Europe’s Cage is Rattled a Bit
The little disturbance in Portugal’s banking landscape hasn’t been entirely overcome yet. New management has been installed at Banco Espirito Santo, but the problem is that the bank apparently sits on quite a few dubious assets, and the new management cannot wish them away. BES appears to have sunk a lot of money into former Portuguese colony Angola, and these loans are the subject of growing concern. On Tuesday, the stock of BES collapsed to a new low, but the losses have been recovered in Wednesday’s trading session.
In parallel with the still growing worries about BES, Germany’s ZEW institute issued its economic confidence indicator, which showed the 7th monthly decline in a row. Wasn’t there supposed to be a recovery?
A few excerpts from a Reuters summary:
“European stocks and the euro fell on Tuesday after shares in Portugal’s biggest listed bank hit a record low, while a plunge in German economic sentiment pushed up borrowing costs for some peripheral euro zone countries.
Global stock markets have recently been supported by dovish policy measures from major central banks and signs that economies are recovering, though worries persist over the pace of growth in Europe and the health of the region’s banks.
[…]
The banking sector was a sharp underperformer, with Portugal’s Banco Espirito Santo slumping 17.5 percent to a fresh record low. Traders blamed concerns over the bank’s Angolan loan portfolio and the sale of a stake at a low price by the bank’s founding family on Monday.
[…]
“The key takeaway is that the banking sector globally continues to struggle despite time having been bought, and policy being tremendously supportive,” said Jeremy Batstone-Carr, head of private client research at Charles Stanley.
“The sector feels like a minefield.”
Below are chart updates of BES and Portugal Telecom – while the shares of BES managed to recover on Wednesday morning, Portugal Telecom’s stock gave ground again and relinquished much of its earlier bounce. Our guess is that there is broad agreement that the company will have to write off a good chunk of its BES related investments.
