Portuguese bank bonds (Novo Banco and Caixa Geral de Depositos) are sliding today with sovereign yields hovering near Brexit highs as AP reports that the new president of the country's biggest bank (and six board members) have quit less than three months after starting work.
Back in the summer we warned that with all eyes on Italy (and rightly so), Portugal could be the next show to drop, and yields have risen notably since then
And now, as AP reports, the troubles at Portugal's biggest bank by assets, state-owned Caixa Geral de Depositos, are deepening as its new president and six board members have quit less than three months after starting work.
The resignations come amid a dispute over a law demanding that the bank's senior officials make public their income and personal assets. The departures are at a sensitive time as the government readies a 5.1 billion euro ($5.4 billion) rescue plan for the bank.
Caixa Geral de Depositos informed financial regulators of the developments Monday. The government says the rescue will proceed as planned next year.
Analysts say poor lending practices and unpaid loans are to blame for financial difficulties at Caixa Geral de Depositos and in the Portuguese banking sector generally.
In a recent report, Barclays estimated that Portuguese lenders could need up to €7.5bn to resolve a “systemic banking crisis” that was bringing the country under “close market scrutiny”.
In other words, as we detailed before, just like Italy "unexpectedly needs a €50 billion (to start) bailout, "suddenly" Portugal also seems to need a €7.5 billion (to start) bailout.
As the FT adds, "investors fear the capital needs of banks could further burden the public finances of a struggling country already facing potential EU sanctions for failing to meet deficit targets."
Actually, judging by historical precedent, "fear" is not the right word for what investors feel when it comes to taxpayer bailouts.
“Some banks are in need of a large capital injection,” said Antonio Garcia Pascual, chief European economist with Barclays. “This means any material losses from the sale of Novo Banco could end up having to be met by the sovereign, as the capacity of Portuguese banks to absorb them is rather limited.” And when Antonio says "the sovereign", he means taxpayers.