Espirito Santo Financial Suspends Shares, Bonds on ESI Exposure

Espirito Santo Financial Group SA, which owns 25 percent of Portuguese lender Banco Espirito Santo SA, said it decided to suspend its shares and listed bonds on the Luxembourg and Euronext exchanges due to its exposure to Espirito Santo International SA.

“Due to ongoing material difficulties at its largest shareholder Espirito Santo International and ESFG’s exposure to that company, ESFG has decided to suspend its shares and listed bonds, including the bond issued by its fully-owned subsidiary Espirito Santo Financiere SA,” ESFG said today in a filing posted on the Portuguese securities regulator’s website. “ESFG is currently assessing the financial impact of its exposure to ESI.”

Banque Privee Espirito Santo SA, which is fully owned by ESFG, on July 8 said there is a delay in payments of some of the last maturities of short-term debt securities issued by Espirito Santo International, or ESI. These delays affect “only a few clients,” Banque Privee said. ESFG is 49 percent owned by Espirito Santo Irmaos SGPS SA, which in turn is fully owned by Rioforte Investments SA, which is fully owned by ESI.

Accounting irregularities at holding company ESI emerged as Banco Espirito Santo carried out a rights offering last month. Banco Espirito Santo said in its share-sale prospectus on May 20 that there was a “serious financial situation” at ESI that could be damaging to the bank. ESFG on July 3 said it has at no time been under investigation by the public prosecutor in Luxembourg in relation to misreporting of accounts by certain shareholders.

ESFG also said on July 3 that the amount it’s owed by ESI and Rioforte increased to 2.35 billion euros at the end of June from 1.37 billion euros in December “to support the reimbursement” of commercial paper issued by those companies and held by retail clients of the bank units.

The 2013 accounts of ESFG included a 700 million-euro special provision related to potential risks associated with exposure to non-financial activities of Grupo Espirito Santo, which combines the Espirito Santo family’s businesses. ESFG said on July 3 its borrowing from Banco Espirito Santo was 823 million euros as of June 30.

ESFG dropped as much as 16 percent to 1.09 euros today. Banco Espirito Santo, Portugal’s second-biggest bank by market value, dropped as much as 14 percent to 53 euro cents.

Banco Espirito Santo has been “adequately isolated” by the Bank of Portugal from the financial problems in some entities of Grupo Espirito Santo, Parliamentary Affairs Minister Luis Marques Guedes said on July 3. The bank 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.