It was a day of record losses for European banks. Both France’s BNP Paribas and Portugal’s Banco Espirito Santo have just reported second-quarter earnings — somewhat unsurprisingly for those following the news in the last few months, both banks lost billions.
BES disclosed a €3.6 billion ($4.8 billion) net loss in the first half of the year. The Bank of Portugal is requiring BES to raise capital after it set aside money to cover the losses, and it may end up needing state aid. Paul Murphy writes, “the losses appear to have taken the bank’s equity tier 1 capital ratio down to circa 5 per cent – that’s the wrong side of an absolute regulatory floor of 7 per cent.” Additionally, Reuters reports, “BES’s top risk management, compliance, supervision and audit officials had been suspended over suspected ‘harmful management’ that may have contributed to the bank’s massive losses.” The New York Times quotes analyst Antonio Barroso saying the moves by the Portuguese central bank are effectively a back door nationalization of BES.
Until last month, BES was part of the larger Espirito Santo Group, the businesses of the Espirito Santo family. The group lost control of the bank in June, though it is still the bank’s largest shareholder (BES then defaulted on some bonds in July). Many of the accounting irregularities seem to be related to various other Espirito Santo holdings, such as the “120 million euros [that] was loaned to a family company in June without passing through the bank’s related party lending controls,” according to Reuters.
BNP is somewhat less intriguing. The bank posted a loss of €4.3 billion in the second quarter, but that was largely because it was slapped with an $8.9 billion fine at the end of June by the U.S. Justice Department for violating U.S. sanctions by providing dollar-clearing services in Iran, Sudan, and Cuba. Otherwise, it would have been a decent quarter for the bank. According to Dealbook, “second-quarter net income rose 23 percent, to €1.9 billion. This increase was led by the bank’s corporate and investment banking unit, which reported that pretax profit increased 31 percent, to €661 million.” — Shane Ferro
On to today’s links: