Why a Portuguese bank has investors spooked
The situation is sparking worries that uncertainty in the country could impact assets across the eurozone. New numbers from France and Italy aren't helping, either.
The parent company of Banco Espirito Santo, Portugal's second-largest bank, missed debt payments to "a few clients," according to a Bloomberg report, and markets are freaking out.
Shares of Banco Espirito Santo trading in Lisbon were down more than 17 percent on Thursday.
The Portuguese stock market was also down about 4 percent after the news. Stocks across Europe were also broadly lower. In the U.S., the Standard & Poor's 500 Index ($INX) and the Dow Jones Industrial Average ($INDU) fell hard in early trading Thursday, but recovered slightly by midday to post more moderate losses.
Citing a statement from Espirito Santo, Bloomberg reported that Espirito is "currently assessing the financial impact of its exposure.
Wednesday, Moody's downgraded the debt ratings of Espirito Santo Financial Group, which is the largest shareholder of Espirito Santo International, according to Bloomberg, with Moody's saying its, "concerns regarding ESFG's creditworthiness are heightened by the lack of transparency around both the Espirito Santo Group's financial position and the extent of intra-group linkages including ESFG's direct and indirect exposure to ESI."
Bloomberg economists David Powell and Maxime Sbaihi said, "Problems in Portugal's banking sector appear to have worried investors over the solvency of the country." Powell and Sbaihi also noted that the public finances of Portugal are among the most fragile in the eurozone.
Uncertainty also seems to have reached the Spanish banking sector as well. According to reports from both Bloomberg and The Wall Street Journal, Banco Popular Espanol postponed a planned debt sale, citing adverse market conditions.
Shares of Banco Popular trading in Madrid were down more than 4 percent.
The news has also spooked investors who are concerned about how uncertainty in the Spanish and Portuguese financial sectors could impact assets across the eurozone.
Bloomberg cited comments from Adrian Miller, director of fixed-income strategy at GMP Securities, who said in a note to clients, "Should the Portuguese situation continue to deteriorate, risk aversion contagion could quickly spread to other eurozone member states' bonds and other asset classes."
The news of missed debt payments by Espirito Santo International also comes on the heels of discouraging economic data out of the eurozone.
Earlier Thursday, inflation data out of France showed that its economy is teetering. Industrial production fell 3.7 percent in May and with consumer prices rising just 0.5 percent in June, concerns about deflation risks in France are increasing.
Industrial production data out of Italy also disappointed, with production falling 1.2 percent in May.
The eurozone's recovery from the sovereign debt crisis has been about improving situations in the economic bloc's peripheral economies like Italy and Portugal, and this new batch of uncertainty in Portugal's financial sector is not sitting well with investors.
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