Earlier today, we reported that in addition to getting a new executive team, the "Espirito Santo family sold some 4.99% of its stake [7]in Banco Espirito Santo the company to an unknown party, using the proceeds used to repay a margin loan, issued during the bank's capital increase in May." Subsequently, Bloomberg reported [8]the identity of the lender: "Espirito Santo Financial Group borrowed more than 100 million euros from Nomura to buy shares in Banco Espirito Santo, Portuguese newspaper Expresso reported, without saying how it got the information."
Moments ago Bloomberg followed up with what could be a further dose of cold water to one of Portugal's most powerful families and certainly the holding company at the very top, Espirito Santo Financial Group...
[9]
...when it reported that Nomura threatened to seek the immediate repayment of at least €100 million of loans to Espirito Santo Financial Group, prompting today’s sale by the Portuguese co. of a stake in Banco Espirito Santo, according to people with knowledge of the talks who asked not to be identified.
It also explains why while the market has since moved on, BES bonds tumbled once again to record lows earlier as we reported previously [10], and Senior CDS blew out by 48 bps to 448 bps: the widest since October. It probably goes without saying that after trading to all time intraday lows, BES stock closed at just shy of its all time low price.
[11]
And while the market is once again convinced there are no concerns of contagion, Bloomberg added that "failure to repay the loan could have triggered multiple defaults across cos. within Espirito Santo group, said the people." In other words, precisely the kind of liquidity waterfall (in the wrong direction) that took out AIG and put the Lehman financil crisis into overdrive.
Officials at Nomura declined to comment.
So will an Espirito Santo collapse be indeed "contained" and not spread to other banks? Stay tuned for the answer.
