Portugal’s bond yields edged higher and share prices on the Lisbon stock exchange fell by more than 4% on growing investor concern over one of the country’s largest financial groups.
Espirito Santo Financial Group announced a suspension of trading in its shares after accounting irregularities were revealed at Espirito Santo International, its largest shareholder. With a 25% holding, the group is the biggest shareholder in Banco Espirito Santo, Portugal’s largest bank, whose share price fell by more than 17% on the news.
The market selloff extended beyond Portugal and reignited concerns that the eurozone’s financial system remains vulnerable to shocks as the region starts to recover from the sovereign debt crisis. Although the Portuguese government said the bank is isolated from losses in group holding companies, lack of transparency in the corporate structure is disturbing investors.
“There’s a vacuum of information from the bank, but a lot of nasty information coming through from the group,” said Richard Thomas, an analyst at Bank of America in London. “They’re saying it’s ring-fenced, but the market is saying give us the numbers and we’ll assess.”
Credit ratings agency (CRA) Moody’s has already cut the ratings of Espirito Santo Financial Group, downgrading it three levels to Caa2, the third-lowest ranking. Moody’s cited lack of transparency about its financial position and links to other companies within the group.
The market turmoil was an unwelcome relapse into investor uncertainty for Portugal, which concluded its three-year international bailout program in May. The country was the recipient of a €78bn (US$106bn) rescue in 2011 during the eurozone’s debt crisis.
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