POSITIVES
· Nothing new on corporate governance but changes (Espirito Santo Family to be side-lined) should be seen as positive in the medium and longer term
Following the EUR1bn capital increase, ESFG holds c.25% of BES and Credit Agricole around 15% (down from 27% and 20% respectively). Ultimately we see the reduced control of the Espirito Santo family and of EFSG as positive for
BES corporate governance. In fact, given the change in shareholdings, on 20 June ESFG proposed BES CFO Amilcar Morais Pires to replace Ricardo Salgado as CEO. In addition ESFG has requested a shareholder meeting on 31 July.
At the meeting, shareholders will decide on a proposal to create a strategic committee to be headed by Mr. Salgado. The proposal also includes the appointments of Isabel Maria Carvalho de Almeida Berardino and Ana Rita Gomes
Barosa as executive board members, and Paulo da Mota Pinto as chairman of the board. We recall that Morais Pires, 53, has been CFO of BES since 2004.
· With a fully-loaded 10.5% B3 CET1 ratio, BES has a good cushion ahead of the ECB stress test
As at March 2014, BES’s FL B3 CET1 ratio stood at 8%. Following the EUR1.045bn capital increase the ratio stands at 9.6% on a pro-forma basis. The recent government approval of deferred tax asset credits adds a further 90bp to the ratio, taking it up to 10.5%. The transitional ratio (as used for the stress test) stands at 11.4%. BES thus has a significant cushion to withstand any potential shortfalls uncovered by the upcoming European exercise. The Angola guaranteed portfolio is treated as sovereign exposure in terms of risk-weighting and even if such exposure were reviewed in the European exercise, we note that BES has one of the highest risk-weighted densities of the European banking sector and we consider that it thus has ample room for manoeuvre in this respect through the application of IRB models.