Portugal May Use Fund for Espirito Santo, Diario Says

Portugal is preparing to inject more than 3 billion euros ($4 billion) into Banco Espirito Santo SA from the central bank’s Resolution Fund as part of a government-led bailout, Diario Economico reported.

The pool will take full ownership of Banco Espirito Santo, Diario Economico reported, citing unidentified people close to the negotiations. The central bank may also set up a so-called bad bank to house some of the lender’s most toxic loans, the newspaper said. The authorities expect to return the lender to the stock market within six months, allowing the Resolution Fund to be repaid, the newspaper said.

The aim of the plan is to rescue Banco Espirito Santo without spending taxpayer money, according to Diario Economico. The Resolution Fund, created in 2012 and financed by contributions from Portugal’s banks, may receive additional resources to fund the capital injection through a state loan or a special levy on the 84 banks that contribute to the pool, Diario Economico 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. The central bank last week ordered the lender to raise capital after it posted a 3.6 billion-euro first-half net loss as it had to set aside money to cover souring loans to parent companies that are part of the Espirito Santo Group.

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