17:19 Here’s how Reuter’s Breakingviews sums up today’s events:
16:56 Today’s market volatility has been a reminder to investor’s that
the eurozone’s recovery is fragile – especially among its southern European
members – and feeds wide fears that its banks have still not bitten the
bullet over bad loans.
The FTSE 100 index ended the day down 0.68pc at 6,672.37 points. In
Frankfurt, the DAX 30 lost 1.52pc to 9,659.13, and in Paris the CAC
40 slid 1.34pc to 4,301.26 points. Portugal’s PSI 20 tumble
4.18pc – or 266 points – to 6,105.
The pound strengthened against the euro – which is good for British
holidaymakers and for eurozone nations which have been complaining about a
strong euro.
Graph: Bloomberg
16:48 Concern about the health of Banco Espirito’s Portuguese parent,
curbed demand at Greece’s second debt sale following its 2012 default, Reuters
reports, calling the market turmoil the first significant episode of
contagion for peripheral markets in 2014.
Greece’s sale of three-year bonds drew mediocre demand compared with recent
offerings from euro zone peripheral issuers. Athens raised €1.5bn, well
below the €2.5bn-€3bn it was widely expected to achieve. Total bids were
only €3bn.
Guido Barthels, chief investment officer at Luxembourg-based Ethenea,
told Reuters he was initially interested in the sale but was put off by what
was happening in Portugal.
It is not a good day to come to the market for Greece. Given what’s
happening in Portugal, it does not make a whole lot of sense to touch that.”
16:46 European markets have closed and banks have had a bad day
16:23 Here’s a shot of a broker’s screen signalling the turmoil in the
Portuguese stock market and the sharp fall in Portuguese bank Banco Espirito
Santo shares earlier today. As we edge closer to the close or trading in
Europe, the PSI 20 is still down 256 points or 4pc. the FTSE 100 has
slipped 0.6pc but eurozone bourse have fallen further with the DAX, CAC,
Ibex and MIB dropping between 1pc and 2pc. On Wall Street, the Dow,
SP, and Nasdaq are down 0.5pc-0.6pc.
AP Photo/Francisco Seco
Chris Beauchamp, Market Analyst, IG, gives his view of the market
turmoil:
With Portugal looking to be in trouble once again, prudent analysis has
been thrown out of the window in preference to a knee-jerk reaction.
Portuguese bond yields aren’t soaring (yet), and the contagion hasn’t spread
to Spain or Italy (yet), but the combination of the news from Lisbon and
more data that confirms the weakness of the eurozone has provided the excuse
to finally kick start the summer volatility trade into life. Marks
Spencer had a midday slump as the CFO announced he was off to Tesco, in a
move that might be described uncharitably as ‘from frying pan to fire’, but
overall the shares posted modest gains following their drubbing earlier in
the week.
16:11 Capital Economics says there reasons why markets’ fears about
Banco Espirito Santo might be overdone.
1. The Bank of Portugal has claimed that BES’ solvency is solid and
that it can withstand significant losses on its €920m exposure to the ESI
group and it should be note that BES was able to raise over €1bn in a cash
call last month.
2. Even if the Government has to recapitalise BES, the €920m exposure
amounts to just 0.6pc of GDP. The Government made a clean exit from its
bail-out two months ago and has been able to issue debt without the help of
EU authorities since January, suggesting that it could raise the necessary
funds if more was needed.
3. The latest plans to allow the ESM (European Stability Mechanism)
bail-out fund to recapitalise banks directly before the end of this year
provide some encouragement too, as does the ECB’s pledge to lend banks as
much as €1trn in very low interest loans under the new targeted longer-term
refinancing operations (TLTROs).
However, despite this they added that the risk of contagion to other
Portuguese banks is high, the Government can ill afford a widespread bank
rescue and plans to allow the ESM to recapitalise banks directly have yet to
be passed by national parliaments and the ECB might baulk at accepting risky
Portuguese collateral in return for its TLTROs.
Capital Economics adds:
In all, recent news has added weight to our view that Portuguese bond
yields have further to rise. And more worryingly, the associated rise in
other peripheral governments’ borrowing costs has confirmed that their
fortunes remain closely tied not only to those of their own banks but also
to each other.
15:58 Bond yields of benchmark government bonds in peripheral eurozone
nations – Portugal, Spain, Italy and Greece – have
risen today. The worry is whether what is happening in Portugal is just a
window into the poor health of banks in these other eurozone banks?
A snapshot of 10-year bonds in Europe at 16.00 on Thursday. Source:
Bloomberg
For Capital Economics it is is an indication of a wider eurozone
malaise. In writes its European Economic update this afternoon it says:
The recent rise in Portuguese government bond yields related to fears for
its banking sector confirms that policymakers have done little to weaken the
“doom loop” between banks and sovereigns in the euro-zone’s periphery and
highlights the fragility of the recent improvement in market sentiment.
The yield on 10-year Portuguese government bonds have risen to 3.943pc
today. Graph: Bloomberg
Debt yields in peripheral eurozone nations reached record lows in the first
half of the year, helped by ultra-easy European Central Bank policies that
let countries sell debt easily regardless of their ratings or economic
situation.
15:47 Concerns about Espirito Santo have emerged less than two months
after Portugal exited a three-year, €78bn international bailout.
Portugal’s central bank, which has ordered an audit of ESI, is believed
to have taken discreet action to prevent problems in the company damaging
the country’s banking system during the upheaval of the financial crisis.
Jim Reid, macro strategist at Deutsche Bank, said:
Espirito’s stresses have brought questions over the underlying health of
peripheral banks and the still evolving mechanisms for dealing with
struggling institutions back into the spotlight.
People withdraw money from ATM machines in a Banco Espirito Santo (BES)
branch in Lisbon.Photo: EPA/MARIO CRUZ
15:36 Fears over the health of Banco Espirito Santo (BES),
Portugal’s largest listed bank, saw Lisbon stock market regulators suspend
trading in the shares today after its shares had plummeted 17pc to 0.50
euros.
The bank’s shares were suspended just hours after its main shareholder Espirito
Santo Financial Group voluntarily withdrew its own shares from market
trade, citing the “difficulties” at Espirito Santo
International (ESI), which has been hit by reports on an alleged cover
up of a €1.3bn hole in the accounts.
Espirito Santo Financial Group said it was “assessing the financial
impact of its exposure” to the troubled ESI, which is being
investigated by the Luxembourg authorities and is reportedly seeking to
restructure debts estimated at more than seven billion euros.
Renaud Murail, manager at France-based stock brokerage Barclays Bourse,
told AFP:
Investors are concerned about the solvability of BES and the impact it
could have on the whole country
15:20 Here’s Seeking
Alpha’s take on events, headlined: When the going gets tough, the
tough suspend trading.
Portugal has halted trade in Banco Espirito Santo with the stock off 17.2%
on the session and 54% over the last month. At issue are financial troubles
for the bank’s privately-owned holding company, Espirito Santo
International. Its accounts are currently under review by an external
auditor who has identified irregularities and concluded the company “is
in serious financial condition.”Santander (SAN -5.8%), UBS (UBS -1.8%),
Deutsche Bank (DB -3.1%), Bank of Ireland (IRE -5.6%), Credit Suisse (CS
-2.8%), ING (ING -3.2%), BBVA (BBVA -3.1%). U.K. banks: Barclays (BCS
-3.8%), RBS (RBS -1.9%), HSBC (HSBC -1.9%), Lloyds (LYG -2%).
15:16 The problems at Espirito Santo have sparked wider concerns about
the stability of the eurozone periphery, and markets in Italy, Spain and
Greece were all sharply lower.
The FTSE 100 has slipped 0.8pc to 6,666.90 – its fourth day of losses.
Germany’s DAX, France’s CAC, Italy’s MIB ,Spain’s IBEX
and Portugal’s PSI 20 are currently trading down 1.6pc,
1.59pc,2pc,2.05pc and 3.9pc respectively.
Jitters have spread to Wall Street, where five minutes after the open
the Dow Jones Industrial Average dropped 150.91 points – or 0.9pc –
to 16,834.70. The broader SP 500 and the technology rish Nasdaq
have also both dropped 0.8pc
15:10 Investor concerns are centred on Portugal and the health of
Espirito Santo Financial Group (ESFG) and Banco Espirito Santo (BES), the
country’s biggest-listed lender which has an investment banking business in
London. Portugal Telecom, which has bought debt in ESFG, has also been hit
by investor jitters.
Peter Garnry, head of equity strategy at Saxo Bank, said:
Banco Espirito Santo is the most important event right now impacting
European equities. Investors are dumping the shares and bonds of the
Portuguese lender on the news that its parent company Espirito Santo
Financial Group SA has missed a debt payment.
The local central bank is assuring investors that BES is shielded from the
parent company credit. The event has hit European financials like a torpedo
and has revived investors darkest nightmares about Europe.
15:07 Growing fears about Portugal’s financial system has triggered a
global stock market sell-off.