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Portugal's Insolvent Banco Espirito Santo To Be Bailed Out, Existing Equity To Be Wiped Out

Tyler Durden's picture


When a week ago, the third and final Banco Espirito Santo HoldCo went bankrupt...

... we knew it was only a matter of time. Sure enough, following Friday's record collapse in the stock price of Portugal's mega bank after even Goldman decided it had enough and pulled the plug on an equity investment it had made just three short weeks earlier (apparently with zero Due Diligence) following massive losses, and whose failure even Portugal's president Silva finally admitted could be a systemic event, the local Diario Economic reports that Banco Espirito Santo is about to be nationalized, i.e. bailed out.

The details from Bloomberg, about the transaction that will wipe out the existing equity and replace it with 100% ownership by the Resolution Fund:

  • Portugal may use the Resolution Fund to recapitalize Banco Espirito Santo, Diario Economico reports, citing unidentified people linked to the process.
  • Resolution Fund may inject more than €3 billion
  • A “bad bank” may be created for the toxic assets of the credit portfolio
  • Solution aims to rescue Banco Espirito Santo without spending taxpayers’ money, and is being prepared by the government and the Bank of Portugal
  • From Aug. 4, Banco Espirito Santo will leave the stock market and will be 100% owned by the Resolution Fund, an entity created in 2012 and financed by Portuguese banks and by revenue from the special contribution that the banking sector pays the Portuguese state
  • Resolution Fund will have to be given enough resources to capitalize Banco Espirito Santo, and according to legislation this can be done through a state loan or through a new special contribution imposed on the 84 institutions that contribute to the fund
  • Part of the €6.4b that the Portuguese state still has available in the bank recapitalization facility that was included in Portugal’s bailout program may also be used to give the Resolution Fund the necessary resources to capitalize Banco Espirito Santo
  • Portuguese authorities’ plans predict that the bank will be sold in the stock market within six months, with the proceeds from the sale being used to repay the Resolution Fund

So Portugal's "less insolvent" smaller banks will fund the bailout facility to rescue the nation's most insolvent mega bank. What can possibly go wrong...

Incidentally, the most fun we had was the part where they said no taxpayer money (read German) would be used to bail out yet another insolvent European bank.

So much for Europe's self-sustaining recovery in which no bank will be henceforth rescued.

That said, expect some combination of bail-out with bail-in elements, meaning the sub bonds are most likely about to be wiped out as well.


The only question is what happens to the seniors.

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Sun, 08/03/2014 - 11:19 | 5040217 Rattling Bones
Rattling Bones's picture

I need to start a bank so I can get bailed out.

Sun, 08/03/2014 - 11:25 | 5040229 rehypothecator
rehypothecator's picture

Sell gold.  A few billion notional in 1 millisecond.  To get the best price, of course.  

Sun, 08/03/2014 - 11:26 | 5040237 Publicus
Publicus's picture

Printing money is the solution to all problems.

Sun, 08/03/2014 - 11:48 | 5040308 jaap
jaap's picture

It is a crime site. Look at all the unsecured transactions with related parties in Q1 and Q2.

Like the € 23,000,000,000.00 Barosso granted Portugal before leaving his position.

Sun, 08/03/2014 - 12:30 | 5040445 strannick
strannick's picture

The Seniors will eat cat food, to do their part to bailout the bankers.

Sun, 08/03/2014 - 12:40 | 5040487 DoChenRollingBearing
DoChenRollingBearing's picture

For me it is nice to see companies (banks) with complicated and unfair ownership structures fall.  There are many companies like that in Europe, and quite a few in the USA as well.  Class "A" and Class "B" owners.

Why not just have one type of owner?  You put up your money for "x number" of shares, and that is that.

Such a maze of ownership is often a sign of cronyism, and can hide many sins.

Sun, 08/03/2014 - 13:12 | 5040615 gjp
gjp's picture

Nice to see equity and maybe sub bonds too actually wiped out unlike u.s. 2008.

I guess you could argue that Lehman and Bear got wiped out, but the general bailout saved the rest of the insolvent system at no expense to the supposed risk takers.

Portuguese look more capitalist than Wall Street, but then everyone looks that way compared to the NYC kleptocracy.

Sun, 08/03/2014 - 13:18 | 5040649 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

This is from an old article from Mindful Money, sorry I don't have the link anymore.  It has well used sarcasm and humor.


Time line of a bank collapse

1. The Board issues a statement accusing bloggers of spreading both irresponsible and factually incorrect rumours as the bank is sound and has no need of new capital.

2. The Bank issues a statement of confidence in its management.

3. The Bank tries to raise more private capital in spite of it having no need for it.

4. If this does not work the relevant government(s) express(es) complete confidence in the bank and tell us that it has a sound management structure and business model. Indeed the bank had only recently been giving the government advice as to how to run the public-sector more efficiently.

5. The relevant government(s) tell us that they are stepping in to help the bank but the problems are both minor and short-term and are of no public concern.

6. The relevant government(s) tell us that the bank needs taxpayer support but through clever use of special purpose vehicles there will be no cost and indeed a profit is virtually certain.

7.Part-nationalisation of the bank is announced and taxpayers are told that a profit will result from this sound and wise investment.

8. Full nationalisation is announced to the sound of teeth being pulled without any anaesthetic.

9. Debt costs of the relevant sovereign nation or nations rise.

10. Consequently that nation finds that its credit rating is downgraded.

11. It is announced that due to difficult financial times public spending needs to be trimmed and taxes such as Value Added Tax need to be raised. It is also announced that nobody could possibly have forseen this and that nobody is to blame apart from some irresponsible rumour mongers who are the equivalent of terrorists. A new law is mooted to help stop such financial terrorism from ever happening again.

12. Some members of the press inform us that bank directors were both “able and skilled” and that none of the blame can possibly be put down to them as they get a new highly paid job elsewhere.

13. Former bank directors often leave the new job due to “unforseen difficulties”.

Sun, 08/03/2014 - 15:26 | 5041102 Farqued Up
Farqued Up's picture

14. Officers and directors sue the resultant abortion take-over entity for full performance bonuses originally promised.

15. Govt. rejects it and with stern lectures, agrees to only 95% of the original amount. After all, they have to be punished.

Sun, 08/03/2014 - 18:49 | 5041746 CGP
CGP's picture

He didn´t just gave away 23 billion. That´s part of the funds the EU budget transfers to individual states. Everyone pays for the pool. Then it is dostributed. Some pay more than they take back (Germany/Netherlands/France) and some the opposite (Greece / Portugal / Baltics / Spain). Same thing as in the US Federal Budget.

Sun, 08/03/2014 - 11:45 | 5040309 NoDebt
NoDebt's picture

Now we can forget about ever having to figure out what those "unexpected facts" were that led to a hastily-announced FURTHER $5B loss last week (that was the trigger for the final collapse).  No need to dig further into that whole sordid affair since, well, it'll all getting bailed out anyay, right?

Also wondering if there will be any impairment of uninsured depositors.  You would think that would almost have to happen.  NO WAY a $3B recapitalization from the "bank-paid" rescue fund is going to be enough.  We'll be staring down the barrel of a number twice that size by Monday afternoon.  You can bank on it.

Sun, 08/03/2014 - 11:54 | 5040342 Caviar Emptor
Caviar Emptor's picture

Yes! Whatever figure they quote, the real mess is almost one order of magnitude higher. BUT: they have spin doctors, cosmeticians, lawyers diplomats and politicians all with their ass on the line so... The lying becomes smoothe and easy. Trickle up!

Sun, 08/03/2014 - 11:59 | 5040361 Son of Loki
Son of Loki's picture

"Your money is safe with us. Trust me, I'm a Banker."



Sun, 08/03/2014 - 12:20 | 5040416 Escrava Isaura
Escrava Isaura's picture

Caviar, it is a magnitude higher: Espírito Santo means "Holy Spirit"

Maybe this is divine intervention.....Too.

Sun, 08/03/2014 - 12:23 | 5040427 Caviar Emptor
Caviar Emptor's picture

Ah yes! My child, the global central banks work in mysterious ways

Sun, 08/03/2014 - 12:40 | 5040492 DoChenRollingBearing
DoChenRollingBearing's picture

Greens!  Nice work!

Sun, 08/03/2014 - 13:25 | 5040675 Carpenter1
Carpenter1's picture

We get a front row seat as these fools have to take more and more drastic measures to prop up their failed status quo. The Invisible Hand only grows heavier the more you resist, watch and learn, as history buries another set of desperate rulers under their own greed, corruption, and lies.

Sun, 08/03/2014 - 13:03 | 5040537 OC Sure
OC Sure's picture



Printing money is the solution to all problems.

"Printing money" is a contradiction in terms and is therefore not factual.


Ask 2 sets of 10 people 2 different questions:


Set 1 - How do you feel about your bank printing money?


Set 2 - How do you feel about your bank counterfeiting?


Its no large leap to see why set 1 will probably just shrug, but set 2's reaction will probably be much more then just apathetic.


To inspire ire the truth is the way...


Sun, 08/03/2014 - 11:27 | 5040238 kliguy38
kliguy38's picture

of course you sell it. Its a barbarous relic.....didn't ya get the memo.......sell sell sell.........

Sun, 08/03/2014 - 13:15 | 5040626 Urban Redneck
Urban Redneck's picture

Of course they're trying to get the best price when they dump a few billion notional in 1 millisecond. THEY'RE BANKERS.

The better question would be what trade are they getting the best price on, and how does the single part of the transaction that everyone is focusing on fit into the strategy? The International Bankster Federation is not a charity for the poor, they don't give money away.

Sun, 08/03/2014 - 11:28 | 5040243 Greenskeeper_Carl
Greenskeeper_Carl's picture

wahoo, looks like everything is fixed!! time to go long stawks again. S&P 2000, bitchez

Sun, 08/03/2014 - 12:20 | 5040419 AllWorkedUp
AllWorkedUp's picture

Exactly Carl, That's going to be worth 300 DOW pts. and a $20 gold smackdown. The derivative bomb has been delayed yet again.

Sun, 08/03/2014 - 11:28 | 5040246 Smegley Wanxalot
Smegley Wanxalot's picture

Banco Bonos de Rattlitos.


Sun, 08/03/2014 - 11:35 | 5040278 BeetleBailey
BeetleBailey's picture

Banco de la FUCKED..........UP!

Sun, 08/03/2014 - 11:47 | 5040314 MH17FLIGHT
MH17FLIGHT's picture

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... http://goo.gl/bhiamE

Sun, 08/03/2014 - 11:50 | 5040327 Jack Sheet
Jack Sheet's picture

give us the link to the video you are selling where you fuck your sister.

Sun, 08/03/2014 - 11:47 | 5040316 p00k1e
p00k1e's picture

OR  a car company... 

Sun, 08/03/2014 - 12:01 | 5040365 stocktivity
stocktivity's picture

3 digit gain on the dow Monday...the great ponzi scheme continues for awhile longer....meanwhile, It's all Bullshit!!!

Sun, 08/03/2014 - 12:10 | 5040387 ATM
ATM's picture

Of course. Any news that inevitably leads to more money printing is a green signal like no other. BTFD!

Sun, 08/03/2014 - 13:38 | 5040718 barre-de-rire
barre-de-rire's picture

150 down on monday.....popcorn on tuesday....fuckfest on friday !!!! weeeeeeeeee

Sun, 08/03/2014 - 12:08 | 5040378 junction
junction's picture

Another bank robbery done not by gunmen with getaway cars but by the global elite with their yachts tied briefly at Lisbon, at the ready before their owners continue their month long August vacations.

Sun, 08/03/2014 - 12:36 | 5040477 garypaul
garypaul's picture

Yes, and from a fund that you supposedly funded  

Sun, 08/03/2014 - 20:34 | 5042108 decon
decon's picture

I went to buy a toaster the other day and they tried to give me a bank!


Sun, 08/03/2014 - 11:27 | 5040223 Squid Viscous
Squid Viscous's picture

SPX 2000 by Friday! racing neck and neck with Gaza body count! 

Sun, 08/03/2014 - 12:38 | 5040484 garypaul
garypaul's picture

2500 by October. Beat you!

Sun, 08/03/2014 - 11:22 | 5040224 logicalman
logicalman's picture

All accountants, everywhere, are now out of a job. The numbers are just made up to suit those with wealth and power.

Hope I live long enought to see the banking system go tits up.


Sun, 08/03/2014 - 11:25 | 5040233 rehypothecator
rehypothecator's picture

How about necks up?  

Sun, 08/03/2014 - 11:27 | 5040241 Skateboarder
Skateboarder's picture

It must be funny to be an accountant for the 'big people.' Every transaction is cooked, every figure forged to make the books consistent with some preordained results. What a sham of a job, only topped by the necessitators of culinary accounting: traditional and investment banking, private equity, and the gang.

Sun, 08/03/2014 - 11:34 | 5040274 Racer
Racer's picture

Should rename an accountant as

Chef de fabrication
Sun, 08/03/2014 - 11:40 | 5040292 falak pema
falak pema's picture

fabulation immaculée! 

Sun, 08/03/2014 - 12:23 | 5040426 Escrava Isaura
Escrava Isaura's picture

Maybe this helps:

“Deception, machination and mendacity lie at the core of human intelligence, like worms coiled at the core of a apple” -- Mark Rowlands 


Sun, 08/03/2014 - 19:11 | 5041816 piratepiet
piratepiet's picture

your quote does not help.  Deception and intelligence are two different things, thus deception can not lie at the core of intelligence.  yes intelligence is necessary to deceive, but also to make music, build a bridge etc...

Sun, 08/03/2014 - 22:15 | 5042406 Escrava Isaura
Escrava Isaura's picture

Pardon me. Let me correct Rowlands quote:

“Deception, machination and mendacity (music and build a bridge) lie at the core of human intelligence, like worms coiled at the core of a apple” -- Mark Rowlands

Sun, 08/03/2014 - 11:54 | 5040338 Skateboarder
Skateboarder's picture

Sounds like a real job title at a SF startup.

Sun, 08/03/2014 - 18:59 | 5041777 andy_pandy
andy_pandy's picture

or vampire poodles; owners like them to to be seen and for the blood lust

Sun, 08/03/2014 - 11:25 | 5040232 falak pema
falak pema's picture

If this was Bank of Monte Paschi...mama mia!

We may be getting there...

Sun, 08/03/2014 - 11:26 | 5040234 Winston Churchill
Winston Churchill's picture

Hasn't the ECB been buying all european bank paper/ bonds ?

How much BES toxic crap is the ECB sitting on ?

Sun, 08/03/2014 - 12:12 | 5040392 ATM
ATM's picture

Not much....... yet.


The entire EU banking system has never been reacpitalized but it will be. That means trillions of euros of money printing and Euro - Dollar parity in the race to the bottom.

Sun, 08/03/2014 - 11:28 | 5040242 thamnosma
thamnosma's picture

"Bad Banks", there's a laugh.  I have my bad account, where I put all my unpayable debts.  Then I have my good account to buy more stuff.  Works for me.

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