Portugal’s third largest bank, Banco Espírito Santo, has faced a crisis. A family controlled bank, though one in which the family only owned 25% at the beginning of the crisis, it has been emphasised that the bank is financially sound, but the controlling family is not. The Espírito Santo family established the bank in the middle of the 19th century, having spent a number of years in exile in Brazil when the leftist coup in Portugal took place in the 1970s. The bank has now become a major player in the Portuguese economy however, the family has had to dispose of assets because of massive accounting irregularities in the separate Espírito Santo International, which ultimately owns the bank shares and which is a holding company in Luxembourg.
By having to sell stakes in the bank to recover funds to deal with the accounting holes, the price of the bank stock went through a very large decline and led to the banks suspension from the market. The situation now seems to have stabilised, but there is still concern that if the bank needs more capital, the family are in no position to supply it and the price of capital rockets up. The main aim of the regulator and other authorities is now to stop a deposit or run on the bank, which seems to have been achieved.