Portuguese bank collapses

published 7 August 2014

Portugal's largest lender, Banco Espirito Santo (BES), has collapsed amid a series of sudden and unforeseen losses. A fortnight ago, regulators appeared convinced that the bank was solvent. Now they are to use €5bn left over from the country's international bail-out fund to patch up the huge hole in BES' balance sheet.

Meanwhile, Italy fell in to recession, with GDP shrinking by 0.25% in the second quarter, following a 0.1% decline in the first.

What the commentators said

The worry now is that more nasty surprises could be lurking in Europe's banking sector. Unlike its US and the UK counterparts, Europe hasn't forced troubled banks to come clean about their losses and recapitalise, which is one reason lending has been so subdued, said Paul Taylor on Reuters.com.

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Now the European Central Bank is conducting a review of bank assets and appears to have helped highlight problems at BES. So what else might it sniff out?

"The spotlight is likely to shine on the eurozone periphery," said Ben Chu inThe Independent. Banks in Italy,Portugal and Spain had the highestnon-performing loan ratios in 2012.

The International Monetary Fund thinks those states' banks face around €250bn of potential losses in the next two years, and only Spain's banking system has enough cash to cover this.

So investors may need to stump up again and if they won't, governments could have to step in. The fear of bankrupt banks bankrupting governments, a hallmark of the euro crisis, could soon return.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.