Espírito Santo Financial to File for Bankruptcy
LONDON – The Espírito Santo Financial Group, which at one point held about 25 percent of the bailed-out Portuguese lender Banco Espírito Santo, said on Thursday that it would file for bankruptcy after it was denied creditor protection by a Luxembourg court last week.
Espírito Santo Financial is part of a complex web of companies controlled by the Espírito Santo family.
Portuguese regulators were forced to engineer a rescue of Banco Espírito Santo in August after the Portuguese bank was undone by its exposure to its struggling corporate parent, Espírito Santo International. The bank, one of Portugal’s largest financial institutions, was shut down and its healthy businesses were transferred to a new entity, Novo Banco.
Espírito Santo Financial was one of several entities that sought creditor protection after regulators raised questions this year about “irregularities” in its corporate parent’s finances.
In a filing with regulators in Portugal on Thursday, Espírito Santo Financial said that it and another unit, Espírito Santo Financière, would file for bankruptcy after a Luxembourg court turned down their request for so-called controlled management.
“It is expected that the Luxembourg district court sitting in commercial matters will pass a bankruptcy order and appoint one or more receivers” at a hearing on Friday, the company said in a statement on Thursday.
Similar requests for creditor protection are pending for the corporate parent, Espírito Santo International, and another Espírito Santo family-controlled entity, Rioforte Investment. Both companies were indirect shareholders in Espírito Santo Financial.
After questions arose about the parent company’s finances, Ricardo Espírito Santo Silva Salgado, the family patriarch, resigned as Banco Espírito Santo’s executive chairman in July.
Soon after stepping down from the bank, Mr. Salgado was arrested and ordered to post bail of 3 million euros, or $3.8 million, as part of an investigation into money laundering and tax evasion. He is a great-grandson of José Maria do Espírito Santo e Silva, who started the family business in 1869.
Banco Espírito Santo then reported a first-half loss of €3.58 billion as questions mounted about its exposure to its corporate parent.
The collapse was one of the first tests of new rules in Europe for how to handle bank failures. The new rules are intended to minimize the cost to taxpayers while preventing disruption to the financial system.
The Portuguese government lent about €4.4 billion of the €4.9 billion cost of the bailout to the country’s bank resolution fund, which is bankrolled by financial institutions. Eventually, Novo Banco will be sold in the hope of recovering the taxpayer loan.
The turnaround of Novo Banco hasn’t been without its stumbles.
In September, Vítor Bento, the chief executive of Novo Banco, and his two top lieutenants announced they were resigning because their mandate to run the bank had “significantly changed” since they were appointed to run its predecessor in July.
Eduardo Stock da Cunha, a former banker at the Lloyds Banking Group and the Spanish lender Banco Santander, was named Mr. Bento’s successor in September.
The rescue of Banco Espírito Santo came just months after Portugal itself emerged from a €78 billion, three-year bailout financed by the European Union and the International Monetary Fund. The country was one of those hit hardest in the euro zone debt crisis.