In an attempt to save its biggest public bank, the Portuguese government will spend 4.9 billion euro in recapitalisation

The Portuguese government plans to spend 4.9 billion euro on saving its biggest public bank just a few months after Portugal aborted the previsional international saving plan.

The contract between Lisbon and European Union went under revision last week due to the bad financial indicators of the Iberian country. The bad condition of the bank on its end shook the general position on the market of the economic empire Espirito Santo. The whole crisis brought to the holding a loss estimated closely at 3.6 billion euro.

According to the new plan, Banco Espirito Santo will be separated into a ‘good’ bank called Novo Banco and ‘bad’ bank which will go under the jurisdiction of the central bank and it will manage the affected assets of the bank’s portfolio. The first saving transfer will be covered by the bond and shareholders which possess 20% of Banco Espirito Santo, as well as the French bank Credit Agricole which owns 14.6% of the Portuguese bank.

The recapitalisation of Novo Banko will be in the amount of 4.9 billion euro and it will be fulfilled with the help of the special banking fund established by the government in 2012. All rights of the creditors and the investors will be protected.

Only a few days ago the Portuguese Central Bank announced that BES plans to fulfil a recapitalisation from private investors. The plan originally didn’t involve government spending. However the private sector in Portugal still hopes that the public goods of the bank will be covered and that the controlling interest will be transferred to private investors.

“The plan doesn’t jeopardise the public finances and the taxpayers,” said Carlos Costa, the governor of the central bank.

The saving of the bank took Portugal back into financial menace only a month after the Iberian country aborted the previous plan of saving the Portuguese economy, which reached 78 billion euro and was approved by European Central Bank, European Commission and International Monetary Fund. The shares of BES dropped down with 75% only for a week which makes the governmental interference inevitable.

A month ago another big bank in Europe went into insolvency. Bulgarian Cooperative Trade Bank which was known as “the bank of the people in power” closed in the end of June and left thousands of people without access to their savings and deposits. The guarantee fund didn’t manage to cover the “protected” deposits up to 50,000 euro, and the crisis is far from being solved.

Denislav Donchev, Correspondent (Business)

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