Portugal’s central bank has reassured clients of the Banco Espirito Santo’s (BES) asset management arm that they remain unaffected, after it bailed out BES this week to the tune of €4.9bn.
BES is to be split into a “good bank” – Novo Banco – which will take over most of its assets and liabilities and continue its banking, asset management and other operations – and a “bad bank”, to take over the riskier assets.
In a statement, the Banco de Portugal (BDP) said: “The assets and liabilities integrated in Novo Banco, a duly capitalised bank, ensure full continuity of the institution’s activity, with no impact on its customers, collaborators or suppliers.”
Among the operations to be transferred to Novo Banco is BES’s fund management arm, Espirito Santo Activos Financeiros (ESAF).
ESAF is by far the biggest Portuguese-owned asset manager, with €17.3bn-worth of assets under management, as at 31 December 2013, according to IPE’s Top 400 Asset Managers survey.
As at 31 March, ESAF managed €1.8bn worth of private pension fund assets, or 11.9% of the private pension fund market, according to the Portuguese Association of Investment Funds, Pension Funds and Asset Management (APFIPP).
The bailout was precipitated when BES announced €3.6bn in losses for the first half of 2014 on 30 July.
Almost all of these related to the second quarter of the year, but, as recently as two weeks previously, BES had been flagging much smaller losses.
The bailout money comes from the BDP’s resolution fund, which will own Novo Banco’s share capital.
The fund is not financed by public money but by financial institutions and the banking levy.
However, the fund is also taking out a temporary loan from the government to finance the bailout.
The BDP said the losses related to problem assets would be borne by shareholders and subordinated creditors of BES.
Shares in the bank were delisted last Monday, making them almost worthless.
The value of subordinated bonds also fell sharply.
The BDP is now carrying out a forensic audit and has warned it will take action should any “illicit acts” be shown to have occurred.
Carlos da Silva Costa, BDP governor, said Grupo Espirito Santo (GES) had developed a fraudulent funding scheme between the companies in the group.
He said BDP identified a problem in September last year, after which it started to ring-fence BES from other group companies.
He said: “This policy was progressively reinforced over the course of 2013, and, due to its tightening, GES companies started to default.”