Inside Track: Doing the splits is proving tricky

David Hellier
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EUROPEAN banks are still in the market for raising equity to strengthen ravaged balance sheets, with Portuguese bank BCP the latest to join the queue last week. Investors have been generally keen to back such deals, but their mood will not have been lightened by the share price performance of Banco Espirito Santo since its €1bn rights issue that completed on 11 June.

The issue was oversubscribed, there was no rump to sell off, and during the deal period all seemed to be going well. Since then, there has been a massive sell-off, with the shares down 38 per cent.

So panicky was the market on Monday and yesterday that Portugal’s stock market regulator, shortly followed by the UK’s Financial Conduct Authority, banned short-selling in the stock.

Anybody buying into the rights issue was made aware of the accounting irregularities at Espirito Santo International (ESI), the major shareholder, and the risks associated with that relationship. But few predicted the underlying tensions might lead to an immediate share price collapse as the separation of the bank from the family behind ESI gets underway.

Now the bank wants to emphasise how it is sheltered from the problems affecting ESI. There were signs of stability in the share price yesterday, which will at least bring some relief to bedraggled investors before the hoped for turnaround begins.