That the top holding company of the Espirito Santo family was in trouble was known. But why should this be a problem for a bank that was two layers down and only minority owned anyway?
Portugal’s Banco Espirito Santo lost €3.6bn (£2.85bn) in the first half of the year – mostly on loans to its founding family’s crumbling business empire – and now has less capital than it is required to hold.
The loss at the country’s largest listed bank wiped out its €2.1bn capital buffer, and is likely to force the bank to resort to a new capital increase to preserve solvency ratios demanded by regulators.
The loss includes €4.25bn euros in impairments and contingency measures, BES said. The biggest item was a provision of €1.2bn on loans to the Espirito Santo Group – the bank said €856m-worth of those provisions were taken because the bank’s directors learned that BES had granted two letters in favour of creditors of the family group, which were not approved in accordance with internal procedures.
Ah, they were, perhaps unknowingly, guaranteeing the debts of that holding company two levels up. I suspect there’s going to be a very interesting story about how they managed to cock up. And of course this also shows that Piketty isn’t quite right in his wealth always increases prediction. One of Portugal’s richest families has just gone bust after a century. What you invest in is rather important: perhaps more so than merely having capital to invest.