Espirito Santo India arm riding out a storm

Espirito Santo Financial Group owned 20% stake in Banco Espirito Santo SA, the Portugese bank, which required a euro 4.9-bn bailout earlier this year

The fact that Espirito Santo Financial Group (ESFG) declared bankruptcy on Thursday hadn’t affected Espirito Santo Securities India, a spokesperson said.

ESFG owned 20 per cent stake in Banco Espirito Santo SA, the Portugese bank, which required a euro 4.9-billion bailout earlier this year. The bailout resulted in splitting the bank into two entities — one with all the toxic assets that led to the crisis, and the other with sound assets.

ESFG’s bankruptcy followed a court rejecting a request for more time to sell assets, according to media reports.

“We are a subsidiary of Espírito Santo Investment, which is wholly owned by Novo Banco (the bank with sound assets). Post the restructuring of Banco Espirito Santo into Novo Banco, wholly owned by the Portuguese Resolution Fund, ESFG does not have any direct or indirect shareholding in Espírito Santo Investment Bank or its subsidiaries,” a spokesperson said in response to a query by Business Standard.

The Portugese central bank has said the fallen bank was involved in irregularities relating to lending to other group companies, which resulted in losses that resulted in the bank falling short of minimum solvency ratios. “The results disclosed on July 30 this year reflect the practice of management acts seriously detrimental to the interests of Banco Espírito Santo and the violation of determinations of Banco de Portugal that prohibited an increase in the exposure to other entities of Grupo Espírito Santo,” it said.

Following the decision to bail out the bank, the European Commission released a statement saying the move to split the bank was necessary to avoid the risk of “serious disturbance” to the Portugese economy.

“In its assessment, the commission acknowledged a disorderly resolution of Banco Espirito Santo could create serious disturbance in the Portuguese economy and the creation of the bridge bank is suitable to remedy that disturbance. The measure allows for the maximisation of the value of the assets and minimises the cost for the resolution fund. Further, to limit distortions of competition, the new business by the bridge bank will be limited and a prudent pricing policy will be implemented,” it said on August 4.

In November 2011, MG Burmans Capital Advisors had acquired 25 per cent stake in Espirito Santo Securities India. MG Burmans Capital Advisors is the investment arm of the Burman family, owner of consumer goods company Dabur.

Meanwhile, the Wall Street Journal has reported the India arm has been sounding out potential buyers. The company declined to comment on the matter.