BES losses increase €550 million to €6.9Bn
A financial black hole left by Banco Espírito Santo which collapsed in 2014 got €550 million larger in 2020 and now the total stands at nearly €7Bn.
It means that scores of investors may never get their money back as a result of the bank’s collapse.
The deterioration in the bank’s accounts occurred after the ‘bad bank’ had strengthened its provisions to meet its responsibilities with creditors that were affected by the winding up ruling applied by the Bank of Portugal in 2014.
BES closed 2020 with a debt of €7.08Bn which corresponded to an increase of €545.2 million on 2019. It has only €177 million (2.5% of total losses) in assets to pay off these ‘debts’ according to its accounts for 2020.
In other words, the bank, which is going through a liquidation process, still owes around €6.9Bn in debts to creditors.
The increase in the ‘bad’ bank’s losses are essentially down to two factors:
An increase in provisions for the bank’s creditors that climbed to €337.8 million last year as a result of a study that was carried out for the liquidation commission on almost 2,000 legal writs on the list of recognised and non-recognised creditors presented to a court, many related to debt security placements from various GES (Espírito Santo Group) entities with retail and institutional clients, including the placement of BES shares and debt securities.
The recognition of €150 million of interest relating to senior bonds to the value of €2.17Bn which were retransferred from Novo Banco to BES at the end of 2015 – a decision made by the Bank of Portugal which is being contested in the court by a group of large international investors including Pimco and BlackRock – the law requires a definitive list of creditors and the interest owed on the debt.
These two factors go some way to explaining the €547.5 million in losses that BES registered last year, more than double the €251.7million in losses seen in 2019.
BES accounts show that the bank only has €2.4 in assets to cover every €100 in losses and responsibilities.
Regarding debt, there are three large amounts from the €7Bn of debt: €1.879Bn in provisions covering various responsibilities such as the debt issued by GES and underwritten by BES retail clients, two letters of credit issued by Venezuelan companies, responsibilities related to fraud cases in Switzerland; responsibilities represented by securities (including liabilities from bonds retransferred back to BES in 2015) totalling €2.87Bn and subordinated debts of €1.35Bn.
On the assets side, €177 million was accounted for with the bank having around €96.5 million in instruments applied in other credit institutions, around €50 million in treasury bonds and 320.6 million in Grupo Espírito Santo credits.
All told, the bank only has €2.5 in assets for every €100 in liabilities which severely limits the possibility of creditors ever getting their money back after the liquidation of the institution which is currently being headed by César Brito and his team.