An audit requested by the Bank of Portugal into the accounts of Espirito Santo International detected "irregularities," according to BES which said the international bank is to be reorganised.
The Securities Commission report comes after an external audit into the bank between September 30, 2013 and December 31, 2013 "found irregularities in their accounts and concluded that the bank is in a serious financial situation.”
The audit committee of the Espírito Santo Financial Group (ESFG) “also identified material irregularities in the accounts,” although it took an external report for the bank to admit to the situation.
According to BES the report may affect its reputation, although BES is not technically responsible for Espirito Santo International, and Espírito Santo Financial Group has taken steps to safeguard itself by making a special provision of €700 million in the 2013 accounts which was insisted on by the Bank of Portugal due to a concern that several non-financial companies within the Espirito Santo group have no ability to repay the loans that have been placed with BES customers.
The capital increase notification states that Espirito Santo International has “in motion a programme of reorganisation its group companies and is deleveraging to rebalance the financial situation and to repay liabilities."
The debt held in Espirito Santo International and its subsidiaries held by BES customers amounted to €395 million, while the value held by institutional investors amounted to €564 million."
The document reads “the expectation of the BES Board of Directors is that the repayment of debt will be performed through the implementation of an asset deleveraging plan, through the support of its shareholders and through the ability to obtain or renew lines of credit in financial markets and through further possible support that may be required by the Espirito Santo Financial Group and BES.”
The prospect of a capital increase has its source in the situation of BES Angola which has had problems. In December 2013 a capital increase of USD500 million was necessary.
In particular BES refers to a guarantee provided by the Angolan Government to underpin transactions with Angolan companies. Angola guaranteed USD 5,700 million as agreed in late 2013 and was to protect the bank from potential delays and defaults by companies. However, the bank is still awaiting the approval and release of the guarantee by the Bank of Portugal and the amount is not yet reflected in BES' accounts.
BES warned on Tuesday evening of the likelihood of a capital increase of up to €1,045 million, under which the bank will issue up to €1,607 million new shares at a price of €0.65 each.
