Linklaters is acting for Banco Espírito Santo (‘BES’) and its successor bank, Novo Banco, in respect of the bank's resolution scheme. The firm has been acting throughout the period leading up to the resolution measures announced by the Bank of Portugal, over the resolution weekend and since then on the subsequent split into a “good bank” and “bad bank”.
The resolution follows the announcement by BES last week of significant losses arising in part from exposures to companies associated with the Espirito Santo family interests. A number of those companies have commenced various protective proceedings in Luxembourg and Portugal. These losses reduced BES tier 1 capital as at 30th June 2014 to below the minimum regulatory threshold.
Under the plan, which was announced by the Bank of Portugal last Sunday evening, BES is being split into two, with all of the assets and liabilities including customer deposits and senior debt (other than certain excluded assets and liabilities) being transferred to a bridge bank, called Novo Banco.
The bridge bank will be owned as to 100% by the Portuguese bank resolution fund which has provided €4.9bn in capital into Novo Banco. The excluded assets and liabilities which have all been left behind in BES principally relate to the banking relationships with the companies associated with the Espirito Santo family interest. The subordinated debt of BES and any liabilities associated with the prior capital raising activities of BES and the Espirito Santo Group companies will also be left in BES. The shareholders in BES will remain as shareholders in that company. New management has been appointed to BES who will supervise the realisation and distribution of its assets.
The Linklaters team advising on this complex and strategically important matter, includes Lisbon partners António Soares and Pedro Siza Vieira and London partner David Ereira. The matter is ongoing and will see Linklaters continuing to assist with the arrangements for the separation and other continuing matters.
The resolution was effected in the context of the introduction of the new European Banking Recovery and Resolution Directive.
Linklaters partner David Ereira commented: “The plan creates an effective “bail-in” of shareholders and subordinated note holders with no expected costs for Portuguese taxpayers. It was carried out with the support of the European Central Bank and the European Commission making this a landmark case which is being seen as a leading indicator of how the European bank resolution scheme will operate going forward.”
The resolution of BES comes as the European Central Bank is conducting comprehensive balance sheet assessments (asset quality reviews and stress tests) of the most ‘significant’ Eurozone banking groups before taking new banking supervision tasks as part of a Single Supervisory Mechanism in November 2014.
This instruction is also a further example of Linklaters’ market leading experience in bank recovery work which recently included advising on the liability management exercise for the Co-Operative bank.
