DAL FOL ...
BREAKINGVIEWS-BES clear-up still leaves Angolan question hanging
25/07/2014 11:29 RSF
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Neil Unmack
LONDON, July 25 (Reuters Breakingviews) - Banco Espirito Santo (BES.EQ) is closer to resolution - except in Angola. The troubledPortuguese bank's parent entities have all now sought creditor protection. That leaves Angola as BES's key uncertainty. There is a way to sort this out too - but it isn't pretty.
Luxembourg-based Espirito Santo Financial Group's (ESF.EQ) move toseek creditor protection is, perversely, good news. It will force BES to recognise losses on its ESFG exposure, last stated at 927 million euros. And since ESFG owns 20 percent of BES, its bankruptcy could put a stake in the bank on the market -clarifying the lender''s shaky ownership.
But BES still owns 56 percent of BES Angola, a lender with a 6 billion euro loan book and ties to the government. The Angolan central bank governor has acknowledged the need for a capital hike, likelyprovided by government.
BES could cut its losses by getting diluted when BES Angola conducts a rights issue. It would take as much as a 667 million euro loss, but could deconsolidate the Angolan business.
But BES's sins of the past mean itcan't just walk away. Instead of matching Angolan loans with local deposits, BES allowed the bank to lend more than twice its deposits, funded from Portugal, possibly up to 3 billion euros. If BES walks away, some or all might not be paid back. There's a precedent. When Credit Agricole (ACA.EQ) needed to exit its Greek subsidiary Emporiki in 2012, it faced a 4.6 billion euro funding gap. It was only able to leave Greece intact by pumping in 2.3 billion euros of provisions.
Whether itcomes to that depends on how much capital BES Angola needs - which is hard to gauge given minimal disclosure. A $5.7 billion guarantee from the country''s president might help, but this expires in a year, and is vague. If losses aren''t that serious the bank might get away with rolling over its Angolan loans.
Either way, there's an argument to move quickly. BES could take a 50 percent haircut on the loan and still need just 1.5 billion euros to keep its common equity Tier 1 ratio at 9.5 percent, according to a Breakingviews analysis. If BES can provide a credible plan for Angola, providers of that capital may be more willing to stump up.