Espirito Santo Declines to 11-Month Low as BofA Cuts Bonds

Banco Espirito Santo SA, one of Portugal’s two biggest publicly traded banks, fell to the lowest intraday price since Aug. 7, after Bank of America Corp. downgraded the lender’s bonds.

Shares declined as much as 9.7 percent to 0.651 euros and traded at 0.675 euros as of 1:46 p.m. in Lisbon. Parent company Espirito Santo Financial Group SA declined 13 percent to 1.50 euros.

Bank of America analyst Richard Thomas, in a note to clients dated June 27, downgraded Banco Espirito Santo’s senior and subordinated bonds to underweight from overweight on refinancing and governance issues around group companies.

Banco Espirito Santo this month raised 1.04 billion euros to strengthen capital ratios ahead of the European Central Bank’s stress tests. The offering came as accounting irregularities emerged at the Espirito Santo International SA holding company. The bank’s rights-offering prospectus said there’s a “serious financial situation” at ESI that could be damaging to the bank.

Espirito Santo Financial Group said May 29 that Banco Espirito Santo retail clients held 1.5 billion euros of Espirito Santo International SA debt instruments at the end of 2013. On May 19, BES non-institutional investors held 395 million euros of the holding’s debt instruments.

Portugal Telecom SGPS SA, in which Grupo Espirito Santo owns a 10 percent stake, bought 897 million euros of commercial paper from Rioforte, which is fully owned by Espirito Santo International, according to a regulatory filing today. The commercial paper matures in July. Portugal Telecom fell 2.2 percent to trade at 2.667 euros at 2:42 p.m. in Lisbon.

“It seems clear to us that though the ESI issue has moved around, it hasn’t really gone away, and it remains a risk for the bank,” Thomas wrote.

To contact the reporter on this story: Anabela Reis in Lisbon at areis1@bloomberg.net

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net Cindy Roberts, Jon Menon

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