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Portugal Announces $6.6 Billion Espirito Santo Rescue

Portugal’s central bank took control of Banco Espirito Santo SA, once the country’s largest lender by market value, in a 4.9 billion-euro ($6.6 billion) bailout that will leave junior bondholders with losses.

The Bank of Portugal’s Resolution Fund will move Banco Espirito Santo’s deposit-taking operations and most of its assets to a new company, Novo Banco, which it will own outright. The fund will finance the rescue with a Treasury loan to be repaid by Novo Banco’s eventual sale. Subordinated debt plunged today as junior bondholders and shareholders will be left with the most “problematic” assets, including loans to other parts of the Espirito Santo Group and the lender’s stake in its Angolan operation, the central bank said yesterday.