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European markets rally as Portugal reassures investors over Espirito Santo Portugal reassures markets on Espirito: shares fall
(about 7 hours later)
European share prices rallied after Portugal's central bank moved to reassure savers over the health of one the country’s biggest banks, Espirito Santo. Stock markets around the world paused for breath as Portugal’s Central Bank managed to reassure investors over the health of the country’s second biggest bank, Banco Espirito Santo.
Shares in the bank fell as much as 19 per cent before trading in them was suspended in Lisbon yesterday. Shares in the lender were suspended on Thursday after a 17 per cent slump that sent shockwaves around the world amid fears that its troubles could even trigger another eurozone crisis.
Today, the Financial Conduct Authority banned any short trading of the bank’s shares, derivatives or credit-default swaps in London. Trading resumed after the Banco de Portugal said the bank had sufficient funds to handle losses on loans made to its troubled parent, the Espirito Santo Group “based on the information reported” by the bank and its auditor KPMG. “The safety of the funds entrusted to BES is not undermined and BES depositors may rest assured,” the central bank said.
The euro gained 0.2 cent to $1.3616 while the broad Euro Stoxx share index rose 0.7 per cent. The Spanish, Portuguese and Italian stock markets all rose more than 1 per cent. In London, the FTSE 100 gained 0.3 per cent. With the Financial Conduct Authority once again banning any short-selling of Banco Espirito Santo shares, derivatives or credit-default swaps in London, trading reopened calmly, although the stock still lost just over 1 per cent of its value.
Fears flashed around the globe yesterday over the spectre of a renewed eurozone crisis triggered by a bank on the southern peripheries of Europe. That meant a quiet, turbulence free finish to the week on European stock markets, with the broad based Dow Jones Eurostoxx 50 Index moving slightly ahead of Thursday close, gaining about a quarter of 1 per cent. 
The Bank of Portugal, which originally ordered a special audit of the Espirito Santo’s parent company, Grupo Espirito Santo, which triggered the recent panic, said it was satisfied that it was “able to fulfil its capital requirements”. The panic was in part sparked by the Bank of Portugal’s order of a special audit of the Espirito Santo Group. 
Portugal’s second-largest bank said that it had an exposure of €1.2 billion  (£952.8 million) to Grupo Espirito Santo companies and was “committed not to increase its total exposure” to the parent company or its subsidiaries. Portugal’s second-largest bank said that it had an exposure of €1.2bn  (£95m) to companies within the complex web of businesses and was “committed not to increase its total exposure” to either the parent or its subsidiaries.
It added: “The potential losses resulting from the exposure to Grupo Espirito Santo do not compromise compliance with regulatory capital requirements.”It added: “The potential losses resulting from the exposure to Grupo Espirito Santo do not compromise compliance with regulatory capital requirements.”
Grupo Espirito Santo owns a 25 per cent stake in the bank having recently been diluted through a €2 billion right issue. Its shares were suspended yesterday due to “ongoing material difficulties” at its largest shareholder. Portugal’s Prime Minster Pedro Passos Coelho also chimed in saying there was “no reason for the state to intervene in a bank which has solid capital and a comfortable margin to deal with any eventuality, even the most adverse”.
“Although we welcome the latest disclosure from Banco Espirito Santo which goes some way to enhancing the transparency on its exposure to the wider Espirito group, we still think that the situation facing the bank remains precarious given the opacity around its parent’s capital shortfall,” said Ciaran Callaghan, a credit analyst at Merrion Stockbrokers in Dublin. The Espirito Santo Group owns a 25 per cent stake in the bank. It was recently diluted through a €2bn (£1.6bn)  rights issue.
Although yesterday’s statements have calmed the situation, some still have concerns.
“Although we welcome the latest disclosure from Banco Espirito Santo, which goes some way to enhancing the transparency on its exposure to the wider Espirito group, we still think the situation facing the bank remains precarious given the opacity around its parent’s capital shortfall,” said Ciaran Callaghan, a credit analyst at Merrion Stockbrokers in Dublin.