BES cuts losses by half — black hole still €7.2Bn

The ‘bad’ bank that remains of Banco Espírito Santo which collapsed in 2014 is making headway on reducing some of its losses. They are now half of what they were when the bank began its winding up process eight years ago.

However, the total value of toxic assets and other losses still stand at around €7.2Bn. BES registered losses of €250 million more for 2021 due to the interest rates on the debt that creditors are owed, increasing the total toxic assets and debts to €7.2Bn.
Most of the debts involved refer to loans made before 2014 that subsequently went sour and which the creditors cannot pay.
These include senior bonds — a bond that has a higher priority than another bond’s claim to the same class of assets in case of a default or bankruptcy. These bonds are €2.17Bn and were transferred from Novobanco in 2015.
Last years accounts for BES closed the year with an accumulated debt of €7.34Bn in relation to 2020, an increase of €250 million on 2020 when it had assets valued at €175 million.
This means that BES does not have the assets to cover its responsibilities, and has not for eight years. But in the meantime interest has accrued which now brings the total debt to €7.2Bn, largely academic since BES had virtually no chance of turning these ‘assets’ into cash.
In terms of liabilities, there are three main ones that explain why the bank’s accounts are in an even worse situation this year than in previous years. Securities worth €3Bn, including bonds transferred to the bank in 2015 by a decision made by the Bank of Portugal. This measure is being contested in court by a group of large international investors such as Pimco and BlackRock.
Then there are other provisions worth €1.8Bn which is essentially liability coverage for legal challenges from the lists of recognised and non-recognised creditors. Finally, subordinated liabilities worth €1.4Bn on undated securities issued by BES and subordinated BES Finance loans.
Taken as a whole, for every €2.4 in assets the bank has €100 in liabilities which limits the chances of creditors, which includes the bank, and other creditors, to which the bank owes, ever getting back their money.