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Portugal Banks May Report 2011 Losses on Higher Impairments

Portuguese lenders Banco Comercial Portugues SA, Banco Espirito Santo SA and Banco BPI SA may report losses for 2011 after an increase in impairments related to pension liabilities, Greek bonds and bad loans.

Banco Comercial, the biggest non-state bank by assets, may report a net loss of 760.5 million euros ($1 billion), according to the median of four analyst estimates in a Bloomberg News survey. Espirito Santo, the biggest by market value, may report a 15 million-euro loss, according to the median of five estimates, and BPI may report a 13.5 million-euro loss, according to the median estimate of four analysts.

Portuguese banks have been under pressure after the country became the third in the euro area to request external aid, following Greece and Ireland, and as international regulators demand banks recognize losses on Greek debt holdings.

The impairments related to pension liabilities stem from the transfer of part of the banks’ pension funds to the Portuguese government. The banks were also required to increase provisions for loan losses after their books were audited as part of the European Union and International Monetary Fund’s aid package.

Banco Comercial found it needed to increase impairments by 207 million euros after charges of 174 million euros in the second half. Espirito Santo found it needed to increase impairments by 104 million euros after it made an impairment charge of 21 million euros in September. Banco BPI SA has no need to increase impairments.

Greek Unit

Banco Comercial may also report a writedown on its Greek unit, Antonio Ramirez, an analyst at KBW Inc., said in a report Jan. 30.

Estimates for Oporto-based BPI ranged from a loss of 135 million euros to net income of 119 million euros, depending on how the analysts estimate the bank will report a writedown on its Greek bonds.

BPI is scheduled to report earnings today after the 4:30 p.m. close of trading in Lisbon, and Banco Comercial and Espirito Santo plan to report tomorrow.

BPI shares declined 1 percent to 47.3 euro cents in Lisbon at 10:30 a.m. Banco Comercial dropped 0.7 percent to 13.8 euro cents and Espirito Santo decreased 0.3 percent to 1.265 euros.

Capital Ratios

As part of the EU and IMF’s aid plan, banks were required to have a core Tier 1 capital ratio, a measure of financial strength, of 9 percent by the end of 2011 and 10 percent by the end of 2012.

Banks that fail to raise the money from private sources will have to turn to their governments. The aid program totals 78 billion euros, of which 12 billion euros are earmarked for the recapitalization of lenders should that be necessary. While Portuguese banks are being told to increase their capital ratios, the government is also asking them to keep lending to the economy.

Banks’ earnings may still be under pressure this year even without the one-time increases in impairments, said Antonio de Sousa, president of the Association of Portuguese Banks.

“2012 won’t be much better,” de Sousa told reporters in Lisbon on Jan. 31. “The banks’ retail business is very depressed.”

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