Portugal's Banco Espirito Santo Gets Bailout

Portugal has announced a multi-billion euro rescue plan for struggling lender Banco Espirito Santo.

4.9bn euros (£3.9bn) will be pumped into its largest listed bank which under the plans will be split into two.

A "good bank" called Novo Banco will take healthy assets, whilst a "bad bank" will be formed to take exposure to risky ones.

Depositers and senior bondholders will be protected by the creation of Novo Banco.

Junior bondholders and shareholders, which includes the Espirito Santo family, will bear the bad bank's losses.

It comes after Banco Espirito Santo reported a record loss of 3.6bn euros (£2.8bn) for the first half of the year last week.

Portugal's central bank said the money used to rescue the troubled lender will come from a bank resolution fund created in 2012, which the state will lend 4.4bn euros (£3.5bn).

It said the public would not shoulder the cost as the loan will be temporary and it expects the state to be reimbursed when Novo Banco is eventually sold to private investors.

Carlos Costa, the central bank's governor, said: "The plan carries no risk to public finances or taxpayers."

A setback for Portugal, it comes just months after the country emerged from a 78bn euro (£62bn), three-year bailout from the European Union and the International Monetary Fund.

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