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.

By MSN Money Partner Jul 10, 2014 12:24PM
Credit:c © Mario Cruz/EPA

Caption: A Banco Espirito Santo (BES) logo outside a branch in Lisbon, PortugalBy Myles Udland, Business Insider

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. 

More from Business Insider

Jul 10, 2014 1:51PM
This is just the Tip of the Iceberg. The Problems are far more global and much deeper. The Main Stream Media is in Denial and wants everyone else to be the same.
Jul 10, 2014 2:04PM
Ha, ha the global QE bubble is going to burst!
Jul 10, 2014 1:17PM
This is how it ends-- historically. Big Cartel-level banks lend to smaller banks. Once the public is fully fleeced and tapped out, these banks begin to default on their own debt. Read your history, its how Loan Sharks went down in 1905 America. Morgan or Mellon cried to the government and got bailed instead of jailed. A few years later, Morgan orchestrated the Fed farce. See how letting one criminal act leads to a century of them?
Close the banks. End the Federal Reserve. Get RID of Wall Street. It's time to retake America away from financial tyrannical greed. 
Jul 10, 2014 3:49PM
There wasnt two investors that were spooked!!!  Portugual is a nettle in the hay stack in world economies. Wall Street is only manipulating the markets right now!!
Jul 10, 2014 4:41PM
Running out of road down which to kick the Can of Accountability.
Jul 10, 2014 4:38PM
Jul 10, 2014 4:44PM
I read that 15 major bankers have killed themselves. Pretty good start.
Jul 11, 2014 11:20AM
You are "WACKO" V_L. Seek help before YOU blow up.
Jul 10, 2014 2:27PM
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