Many years ago a genuine French Rothschild I knew commented about my recommending the Portuguese Banco Espirito Santo stock. We have long since exited the BES issue which no longer is on the Big Board.The Inquisition has been revenged. I was reminded of this anti-Iberian remark by the news that BES has shuffled off its family control of the board over concerns about financial misdeeds at the bank’s 25% global controlling arm run by Espirito Santo family. Luxembourg-incorporated Espirito Santo Investment International, ESII, owns a quarter of BES.
In addition, Luxembourg is also the seat of the family holding company which controls BES and other assets in the group, called Espirito Santo Financial Group, ESFG, which has cross shareholdings with ESII. ESGF is listed in Portugal.
An unexplained euros 700 mn shortfall in the ESII accounts was revealed by its 2013 audited result blamed on financial irregularities. This according to Ricardo Espirito Santo Salgado, 70, who has now resigned as chairman and family head at BES. He will step down at the end of this month after serving 22 years. Of course the name means Holy Spirit but that is not important. It also means a big powerful Portuguese family.
Ricardo had a key success, restoring the fortunes of BES after the bank moved to Brazil (along with clan members) during the 1970s Portuguese Revolution which topped the post-Salazar government and terrified oligarchs, bankers, and heirs to family fortunes.
However, in contrast the to the French Rothschilds, who abandoned any desire to resume their retail banking business for French citoyens after their bank was nationalized and then returned to them under Mitterrand, the Espirito Santo clan did not adjust to new times upon returning to Portugal. They deliberately set out to restore the glories of the past, with a bank offering accounts to the public, but also linked to global and even imperialist relics, hide-aways for banking secrecy, family holding companies in tax havens, and unknown sources of money. The
Luxembourg ESII, legally an investment bank, was the issuer of BES debt which was sold widely to those holding Portuguese banks accounts with BES, most recently last month. Luxembourg financial misdeeds were reported in response to an inquiry by the Portuguese central bank.
There are also difficulties for BES, not yet clarified further, over its Angola sub where BES had to put up $5.7 bn late last year to cover late payments and defaults that threatened the Angola bank’s ability to operate as a going concern. BES owns nearly 58% of the Angola BES sub. The total loan book of BES Angola amounts to only euros 6 bn so virtually every loan must have gone south.
But rumor has it that the Espirto Santo clan which has run the bank since the late 19th century has its own shortfall at the holding company level which may be as high as euros 2.5 bn, The non-financial family holding company, Rioforte, is trying to stop the outflow of funds by a capital increase of euros 1 bn, according to the Financial Times, and asset sales. BES is on the hook for euros 200 mn lent to Rioforte. It also Meanwhile Moody’s has put both BES and ESII on credit watch for a downgrade.
