Goldman Does It Again: Banco Espirito Santo Bonds & Stock Are Crashing

Tyler Durden's picture


A week ago, investors were exuberantly buying Banco Espirito Santo (BES) stocks and bonds on the back of disclosures from Goldman Sachs that they have bought stakes in the bank "by virtue of its client transactions." This morning, Goldman along with its muppeted clients  (and hedge funds D.E.Shaw and Baupost) are licking their falling-knife-catching wounds as the stock of BES is down over 50% to new record lows and its bonds have cratered nearly 20 points to 57, after announcing a stunning $5 billion loss. Exuberance has turned to fear over 'burden-sharing' and bail-ins across the capital structure.




As Bloomberg reports,

Concerns persist over possible burden-sharing for subordinated debt, and even senior debt, after BES loss, CreditSights analysts John Raymond and Puja Poojara write in client note.


1H loss was as bad as anticipated, and lack of firm details on how CET1 will be returned to levels consistent with AQR, and surprise losses related to repackaged bonds and special purpose entities suggest situation is worse


Absence of concrete information on any capital support that may be in works, and on whether reported backing continues: CreditSights


With CET1 capital ratio at 5%, and 8% likely the requirement for both local regulator and baseline in ECB stress test, calculates needs of EU4b to boost capital to ~EU7b and transitional ratio to >11.5% before stress test

*  *  *

The bottom line - this is not going to get any better anytime soon as once again the European 'rules' are set to be changed and the 'template' from Cyprus maybe applied.

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Thu, 07/31/2014 - 08:26 | 5026644 jubber
jubber's picture

and Gold plummets with this and Argentina LOL

Thu, 07/31/2014 - 08:31 | 5026662 GetZeeGold
GetZeeGold's picture



....and my grandkids just received another IOU from Yellen this morning.

Thu, 07/31/2014 - 08:36 | 5026682 dontgoforit
dontgoforit's picture

Blasphemy to name a bank after the Holy Spirit.  No wonder it failed.  Harbingers of things to come.  Don't even try to hold your breath - the smell is just going to keep getting stinkier.

Thu, 07/31/2014 - 08:38 | 5026687 SafelyGraze
SafelyGraze's picture



Thu, 07/31/2014 - 09:11 | 5026807 Ghordius
Ghordius's picture

was it really blasphemy for José Maria Espirito Santo da Silva to found a bank in 1884 with his family name? how likely was it that in Portugal, a very devout Christian nation, particularly in the 19th Century, a guy christened by his parents "Joseph & Mary" (JC's foster father's and mother's names) would be allowed to blaspheme in a country where this kind of thing was considered a crime?

btw, Espirito Santo is typical for foundlings, which were given family names from the parishes that adopted and raised them. different customs, similar to the typical Spanish and Latin American christian name... Jesus

Thu, 07/31/2014 - 09:07 | 5026789 Groundhog Day
Groundhog Day's picture

It's Ok, this is GS, they'll just undo the trades as if they never happened. A do over if you will

Thu, 07/31/2014 - 09:25 | 5026867 RaceToTheBottom
RaceToTheBottom's picture

A Mulligan.  Plus they have POTUS printed on their balls....

Thu, 07/31/2014 - 08:49 | 5026730 yogibear
yogibear's picture

Those central bank naked shorts are killers for the PMs.

If Russia and China wanted to they could reveal the amount of over-subcribed paper to real PM assets.

Thu, 07/31/2014 - 09:30 | 5026871 junction
junction's picture

Goldman Sachs' advice on buying these bank bonds is comparable to what happened on 9/11/2001 on the 44th floor elevator lobby of Two World Trade Center.  A jet had just crashed into One World Trade Center.  Employees who had evacuated their offices on higher floors of 2WTC got off the satellite elevators that served the higher floors and went to take one of the six jumbo elevators that went non-stop to the ground floor.  Then, over the  public address system, someone from the Port Authority (unidentified then and now) told the employees and visitors to return to their offices upstairs  repeating the message.  In other words, get back to work, peasants.  A few minutes later, the second jet (with no markings on it) crashed into Two World Trade Center, trapping those people who were on higher floors after RDX military explosives blew out the staircases.  The sprinkler system had already been disabled during the building shutdown over the weekend to supposedly install new power cables (power was shut off and security cameras no longer worked from the 45th floor and above).  That PA message was a death sentence for the employees who obeyed.  Goldman Sachs acted like that voice over the 2WTC PA system, sending investors who followed Goldman Sachs advice to their financial doom.  

Thu, 07/31/2014 - 12:59 | 5027862 jarana
jarana's picture

It seems they've lost the "tune" a bit in interacting with markets not rigged by them...

Thu, 07/31/2014 - 08:26 | 5026645 NoDebt
NoDebt's picture

How to make a quick 50% return on your investment in a failing bank:  first lose 90% by listening to Goldman's retail recos.

Thu, 07/31/2014 - 08:26 | 5026646 geotrader
geotrader's picture

Sure didn't see that coming.

Thu, 07/31/2014 - 08:27 | 5026647 101 years and c...
101 years and counting's picture

come on ECB, time to force capital controls in portugal.  steal their money.  steal their money. just like you fuckers did in cyprus.

Thu, 07/31/2014 - 08:38 | 5026690 dontgoforit
dontgoforit's picture

Cryphus, cyprus'd again.

Thu, 07/31/2014 - 09:14 | 5026822 Ghordius
Ghordius's picture

you mean Cypress, don't you?

Thu, 07/31/2014 - 10:07 | 5027017 tvdog
tvdog's picture

Cypress is a tree. Cyprus is a country.

Thu, 07/31/2014 - 10:15 | 5027035 Ghordius
Ghordius's picture

tell this to the Cyprus-Crisis ZH Posters of that time. or, better, to their spell-check. have a look in the archives, if you don't believe me

Thu, 07/31/2014 - 08:27 | 5026648 lakecity55
lakecity55's picture

The avatar at left says it all.

Thu, 07/31/2014 - 08:27 | 5026651 Its_the_economy...
Its_the_economy_stupid's picture

A week ago, investors were exuberantly buying Banco Espirito Santo (BES) stocks and bonds [from Golman Sachs] on the back of disclosures from Goldman Sachs that they [had] bought stakes in the bank "by virtue of its client transactions."


There, fixed it.

Thu, 07/31/2014 - 08:28 | 5026652 buzzsaw99
buzzsaw99's picture

Goldman Sachs that they have bought stakes in the bank "by virtue...

"by virtue"? "Goldman Sachs"? VIRTUE? WTF?

Thu, 07/31/2014 - 08:36 | 5026673 GetZeeGold
GetZeeGold's picture



I can remember when virtue made one feel gay. That was back when GS was reputable.

Thu, 07/31/2014 - 09:40 | 5026927 venturen
venturen's picture

Gay in the sense of bending over?

Thu, 07/31/2014 - 10:29 | 5027110 Tall Tom
Tall Tom's picture







Gay when the word gay did NOT mean "Flaming Queer".


I am old enough to remember that time. It is sad that GS has lost ant credibility whatsoever. They have been transformed from having some trustworthiness to becoming totally corrupt. It only took 40 years after the Gold Standard was abandoned as we all became Keynesianists as the Head Crook, Richard M. Nixon, declared.


But the GenXers were not taught that honesty, integrity, fidelity and morality were of any importance and value.

Gay took on a new and perverse meaning.

America lost its Moral Compass.


GS is just a reflection of that.


Welcome to the Animal Kingdom as the Kingdom of God has been all but abandoned.


The Animal Kingdom will reap its just Rewards as the new philosophy is that Might makes Right, Survival of the Fittest is the Natural Order, while the weak shall be devoured as all semblance of gentle society and civilization is stripped away.


Enjoy your world filled with ravenous wolves.


You can downarrow this all that you want but it will not change the truth by one iota or uncross any tau.

Thu, 07/31/2014 - 08:28 | 5026656 firstdivision
firstdivision's picture

When you're loaded up with put options, and sold an ass ton of calls, one must hedge by buying the actual stock.

Thu, 07/31/2014 - 09:19 | 5026840 Wahooo
Wahooo's picture

Good point. They only tell their muppets one side if the trade story.

Thu, 07/31/2014 - 08:31 | 5026659 Fix-ItSilly
Fix-ItSilly's picture

Goldman, DE Shaw and other hedge funds who have bought equity positions should also declare if they have counterparty relationships with the Bank or other holding companies of the Espirito Santo titanic.  This is especially important because derivatives or opaquely reported may well have senior bailout position.

Instead the public is told about equity positions when those very positions are purchased for insight and priority access first, shareholder gains second.

C'mon, ZH, you know this.  ARe there counterparty relationships to contemplate?

Thu, 07/31/2014 - 08:34 | 5026671 Dr. Engali
Dr. Engali's picture

"C'mon, ZH, you know this. ARe there counterparty relationships to contemplate?

There are always counterparty relationships to consider in every transaction.

Thu, 07/31/2014 - 09:10 | 5026801 NoDebt
NoDebt's picture

If GS had to disclose every counterparty relationship in every transaction or recommendation they'd never get any of God's Work done.

Thu, 07/31/2014 - 08:34 | 5026672's picture

Noted in yesterday's article:

I asked:

Is anyone shorting PT or buying puts?


From yesterday's PDF: 

Impairment of the participation in Portugal Telecom As is publically known, BES Group holds a participation in Portugal Telecom registered in the available forsale portfolio. As determined by the applicable accounting rules, such assets should be recognised at fairvalue and the  corresponding valuations registered under a specific equity caption (fair value reserve).As of June 30th, 2014, this investment’s acquisition value was EUR 346.6 million and its market value EUR240.5 million (31% devaluation). Accordingly, a EUR 106.1 million impairment was recognised; as thepotential loss has already been deducted to equity (negative fair value reserve), the impact on capital ratioswas small
Thu, 07/31/2014 - 08:33 | 5026666 Latitude25
Latitude25's picture

Alright.  Off to the LCS

Thu, 07/31/2014 - 08:50 | 5026733 Latitude25
Latitude25's picture

Damn.  Looks like its going to be hard to catch this bounce.

Thu, 07/31/2014 - 08:34 | 5026667 Sudden Debt
Sudden Debt's picture

Just shows you how much a degree or PHD at harvard is worth...

Thu, 07/31/2014 - 11:57 | 5027564 Village-idiot
Village-idiot's picture

They come in perforated rolls. I've got some in my bathroom.


Just tear one off and put your name on it.

Thu, 07/31/2014 - 08:33 | 5026668 falak pema
falak pema's picture

CAN ZH please explain to me WHY the Argentinian stock exchange is UP 65% since Jan 1 2014 all the while the country is now in default and has been in the eye of the cyclone since at least 6 months !

How can the Bourse be + 65% in a situation like that.

If I transpose that logic to Portugal then the Portuguese bourse should spike now by 65% on the back of Espirito Santo default.

Thu, 07/31/2014 - 08:36 | 5026677 Sudden Debt
Sudden Debt's picture

The peso is nearly worhtless. And people who don't have enough to buy real assets like houses don't know what gold and silver is and think they can maintain most of their wealth in the stockmarket.

So when their currency drops 60 to 70%, some of them will actually be able to maintain their purchasing power.... untill somebody actually tries to sell a stock... than it crashes.

Thu, 07/31/2014 - 09:40 | 5026925 iLiquid
iLiquid's picture

Sudden Debt, gold and silver offer some protection *before* the crash. Argentina *has already crashed*, and it crashed multiple times... It's a post-apocalypse world, albeit one that still manages to maintain considerable degree of order & productivity. Therefore, it still makes sense to convert the worthless peso paper into stakes in real, productive businesses.

Thu, 07/31/2014 - 08:42 | 5026703 Dr. Engali
Dr. Engali's picture

Portugal uses the Euro as their currency whereas Argentina uses the Peso. Argentina is in the process of hyperinflation and those extra Pesos flow into the market.

Thu, 07/31/2014 - 08:43 | 5026705 DeadFred
DeadFred's picture

If your currency is on a fast track to zero keep your assets in something that will retain some value. Argentines don't have a lot of choice where to put the wealth. After the crash but before the hyperinflation sets in I expect the Dow to make these lofty levels look like bargains.

Thu, 07/31/2014 - 08:47 | 5026721 schatzi
schatzi's picture

What Sudden Debt said.


View the Argentinian stocks in relation to "solid" *cough* currencies such as the € or $. They should be losing ground.

Then you have the issue of tight capital controls and therefore the lack of investment opportunities beyond Argentina. Bonds, cash and savings account are a no-no, which means you only have 3 things to invest in: local property, precious metals (are there restrictions?) and local stocks.

Thu, 07/31/2014 - 08:53 | 5026742 falak pema
falak pema's picture

So if I understand you right the PESO has devalued more than 65% since Jan 1 2014 relative to say the Euro or the £ ?

Thu, 07/31/2014 - 09:31 | 5026889 Ghordius
Ghordius's picture

depends on the market. "black market" prices or the officially sanctioned government FX? which goes with an officially sanctioned inflation number of 10%

Thu, 07/31/2014 - 08:48 | 5026723 Latitude25
Latitude25's picture

Argentines try to protect their wealth by stashing away paper dollars.  They're in for a rude awakening.

Thu, 07/31/2014 - 09:45 | 5026951 Lanka
Lanka's picture

The US Gov will announce an expiration date for the prior 2012 $100 bill; then there will be caos.

Thu, 07/31/2014 - 08:55 | 5026749 SheepDog-One
SheepDog-One's picture

You have to remember that stawks are just a meaningless scam, they could all open at -0- tomorrow, and what would anyone do about it? Nothing.

Thu, 07/31/2014 - 09:08 | 5026793 EverythingEviL
EverythingEviL's picture

Can you explain why the DOW hit 17K on the back of this "recovery"? C'mon...don't ask stupid questions

Thu, 07/31/2014 - 09:56 | 5026976 falak pema
falak pema's picture

hey, dummy, the Dow is backed by king kong FED...capische?

WHereas Lady Kirchner has NOBODY to pump up her PESO or stock titties except faith, hope and charity; the LAST now being denied by the Supreme Court in favor of the Vultures. 

As for faith it comes from the Man in the street with nowhere else to run and Hope, it comes from BRICS saying : we'll lend you some if you give us a piece of your gas production ass !

So, Lady Kirchner has to choose to whom she sells her titties...

At least SHE HOPES she has a choice...Lets say skol to that hope before it goes Pop ! 

Thu, 07/31/2014 - 11:54 | 5027535 Village-idiot
Village-idiot's picture

Inflation! The Argentinian currency have dropped something like 65% since the beginning of 2014. If you calculate the stock market gains it's around zero; actually less because the government claims taxes on your "profits".

Also, it's nigh impossible to get currency out of Argentina. It's offficially illegal to use other currencies to buy and sell. Where else can you put your money?

Gold? Who'll sell it to you? No one with half a brain will sell their's. You can't buy it from outside the country (you can't take any currency out), so where would you get it from?

Thu, 07/31/2014 - 08:35 | 5026674 D-liverSil-ver
D-liverSil-ver's picture

I didn't realize the "Holy Spirit" had a bank.

Thu, 07/31/2014 - 08:37 | 5026680 Sudden Debt
Sudden Debt's picture

Yes, it's called the Vatican bank and they invest their money mostly in weapons industries because of the high returns.

Thu, 07/31/2014 - 09:35 | 5026903 Ghordius
Ghordius's picture

you are pulling his leg. no, the truth is neither prettier nor uglier. Banco Espirito Santo is the main Portuguese colonial legacy bank. Meaning they are all in many deals in Angola, for example. Cue in the little scandal of the daughter of the previous leader of that country

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