Portugal's biggest bank says it can cope with losses, helping to steady financial markets

LISBON, Portugal – Senior Portuguese officials gave assurances Friday about the soundness of Portugal’s biggest bank, seeking to defuse tension after world markets went into a spin over fears that Banco Espirito Santo’s troubles could reignite Europe’s financial difficulties.

Banco Espirito Santo also tried to allay investor concerns that it is at risk from potential defaults on loans it made to ailing companies in its financial and industrial group. It said late Thursday it has a 2.1 billion-euro ($2.8 billion) cash cushion which is enough to cover its exposure to other Espirito Santo group companies and keep it within regulatory requirements.

Investors appeared satisfied that Banco Espirito Santo’s problems won’t spread, as Europe’s main stock exchanges recovered Friday after sharp losses in world markets the previous day amid fears that Europe’s financial crisis was not yet completely over.

Portugal’s main index, which had fallen 4 per cent on Thursday, closed up 0.6 per cent. Trading in the bank’s shares on the Lisbon stock exchange resumed Friday morning after being suspended the previous day when the price fell more than 17 per cent. They were volatile all day and closed down 5.5 per cent.

Portugal’s prime minister and the country’s central bank said audited accounts show that Banco Espirito Santo is financially solid and does not represent a risk to the broader financial system.

European Union authorities “do not see any cause for undue concern” and did not plan to intervene, EU spokesman Simon O’Connor said in Brussels.

Though markets were quieter, analysts said they are awaiting clarification about the sharing of losses between different companies in a planned Espirito Santo group restructuring, and detail about losses sustained in the bank’s Angola operations.

Answers to those questions may not come until the end of the month, when a new executive board takes over at the bank and interim accounts are presented.


John-Thor Dahlburg contributed from Brussels.