We discussed the start of a new breed of bond issuance in Europe earlier in the week. The Ponzi Bond [8] was born and today Banco Espirito Santo, of Portugal, came to the market (was there really an external demand?) and issued EUR1bn of three-year debt guaranteed by none other than the 16.4% yielding-equivalent three-year Portuguese government. Peter Tchir notes that "If the Japanese created the 'zombie' banks, the Europeans are perfecting them."
From Peter [9],
I haven't found the bond details yet, but I guess there is no rush when you issue it to yourself and send it straight to the ECB. I can't imagine there was massive actual demand for this. Portugal itself cannot issue bonds to the market. Its 3 year debt yields more than 16%. So why exactly is the ECB so happy to get the bonds with a Portuguese government guarantee?
The bank has a 1.7 billion Euro market cap with a Ba2/BB rating - both with negative outlooks.
If the Japanese created the "zombie" banks the Europeans are perfecting them.
This may not be a reason to be short but it certainly offends one's sensibilities. It also seems to guarantee that the Portuguese sovereign debt situation is worse than we know (lots of contingent liabilities) and all the banks and sovereigns are becoming increasingly tied together.
On the bright side, the ECB has saved itself the effort of creating a "bad bank" and has just become one.