Banco Espírito Santo: Liquidation Progresses After Bank Split

• Status: The security is classified as inactive and does not participate in regular trading.
• History: The company was split in 2014 into a “Good Bank” (Novo Banco) and a “Bad Bank.”
• Legal: The liquidation of the original entity has been officially underway since July 2016.

The journey to resolution

The bank’s troubles intensified in May 2014 when a KPMG review uncovered serious irregularities in the Espírito Santo group’s accounting. Intercompany lending within the group produced substantial losses and breached minimum capital requirements, prompting intervention by Portugal’s central bank.

As part of a rescue, the healthy segments were transferred to Novo Banco, which was supported by €4.9 billion from the Portuguese resolution fund. The original Banco Espírito Santo retained the toxic legacy. Later investigations indicated that the management, under former CEO Ricardo Salgado, repeatedly ignored central-bank directives and pursued a ruinous business strategy.

Implications for shareholders

Should investors sell immediately? Or is it worth buying Banco Espiritonto?

For equity holders, the landscape has fundamentally shifted. With no operating business, traditional valuation methods and standard metrics lose relevance. Normal market dynamics seen with active banks—such as responses to interest-rate decisions or quarterly results—do not apply here.

The focus now lies with asset and liability management conducted by the liquidators. The goal is to realize any remaining assets to satisfy creditors. Given the complexity of the estate and the priority of creditor concerns, it remains highly uncertain whether any capital will remain for shareholders after all claims are addressed.

The liquidation process

The proceedings follow a strict legal framework that minimizes the potential for short-term surprises or strategic shifts. Over the coming months, there are unlikely to be operational events like annual balance-sheet presentations or analyst calls, as the entity concentrates on formally terminating its existence.