Nomura Holdings Inc. (8604) threatened to seek the immediate repayment of at least 100 million euros ($136 million) of loans to Espirito Santo Financial Group SA, prompting today’s sale by the Portuguese company of a stake in Banco Espirito Santo SA, people with knowledge of the talks said.
Failure to repay the loan could have triggered multiple defaults across companies within the Espirito Santo group, said the people, who asked not to be identified because they weren’t authorized to speak publicly. Espirito Santo Financial Group, one of the companies through which the Espirito Santo family has controlled the bank for most of its 94-year history, today sold a 4.99 percent stake in the bank to repay the loan.
The company borrowed money from Nomura to keep its stake in Banco Espirito Santo at 25 percent as the lender sold 1 billion euros of new stock last month to bolster capital. When shares of the bank plunged 36 percent last week after another company within the Espirito Santo group missed payments on short-term debt, Espirito Santo Financial Group had to either boost the collateral or pay back the loan.
Espirito Santo’s financial woes have highlighted the fragility of Europe’s recovery from the sovereign debt crisis. The bank, Portugal’s second-largest by market value, was the only one of the country’s three biggest not to seek help after the nation accepted a bailout by the European Union and the International Monetary Fund in 2011.
“When you see a piece of news that looks like stress you just sell,” said Simon Maughan, head of research at financial technology company OTAS Technologies in London. “It’s a case of shoot first, ask questions later.”
Banco Espirito Santo fell 7.5 percent to 44.5 euro cents in Lisbon today. Espirito Santo Financial Group said it sold 281 million shares of Banco Espirito Santo for 34 euro cents apiece, 24 percent less than today’s closing price.
Senior and junior Banco Espirito Santo bonds fell to record lows. The lender’s subordinated bonds due November 2023 tumbled 7.1 cents to 79.8 cents on the euro to yield 10.4 percent, while senior notes due January 2019 dropped 2.1 cents to 95.2 cents to yield 5.22 percent, according to data compiled by Bloomberg.
Nomura, which also advised on the rights offering, last week asked other underwriters on the sale to waive an agreement preventing Espirito Santo Financial Group from selling shares in the bank for six months after the transaction, the people said.
The Japanese bank told the other underwriters on Friday it would seek immediate repayment unless they agreed, the people said. The others agreed to set aside the lock-up after talks with regulators over the weekend, two of the people said.
The money from the stake sale “together with certain other collateral held by the lending bank, will result in the full and final payment of the margin loan and fully extinguishes all obligations thereunder,” Espirito Santo Financial Group said in a statement earlier today.
The other managers on the rights sale were UBS AG (UBSN), Morgan Stanley (MS), JPMorgan Chase & Co., Bank of America Corp., Morgan Stanley and Banco Espirito Santo. Officials at Nomura and the other underwriters declined to comment. Calls to Espirito Santo Financial Group’s London office weren’t answered.
Separately, Banco Espirito Santo today named Vitor Bento as chief executive officer, the first from outside the family since it regained control over the lender after it was seized by Portugal’s revolutionary government in 1975.
To contact the reporter on this story: Ruth David in London at firstname.lastname@example.org