Banco Espírito Santo

Banco Espírito Santo (BES) was a Portuguese commercial and investment banking group headquartered in Lisbon. Its institutional history began in 1920, although the business originated with José Maria do Espírito Santo e Silva’s lottery, currency-exchange and securities activities in Lisbon from 1869 onward. The bank became one of Portugal’s most prominent privately controlled financial institutions, expanding from domestic commercial banking into insurance, investment banking, corporate finance, retail banking and international operations. A major early turning point came in 1937, when the bank merged with Banco Comercial de Lisboa and adopted the name Banco Espírito Santo e Comercial de Lisboa. The enlarged institution developed a nationwide branch network and strengthened its position in Portuguese banking. During the middle decades of the twentieth century it also built international relationships and operations, including activities connected with the United States, Angola and the United Kingdom. In 1975, following Portugal’s post-revolution nationalisation of the banking sector, the bank was nationalised and the Espírito Santo family was excluded from conducting banking business in Portugal. The family rebuilt its financial interests outside Portugal. In 1975 it created a Luxembourg-based holding structure that later became associated with Espírito Santo Financial Group. The group subsequently re-entered Portugal during the liberalisation of the financial sector in the 1980s, initially working with Crédit Agricole and other Portuguese and international shareholders. The family’s financial group recovered control of Companhia de Seguros Tranquilidade in 1990, and a holding arrangement involving Espírito Santo Financial Group and Crédit Agricole, known as BESPAR, restored control of Banco Espírito Santo in 1991. BES resumed international expansion during the 1990s and 2000s. It entered Spain in 1992, established Banco Espírito Santo do Oriente in 1995 to provide corporate, investment and private-client services, and participated in the creation of Banco Espírito Santo Angola in 2001. The broader group maintained a presence through subsidiaries, branches and representative offices across several continents. Banco Espírito Santo e Comercial de Lisboa shortened its name to Banco Espírito Santo in 1999. At its peak, BES was among Portugal’s largest private financial institutions. Reference material describes approximately €80.7 billion in net assets in March 2011, around 2.1 million clients and an average Portuguese market share of approximately 20.3 percent. It was also one of the larger constituents of Portugal’s PSI-20 index and was presented as a financially and geographically international Portuguese banking group. The bank’s position deteriorated sharply in 2014 amid losses and concerns regarding the financial condition of companies associated with the Espírito Santo group. During the first half of that year, BES reportedly lost the equivalent of approximately US$4.8 billion, while its shares fell by 89 percent. A record second-quarter loss of €3.49 billion intensified the crisis. On 3 August 2014, Banco de Portugal applied a resolution measure that separated the institution into Novo Banco, which received the bank’s healthier operations, and the existing entity, which retained toxic assets and entered a liquidation process. Novo Banco was recapitalised with €4.9 billion, funded through Portugal’s Resolution Fund, including a €3.9 billion government loan to that fund. The former BES entity entered liquidation on 13 July 2016. The BES brand therefore survives primarily as a historical reference to a former banking group rather than as an active financial-services provider.

Banco Espírito Santo’s roots lay in the financial activities of José Maria do Espírito Santo e Silva, who operated a Lisbon business dealing in lotteries, currency exchange and securities from 1869. His succession of firms included Beirão, Silva Pinto & C.ª, Silva, Beirão, Pinto & C.ª, J. M. Espírito Santo Silva and J. M. Espírito Santo Silva & C.ª. After his death in 1915, his heirs established Casa Bancária Espírito Santo Silva & C.ª. That enterprise became a public limited-liability company in 1920 under the name Banco Espírito Santo. During the 1920s the bank consolidated its position in Portugal by opening agencies and developing a modernised management structure. Under Ricardo Ribeiro do Espírito Santo Silva, it merged with Banco Comercial de Lisboa in 1937 and became Banco Espírito Santo e Comercial de Lisboa, or BESCL. The merger expanded its commercial-banking capabilities and helped it become a leading Portuguese private bank. The institution also conducted international transactions during the Second World War, including trade involving tungsten. From the middle of the twentieth century through the early 1970s, BESCL extended its international presence through acquisitions, partnerships and banking operations linked to markets including the United States, Angola and the United Kingdom. Portugal’s 1975 banking nationalisation changed the group’s trajectory. BESCL was nationalised, while the Espírito Santo family was prevented from continuing banking activities in Portugal. The family responded by reconstructing its financial interests abroad, including in Brazil, Switzerland, France and the United States. A Luxembourg holding company created in 1975 became the predecessor of Espírito Santo Financial Group. The group’s return to Portugal began in 1986, in cooperation with Crédit Agricole and a group of Portuguese investors. This effort included the creation of Banco Internacional de Crédito and Espírito Santo Sociedade de Investimentos, established with participation from UBS and KBC Bank of Luxembourg. The group recovered Companhia de Seguros Tranquilidade in 1990 and regained control of BES in 1991 through BESPAR, a holding arrangement between Espírito Santo Financial Group and Crédit Agricole. BES resumed expansion beyond Portugal. It began operating in Spain in 1992, created Banco Espírito Santo do Oriente in 1995, and participated in the formation of Banco Espírito Santo Angola in 2001. The wider group operated across multiple countries through branches, subsidiaries and representative offices. In 1999, BESCL returned to the shorter Banco Espírito Santo name. The bank became a substantial Portuguese financial institution, combining retail and commercial banking with corporate finance, investment banking, insurance and international services. Reference material identifies it as Portugal’s second-largest private financial institution by net assets in March 2011, with approximately €80.7 billion in net assets and around 2.1 million customers. It also became a significant component of the PSI-20 index and was included in the FTSE4Good sustainability index from 2007. The institution’s final phase was dominated by financial stress within the Espírito Santo group and the bank’s exposure to troubled assets and related entities. In the first half of 2014, losses reached approximately US$4.8 billion in the cited reference material, and BES shares fell by 89 percent. A €3.49 billion second-quarter loss led to a loss of confidence and prompted regulatory intervention. On 3 August 2014, Banco de Portugal resolved the bank by transferring its healthy operations to a new institution, Novo Banco, while leaving toxic assets in the residual BES entity. Novo Banco received €4.9 billion in recapitalisation from Portugal’s Resolution Fund, which was supported by a €3.9 billion government loan. The residual bank entered liquidation on 13 July 2016. BES consequently became a defunct brand and a case study in bank resolution, supervisory failure and the risks of complex financial-group structures.

1. 2016Residual entity enters liquidation

   The former BES entity retaining toxic assets entered liquidation on 13 July 2016.

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2. 2014Resolution and creation of Novo Banco

   Banco de Portugal divided BES into Novo Banco, containing the healthier operations, and a residual entity containing toxic assets.

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3. 2001Banco Espírito Santo Angola is founded

   A bank established under Angolan law extended the group’s operating footprint in southern Africa.

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4. 1992Entry into Spain

   Banco Espírito Santo established operations in the Spanish market through Banco Espírito Santo S.A.

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5. 1991Control of BES is restored

   BESPAR, a holding company formed by Espírito Santo Financial Group and Crédit Agricole, restored the group’s control of Banco Espírito Santo.

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6. 1986Return to Portugal begins

   The Espírito Santo group re-entered the Portuguese financial sector through partnerships involving Crédit Agricole, Portuguese shareholders and other international institutions.

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7. 1975Nationalisation and overseas reconstruction

   Portugal nationalised the bank. The Espírito Santo family rebuilt its financial interests abroad and established a Luxembourg holding company that preceded Espírito Santo Financial Group.

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8. 1937Merger with Banco Comercial de Lisboa

   The merger created Banco Espírito Santo e Comercial de Lisboa and strengthened the institution’s nationwide commercial-banking position.

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9. 1920Banco Espírito Santo is incorporated

   The heirs of José Maria do Espírito Santo e Silva transformed the family banking house into a public limited-liability company named Banco Espírito Santo.

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10. 1869Origins in Lisbon financial trading

    José Maria do Espírito Santo e Silva began operating a Lisbon business involved in lotteries, currency exchange and securities transactions.

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A major privately controlled Portuguese universal bank with a strong domestic franchise, international reach and close historical ties to the Espírito Santo financial group.

• Retail bankingBanking services

  BES provided conventional retail banking services in Portugal, including deposit accounts, payment facilities, branch-based banking and consumer financial products. Its domestic network and customer base formed the foundation of the group’s Portuguese franchise.

• Corporate and commercial bankingCommercial banking

  The bank financed companies and institutions through lending, working-capital facilities, transaction banking and other corporate services. Its merger with Banco Comercial de Lisboa in 1937 materially strengthened this commercial-banking role.

• Investment and capital-markets servicesInvestment banking

  BES offered corporate and investment solutions, including securities-related activity, investment services and capital-markets support. These activities complemented its retail and commercial banking operations and helped support the group’s international profile.

• International bankingInternational financial services

  Through subsidiaries, branches, partnerships and representative offices, BES served customers and companies outside Portugal. Its international network included operations or group presence in Spain, Angola and several European, American and African markets.

• Insurance and bancassuranceInsurance

  Insurance was part of the wider Espírito Santo financial group, including the group’s historical connection with Companhia de Seguros Tranquilidade. Insurance broadened the group’s financial-services offering beyond banking.

• 2014Regulatory resolution and separation of assetsOther

  Severe losses and concerns about the bank’s financial condition made an ordinary continuation of BES impracticable.

  What changed. Banco de Portugal transferred the healthier operations into Novo Banco and left toxic assets in the existing BES entity.

  Aftermath. Novo Banco received €4.9 billion in recapitalisation from Portugal’s Resolution Fund, while the residual BES entity entered liquidation in 2016.

  Novo Banco recapitalisation. €4.9 billion (2014 resolution)

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• 1986Strategic return to the Portuguese marketStrategy

  After the 1975 nationalisation, the Espírito Santo family had rebuilt financial interests outside Portugal and sought to re-establish a domestic banking presence.

  What changed. The group returned through partnerships with Crédit Agricole, Portuguese investors and other international financial institutions.

  Aftermath. This process ultimately led to the restoration of control over Banco Espírito Santo in 1991.

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• 1937Merger with Banco Comercial de LisboaM&A

  BES sought to strengthen its position in Portuguese commercial banking and expand its domestic operating capacity.

  What changed. Banco Espírito Santo merged with Banco Comercial de Lisboa and adopted the name Banco Espírito Santo e Comercial de Lisboa.

  Aftermath. The enlarged bank expanded its branch network and became a leading Portuguese private bank.

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• 2014Regulatory disobedience and ruinous management allegationsControversy

  Reference material states that the administration led by Ricardo Salgado disobeyed Banco de Portugal 21 times between December 2013 and July 2014. The conduct was later characterised as involving wilful acts of ruinous management during the period preceding the bank’s resolution.

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• 2014Financial collapse and regulatory resolutionControversy

  Large losses, exposure to troubled Espírito Santo group assets and the collapse of market confidence led Banco de Portugal to separate BES’s healthy operations from its toxic assets. The episode resulted in Novo Banco’s creation and the liquidation of the residual BES entity.

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• 2016Liquidation of the former BES entity begins

  The residual entity retaining Banco Espírito Santo’s toxic assets entered liquidation after the 2014 resolution and separation of Novo Banco.

  BankruptcyRegulation
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• 2014Banco Espírito Santo is split into Novo Banco and a bad bank

  Banco de Portugal intervened in BES and applied a resolution measure separating the institution’s healthy operations into Novo Banco while leaving toxic assets in the existing entity.

  BankruptcyRegulationM&A
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• 2014BES reports a record second-quarter loss amid escalating crisis

  The bank reported a second-quarter loss of €3.49 billion, contributing to a severe loss of market confidence and a sharp decline in its share price.

  OtherPricing
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1. Banco Espírito Santo