Espirito Santo Will Be Recapitalized With State Aid, SIC Says

Portuguese lender Banco Espirito Santo SA will be recapitalized with state aid, television station SIC reported on its website, without saying how it obtained the information.

The decision will be announced in the evening of Aug. 3, SIC said. The solution is being negotiated by the management team at the bank and by the Bank of Portugal, in connection with the Finance Ministry, according to SIC.

The Portuguese state may directly invest in the bank by subscribing shares and may provide a loan under the contingent capital regime, consisting of bonds that can be converted in stock if they aren’t paid by a deadline, SIC said.

Banco Espirito Santo was the only one of the three biggest publicly traded Portuguese lenders that didn’t request state aid after the country received a European Union-led bailout in May 2011. Portugal has already injected a total of 5.6 billion euros ($7.5 billion) in banks that aren’t state-owned using a 12 billion-euro recapitalization facility included in the 78 billion-euro aid program that ended this year.

The bank this week was ordered to raise capital after posting a 3.6 billion-euro first-half net loss as it had to set aside money to cover souring loans to units of the Espirito Santo Group. That cut Banco Espirito Santo’s common equity Tier 1 ratio to 5 percent, less than the 7 percent regulatory minimum, according to its statement on July 30.

Shares Suspended

Banco Espirito Santo shares were suspended from trading by Portugal (GSPT10YR)’s securities regulator yesterday. The stock dropped 40 percent before being halted, extending a 42 percent slump in the previous day, and the bank now has a market value of 675 million euros.

The Portuguese lender on July 22 said it picked Deutsche Bank AG to provide advice about how to strengthen its balance sheet. Banco Espirito Santo in June raised 1.04 billion euros in a rights offering, its second capital increase in two years.

Bank of Portugal spokesman Ricardo Polha declined to comment on the SIC report. An official at the Finance Ministry didn’t immediately respond to phone calls after 10:30 p.m. in Lisbon.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net Jim Silver

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