds have bounced notably on the news (as hopes that a haircut won't be needed)

 

It doesn't seem like the broad market is convinced this is over...

 

And Portugal bond spreads are down only modestly.

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Cue capital controls?