Banco Espirito Santo Holding Company Takes A Dirt Nap – Files BK

Please note how this news was not reported until late in the afternoon EST time and well after all the markets around the world were closed for the weekend except  the NYSE.  It would have definitely rained hard on the European markets if the news were released during those market hourse:   BES Files BK

The Wall Street Journal reported it at 3:28 p.m. EST.

Interestingly, it would seem that the ratings were given a heads up yesterday, as S&P and Moody’s “coincidentally” downgraded the credit ratings a day ahead of the filing:   BES credit downgrade.

My only question is:  “Who holds the credit default swaps, baby?!”   Better check your bond mutual fund SEC filings…

6 thoughts on “Banco Espirito Santo Holding Company Takes A Dirt Nap – Files BK

    1. Yes that is correct and I was sloppy about making that distinction. But one of ESI’s subs that also owns an interest in BES filed earlier this week. Rioforte and now the holding company. It sounds like the Espirito Santo family used BES to finance a far-flung web of cum-buckets and now the family subs all owe money BES that it can’t pay. With the ESI filing, I’m sure the family has sucked out any cash/assets and have them safely hidden away so that when BES goes tits up, there’s nothing to grab.

  1. Only ESI (one of the holdings of the Group Espirito Santo) has filed for bankruptcy, BES (the Bank) is a totally different matter, and hasn’t filed for bankruptcy and most certainly won’t. Sadly they share a similar name “Espirito Santo”, but the Group only owns 25.1% of BES.
    The Bank has already opened their book on the exposure to GES and even if they take a 100% hit, their TC1 will still be above the required limites. Mind you that they are Senior bond holders on most of the credit deals with GES so it’ll never be a total loss.
    The Espirito Santo family has several holdings and companies in them, of which the holding Espirito Santo Financial Group owns 25.1% of BES and 100% of insurance company Tranquilidade. Of those 25.1%, 5% has been margin called by Nomura and the remaining 20% has been earmarked as a guarantee on issued bonds . The Espirito Santo family will probably end up owning 0.1% of the bank that has it’s name, but that’ll be it.

    1. Well, that’s probably the logic that Seth Klarman used when he bought BES stock after the first downleg. However that trade isn’t working out for him so far. I was looking into some history of this situation last night and, like most situations with a holding company structure like this in the past that I’ve either observed or have been involved in when I traded junk/distressed in the 1990’s, the ES family has likely used BES to finance a lot of really high risk, bad investments. The problem is, since a lot this structure is private, we don’t know what it’s in it. ES may only own 25% of BES, but that doesn’t mean that the family hasn’t exerted undo influence over the bank in its decision-making.

      This one smells particularly bad and I wouldn’t touch it. As for exactly what BES’ exposure is to the ESI empire, we have no idea. Have you seen BES’ books? Usually these complex holding company structures are set up to hide the ability to loot. My bet is that is what has happened here.

      If there were a way for me to make money on this situation, I would spend time doing the work trying to figure out what is going on. But my plate is full with the mining sector and homebuilders. There may be some interesting plays in this, but not at the BES level. My bet is the ES family has looted it.

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