Espirito Santo International, the holding company of Portugal’s 2nd largest bank, filed for creditor protection late Friday evening after financial markets closed.
Not to say this will trigger part two of the financial crisis which began in 2007 but it does demonstrate the continued fragility of the global banking system. Saying this, it will be very interesting to see what happens as the threads of debt are unwound. When markets open on Monday I will be watching closely to see the reaction.
Yesterday I was curious to see how markets would react to the news about Bank Espirito Santo’s holding company. The Portuguese stock market, the PS120, stayed flat, increasing by 0.05%. For now markets seems to be discounting the level of risk. Admittedly, Espirito Santo is not a big bank in relation to the likes of Credit Suisse, its market capitalization is $3.7 billion versus the $44.5 billion of Credit Suisse. The risk is in the fact that there are many banks in the periphery of the Euro-Zone which are equally fragile, when added together the figures will begin to become serious. I just checked the price of Credit Default Swaps for Euro-Zone banks, the cost of insuring against a debtor not being able to pay, and prices for insuring against a bank default in the Euro-Zone are starting to increase again.
This situation is a slow burner but it is inevitable that we are going to see another banking crisis in Europe. I will update this post as the situation develops.