8 Months of Muppet Brutality: Why And Where Goldman Told Clients To Buy Banco Espirito Santo

Tyler Durden's picture

Another day, another case of unprecedented muppet brutality, or, as Cramer would say: "Bear Espirito Stearns is fine"...

Rewind to January 14, 2014 where Goldman said:

Buy BES: Winner at home, recovering abroad

 

In our view, BES is (1) optimally positioned to gain from Portugal’s banking market evolution and (2) likely to benefit from improving margins in Angola. With the stock trading at a 29% discount to peers’ 2015E P/TBV and with 28% upside to our 12m target price of €1.55, we upgrade BES to Buy.

 

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Positioning: Looking beyond the crisis – BES best placed

 

Resilience to asset quality deterioration determined banks’ ability to withstand the effects of the economic and financial crisis. Those effects, however, have their cause in macroeconomic imbalances that led Portugal to ask for financial assistance from the EU/IMF. Addressing those causes will determine the future shape of the Portuguese banking market and the relative positioning of the banks. In this context, we develop a theoretical (and severe) scenario to assess relative positioning in a deleveraging economy: under this scenario, we estimate that Portuguese banks would need to delever by a further €35 bn domestic loans (or 15%) by 2020 to partially reverse the imbalances that contributed to the crisis. This is a top-end assumption and depends heavily on the country’s future macroeconomic performance. In this negative scenario, we show that BES would be best positioned to gain from a “race to the bottom”. Our estimate is harsh, but we still believe that it is a good proxy for the underlying trends in the lending market. In this context, even under more benign scenarios, BES is best placed.

Goldman had BES at a Buy until, well, now.

So how did the stock perform during this period?

And now... the common is finished, or would be if it wasn't halted.