Portugal to bail out largest listed bank

Portugal will spend €4.9bn to rescue its largest listed bank, testing the eurozone’s resilience to another banking crisis just months after Lisbon exited an international bailout.

The rescue of Banco Espirito Santo, which was unveiled after a frenzied weekend of discussions between Portuguese and EU officials, comes after weeks of increasingly bad news about the financial state of the lender.

Under the plan, Banco Espirito Santo will be split into a good bank, renamed Novo Banco, and a bad bank, which will house Banco Espirito Santo’s exposures to the troubled Espirito Santo business empire as well as its Angolan subsidiary.

The bad bank’s losses will be borne by the bank’s junior bondholders and shareholders, including the Espirito Santo family, which has a 20% stake, and French bank Credit Agricole which owns 14.6%.

Novo Banco, or New Bank — will be recapitalised to the tune of €4.9bn by a special bank resolution fund created in 2012. The Portuguese state will lend the fund €4.4bn. All of the depositors of Banco Espirito Santo will be protected as well as the bank’s senior bondholders.

Portuguese bond yields rose to 3.78% on expectations Lisbon would have to rescue Banco Espirito Santo. However they were far below the 15% rate in 2012 when the eurozone’s own survival was uncertain.