Portugal is to bailout its largest listed bank to the sum of 4.9 billion euros.
The rescue of Banco Espirito Santo or BES follows a weekend of talks between Portuguese and European Union officials and comes after it posted a record half-year loss of nearly 3.6 billion euros.
The upshot is the bank will be split into two: a so-called ‘good bank’ and a ‘bad bank.’
The Governor of the Bank of Portugal, Carlos Costa explained the plan:
“A new bank, named Novo Banco, has been born. The healthy assets and liabilities of Banco Espirito Santo as well as its employees and customer base will be immediately and definitively transfered to this bank.”
That means the ‘bad bank’ will hold all BES’s toxic assets. The rescue marks a shift in banking supervision in the eurozone, shareholders are now to shoulder a larger proportion of losses than in previous bank bailouts.
Novo Banco will be recapitalised with the 4.9 billion euro injection, which is money left over from the country’s bailout fund.
The European Commission has said it approves of the rescue plan.