[BES.LS] (Adds analyst comment, investors comment, recasts throughout)
By Laura Noonan and Andrei Khalip
LISBON/LONDON, July 31 (Reuters) - Banco Espirito Santo's
<BES.LS> hopes of raising capital without taking state aid
suffered a major blow on Thursday as investors took fright at
massive losses and revelations of potential illegal activity at
Portugal's largest listed bank.
Its shares, which were suspended from trading on Wednesday
evening, plummeted to an all-time low within five minutes of
trade resuming in Lisbon at 0914 GMT on Thursday. They later
pared losses, but were still down 28 percent by mid-morning.
The shares had been suspended to give investors time to
digest details of a 3.6 billion euro half-year loss that will
force the bank to raise capital and the suspension of top
officials over suspected "harmful management". [ID:nL6N0Q56WL]
"The results and the recapitalisation need are close to the
worst scenario envisaged by the market, the capital ratio has
fallen way below what is requested," said Joao Lampreia, an
analyst Banco Big in Lisbon, who expects the bank will need to
raise around 3 billion euros.
BES, founded by Portugal's only banking dynasty over 100
years ago, was the only Portuguese bank to avoid taking a
bailout during the financial crisis. Its new management, who
were appointed on July 14 after the Espirito Santo family lost
control, want to retain that status.
That goal will likely be harder to achieve following
Wednesday's announcement.
"Bank of Portugal and BES' new CEO have commented that
private investors are willing to step in. But would the state
and/or junior bondholders have to get involved?" Citi analyst
Stefan Nedialkov wrote in a note to clients.
Portugal's central bank said on Wednesday night that
private capital was its preferred solution for BES, which had a
common equity tier one ratio of just 5 percent at the end of
June, below the regulatory minimum 7 percent.
It said public funds are available should the bank need
them. Portugal, which emerged from its sovereign bailout in May
and has been eyeing economic recovery, has 6.4 billion euros of
funds for any bank recapitalisation.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
GRAPHIC on connections between Espirito Santo companies and
BES
The family businesses
Factbox on developments contributing to the losses:
[ID:nL6N0Q600X]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
BES said late on Wednesday it would raise enough money to
give it a cushion above what it was legally required to hold,
but did not immediately say how much cash it would seek. It said
it would call a shareholders' meeting to approve the
recapitalisation plans "within a reasonable time frame".
In a note to clients, Nomura analysts said the bank would
need at least 1 billion euros of new equity to meet minimum
requirements and as much as 3 billion euros to restore its
previous cushion.
BES last raised capital on June 11, selling 1 billion euros
of discounted shares to existing investors. Even before
Thursday's share price falls, those investors had suffered
losses of about 50 percent.
Last week more than 20 investors held talks with the Bank of
Portugal about a possible investment, people familiar with the
discussions told Reuters. U.S. hedge fund DE Shaw and clients of
Goldman Sachs have already taken a combined stake of 5 percent.
The sources, speaking on the condition of anonymity as
discussions are private, also stressed that Bank of Portugal had
repeatedly made it clear that state aid was an absolute last
resort.
One hedge fund manager who is considering an investment said
a bailout was not inevitable. "If there really was no prospect
of getting any cash, the stock should probably be at zero," he
said.
He said there was precedent for a bank raising far more
capital
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