Banco Espirito Santo replaces chief as parent cuts stake to repay loans

Banco Espirito Santo sold a 4.99 per cent stake to meet loan repayments and appointed Vitor Bento chief executive after financial troubles at the group roiled global markets.

The hiring of Bento, along with Jose Honorio as deputy chief executive and Joao Moreira Rato as chief financial officer, was announced after the Portuguese central bank ordered an extraordinary meeting of the board to bring forward the proposed changes by two weeks.

Espirito Santo Financial Group, which is controlled by the bank's founding family and is its biggest shareholder, said it cut its holding to 20 per cent after selling the stake to meet repayment obligations under a margin loan.

Banco Espirito Santo, in which France's Credit Agricole owns a 14.6 per cent stake, rattled markets on July 10 after the parent company, Espirito Santo International, missed some payments on commercial paper. The bank's stock plunged 36 per cent last week.

"Even if the bank is saved, people tend to forget that it doesn't mean bondholders will be saved, too," said John Raymond, an analyst at CreditSights in London. "This all points to some kind of burden sharing and the subordinated bonds are prime candidates."

German Chancellor Angela Merkel said at the weekend that turmoil in global markets caused by Espirito Santo underscored the euro region's fragility.