MW: European stocks flat after Portugal bank bailout
By Carla Mozee, MarketWatch
LONDON (MarketWatch) — European stocks were largely flat Monday, with markets cautious after Portugal’s central bank unveiled a bailout plan for troubled bank Banco EspĂrito Santo.
Under a plan outlined late Sunday , toxic assets at Banco EspĂrito Santo will be put into a so-called bad bank that will eventually be wound down. The move that comes amid concerns that the broader euro area could be hurt by troubles in Portugal’s banking sector.
Assets and deposits deemed healthy will be part of a “good” bank to be rebranded as Novo Banco. That bank will receive an injection of 4.9 billion euros ($6.58 billion) from a special bank resolution fund that Portugal set up in 2012. Novo Banco will be sold and proceeds used to pay back the fund.
Banco EspĂrito Santo, the second-largest lender by assets in Portugal, last week posted a record second-quarter loss of €3.49 billion ($4.68 billion), after its embattled parent company found ways to use the bank and its customers to raise funds now largely unrecoverable.
On the data site, producer prices in the euro zone rose 0.1% in June month-on-month, Eurostat said Monday. The reading suggests consumer prices are unlikely to rise rapidly in coming months and comes after the European Central Bank, with an eye on low inflation, introduced additional stimulus measures.
Market moves: Shares of Banco EspĂrito Santo PT:BES -40.30% were halted on Friday and were expected to be delisted. They’ve plunged roughly 87% for the year, according to FactSet data.
But stock in Banco Comercial PortuguĂŞs SA PT:BCP +7.33% rose 3.1% while Banco Internacional do Funchal SA PT:BANIF -1.14% lost 2.3%. The Portugal PSI 20 stock index PT:PSI20 +1.20% edged up less than 3 points to 5,800.01.
On the broader European market, the Stoxx Europe 600 index XX:SXXP +0.27% was off less than 1 point at 331.87. Germay’s DAX DX:DAX +0.31% fell 0.1%. But France’s CAC 40 index FR:PX1 +0.78% rose 0.5% to 4,224.56 and the U.K.’s FTSE 100 index UK:UKX +0.43% was up 0.4% at 6,702.
Comments: Citi downgraded Banco EspĂrito Santo to a sell/high risk rating saying the value of legacy shares of the “bad” bank is highly uncertain. “Given the uncertain nature of the outcomes (in our view), we choose to be conservative and assign a target price of €0.01,” wrote analyst Stefan Nedialkov in a report Monday. The previous rating was neutral/high risk.
Barclays on Monday said the sovereign financial implications of Banco EspĂrito Santo’s troubles remains limited, but investors are likely “to remain guarded about risks which could stem from latent problems in the financial system as the amount of financial resources left available to deal with any potential problem in the banking sector has declined substantially.”
