Portuguese share issues reverberate
By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)
Stock markets around the globe declined on Thursday amid news from Portugal that shares of two of its financial companies had been suspended from trading.
The financial market’s reaction was reminiscent of 2011, when worries grew and stock markets declined over the financial crisis in Greece, a country that is slightly larger by population than Portugal.
However, worries over Portugal do not stem from sovereign debt problems as they did during the Greek crisis.
Instead, it was news that shares of Espirito Santo Financial Group and shares of Banco Espirito Santo had both been suspended from trading by market regulators that sent the world’s markets into a tailspin.
The situation gets a little sticky, with Espirito Santo International SA owning 49 percent of the Espirito Santo Financial Group, which owns a 25 percent stake in Banco Espirito Santo, the largest listed bank in Portugal.
In Portugal’s situation, problems seem to roll downhill, beginning with the family group’s parent company Espirito Santo International SA (ESI), which has been under scrutiny by Portugal’s Central Bank since earlier this year, and which the central bank has found to have “serious accounting irregularities” and an “extremely negative” financial situation.
ESI is a conglomerate that runs various businesses from hotels to hospitals and banks, and has used its banking relationships to sell its own bonds such as the Banco Espirito Santo.
Banco Espirito Santo has also lent $1.1 billion to Espirito Santo Financial Group, so the key lies in the extent to which Banco Espirito Santo is financially shielded should its parent company ESI fail.
In the days to come, the situation should become clearer.
High-quality, longer-term debt in the U.S. has been the top performer recently as stocks have slid and worries over Portugal’s situation have given stock investors a reason to take profits.
The top-performing bonds indexes this week are the Barclay’s U.S. 20+ Year Treasury Bond index, gaining 1.60 percent over the past five trading days, and the Barclay’s U.S Treasury Inflation Protected Securities (TIPS) index, higher by 0.96 percent over the same period.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.