Whereas the worldwide stock markets are falling on the background of large-scale sales on Thursday, many investors worried about Portugal, more precisely the status of one of its creditors, which is the main cause of today’s difficulties.
Why is this happening?
Portuguese conglomerate Espírito Santo International this week postponed several payments to holders of short-term debt securities.
Its Swiss unit, Banque Privee Espirito Santo, is also in the spotlight, after he failed to make payments to its customers earlier this week. According to the Portuguese media, the company claims that there was a technical error, ensuring at the same time protecting the interests of the affected investors, who “asked” to exchange their debt securities on the stock to medium.
This happened against the backdrop of the reorganization conglomerate. General meeting scheduled for 29 July. In May, the audit, which was held by the central bank of the country, has identified some “irregularities” in the accounts of Espírito Santo International, causing doubts about the company’s financial condition.
What’s going on?
All these facts have caused concern about the other part of the conglomerate – Portugal’s leading bank – Banco Espirito Santo, who is facing a debt default, according to investors. Its shares fell 19% before they were temporarily withdrawn from circulation by market regulators and stock Espirito Santo Financial Group lost 8%.
These troubles have affected the European securities markets, caused active sale across Europe. Dynamics bonds Banco Espirito Santo in the debt markets remain weak, which affects the performance of government bonds of Portugal, while on Thursday increased the yield on 10-year bonds of sovereign debt. Remembering the Eurozone financial crisis, investors have raised bond yields of other peripheral countries – Greece, Italy and Spain during the morning session.
Klaus Vistesen, chief economist at Pantheon Macroeconomics Eurozone, believes that stress in the credit market quickly seeps to the sovereign bond market, which once again confirms the view that banks and governments in the European region are closely related, so-called “vicious circle”, which could put additional pressure in the event of any potential crisis.
What can happen?
Portugal’s banking problems may continue to affect the debt markets, raising the cost of government borrowing. This will complicate the economic recovery after the crisis of sovereign debt in 2011. However, Jim Iuorio, managing director of TJM Institutional Services, speaking on CNBC, said that the current problems relating to peripheral Europe, but has not affected the major economies such as France, they will not cause for universal concern.
“The only thing everyone agrees is that in European peripheral markets is brewing a” bubble “that could have a destabilizing effect,” – he said.
At the periphery of the euro area showed a significant recovery in the last few months, when the yield of some Spanish and Portuguese bonds surpassed even their American counterparts.