They Haven't Been Praying Enough

According to press reports, Espirito Santo Financial Group, one of Portugal's largest financial groups and the biggest shareholder in Banco Espirito Santo (i.e., the Holy Spirit Bank, BES), is about to miss interest payments on some of its short term notes. The event prompted a sell-off in Portuguese government bonds as well. 10 year government bond yields have declined from more than 16% at the height of the sovereign debt crisis to about 3.25% at their recent lows, but have shot up by more than 60 basis points in recent weeks.

The chart of BES suggests that the troubles at the Holy Spirit Bank must have been on the minds of market participants for a while already. We have a feeling a costly scandal is brewing.


Banco Espirito SantoThe Holy Spirit Bank inflicts some very unchristian pain on its shareholders – click to enlarge.


For BES shareholders it's presumably a bit like involuntarily taking a vow of poverty. Incidentally, the recent revelations about BES also led to shares of Portugal Telecom being taken out behind the shed and shot. Here are some additional details on the affair:


“Portuguese stocks and bonds dropped Wednesday, as continuing concerns over the financial health of lender Banco Espírito Santo rattled investors.


Shares in Banco Espírito Santo led declines after media reports that Espírito Santo International, which owns part of Espírito Santo Financial Group, which in turn owns a large stake in BES, had delayed coupon payments on some of its short-term debt.

"Last week some clients were asked to swap the commercial paper into equity," RBS credit strategist Alberto Gallo wrote in a note. He added that BES isn't directly responsible for the repayment of any ESI bonds, but "is subjected to reputational risks given its connection to the family."

Banco Espírito Santo didn't reply to a request for comment.

Moody's Investors Service on Wednesday downgraded its rating on Espírito Santo Financial Group to Caa2 from B2. "Moody's concerns regarding ESFG's creditworthiness are heightened by the lack of transparency around both the Espírito Santo Group's financial position and the extent of intra-group linkages," the ratings firm said.

Portugal Telecom shares dropped as much as 9% in response to criticism from Brazil's state development bank BNDES relating to an investment by the telecommunications company in debt issued by Espírito Santo International.

The impact was also felt in sovereign debt markets, with 10-year Portuguese government bond yields climbing to 3.82%, their highest in more than six weeks, before dropping back slightly. Yields rise as prices fall.

Traders said the uncertainty surrounding BES and declines in Portuguese stocks had caught investors off guard, given many had been betting on further gains for government debt at the start of the third quarter.


(emphasis added)

This is certainly not the first time that investors have been “caught off guard” by something like this, but “betting on further gains” in government debt may have been a foolish thing to do in any event. Portuguese bond yields have already declined enormously in an extremely short time period. Buying them at recent levels was asking for trouble.

Meanwhile, Banco Espirito Santo managers didn't have time to comment because they were actively seeking forgiveness for their financial sins. We have come across a photograph showing a procession of them. It is possible that the board of Portugal Telecom is also in the picture:


Hooded barefoot penitents perform self-flagellation to atone for their sins in San Fernando

Managers of Espirito Santo Financial Group and Portugal Telecom are currently busy repenting.

(Photo credit: REUTERS / Erik De Castro)


Collateral Damage

The lack of transparency of the Santo Espirito group bemoaned by Moody's is evidently causing quite a bit of collateral damage. With the dealings of the ES group shrouded in a cloud of frankincense, investors can only guess how big the problem really is. We would however say that a group that cannot pay interest on its short term debt must really be in big trouble, considering that every corporate or sovereign Tom, Dick and Harry asking for debt financing happily unburdened by covenants or issuing bonds in junk-bond land gets funding these days at the drop of a hat.

The exposure of Portugal Telecom seems to be viewed as a serious problem by market participants as well, as the chart of its shares rather strongly suggests:


Portugal Telecom

Shares of Portugal Tele-Splat in all their recent terribly glory – click to enlarge.


We recently noted that France's CAC-40 index looks like it may be leading a downside break in European stocks, but Portugal's PSI-20 index has lately also suffered noticeably from the burgeoning trouble at BES.

After bidding adios to its uptrend line some time ago already, the index has just violated an important lateral support level as well. In the course of this it has become a tad oversold and may therefore soon bounce, but the fact remains that the chart no longer looks very convincing.

As noted above, the government's debt securities have also come in for a spot of mauling, even though it is actually still a fairly small bounce in yields considering where Portuguese bond yields have been over the past few years. However, the fact that the recent bout of selling in the bond market has coincided with the market realizing that BES has a problem suggests that there is a degree of worry that the government may end up extending support to the troubled lender.



Lisbon's PSI-20 index: both trend line and lateral support (blue line) are gone – click to enlarge.


Portugal 10-Year Bond Yield(Daily)

Portugal's 10 year government bond yield, daily. It has been rising since worries about BES have begun to percolate – click to enlarge.



Portugal is of course a small country, and the world will no doubt keep turning if in the worst case one of its bigger banks should so to speak cross the pearly gates and move on to the afterlife. We nevertheless find the event noteworthy, because we are on alert for debt-related troubles at the moment. To this it must be kept in mind that credit market problems almost always start in some obscure corner of the markets. What initially looks  like a seemingly unimportant event may in retrospect be recognized as one of the  first steps in a whole chain of events that are far greater significance. A fairly recent classical example was the bankruptcy of two small US sub-prime lenders in February of 2007, which was barely noticed. It is of course not possible to tell with certainty whether the recent problems in Portugal will turn out to have been one of those warning shots or not. But given the recent huge boom in debt securities, the system is no doubt vulnerable.



Lettuce pray for Holy Ghost Bank, its creditors and shareholders, as well as Portugal's tax cows, amen.

(Photo credit:


Charts by:,, BigCharts



Emigrate While You Can... Learn More



Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!


Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke


2 Responses to “Big Portuguese Bank Gets Into Trouble”

  • Think some of the leveraged speculators that propelled this rally in bonds are checking their asset base? Think those who financed them aren’t watching carefully as well? Who knows what the thought pattern was that caused the bond rally? Keep buying and hope for stability to sell into is my guess. Something always exposes the leverage in the system. These funds might be long bonds and long all the derivatives they can get as well. Having been run over, there are probably few shorts left.

  • AustrianJim:

    Well I was wondering where the next leg of the crisis would start, woke up this morning and got my answer.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 5-cotmmrangegc03Ganging Up on Gold
      So Far a Normal Correction In last week's update on the gold sector, we mentioned that there was a lot of negative sentiment detectable on an anecdotal basis. From a positioning perspective only the commitments of traders still appeared a bit stretched though, while from a technical perspective we felt that a pullback to the 200-day moving average in both gold and gold stocks shouldn't be regarded as anything but a normal - and in this case actually long overdue -...
  • gold_bullionGold Sector Correction – Where Do Things Stand?
      Sentiment and Positioning When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week's sharp sell-off did in fact move the needle a bit.   Gold - just as nice to look at as it always is, but slightly cheaper since last week. Photo via The Times Of India   The commitments of...
  • wryAustralian property bubble on a scale like no other
      Australian property bubble on a scale like no other Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:   Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:    the record run up in commodity prices and subsequent correction;  the associated...
  • urban_ii_croppedPope Francis: Traitor to Western Civilization
      Disqualified There has been no greater advocate of mass Muslim migration into Europe than the purported head of the Catholic Church, Pope Francis.  At a recent conference, he urged that “asylum seekers” be accepted, “through the acts of mercy that promote their integration into the European context and beyond.”*   Before we let Antonius continue with his refreshingly politically incorrect disquisition, we want to remind readers of two previous articles that have...
  • 9-market-internalsBubble Dissection
      The Long Term Outlook for the Asset Bubble Due to strong internals, John Hussman has given the stock market rally since the February low the benefit of the doubt for a while. Lately he has returned to issuing warnings about the market's potential to deliver a big negative surprise once it runs out of greater fools. In his weekly market missive published on Monday (entitled “Sizing Up the Bubble” - we highly recommend reading it), he presents inter alia the following eye-popping...
  • spankinggoodtimeUS Stock Market - a Spanking May be on its Way
      Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though.   Time for some old-fashioned...
  • andy-duncan-and-claudio-grassA Looming Banking Crisis – Is a Perfect Storm About to Hit?
      Andy Duncan Interviews Claudio Grass Andy Duncan of has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove.   Andy Duncan of (left) and Claudio Grass of Global Gold (right)   Andy Duncan: How do you see the...
  • fischersDoomed to Failure
      Larded Up and Larded Over We’ve been waiting for the U.S. economy to reach escape velocity for the last six years.  What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out.  Unfortunately, this may not be possible the way things are going.   As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went...
  • state_police_980_600_s_c1_t_c_0_0_1Are the Deep State’s Drones Coming for You?
      What’s Aleppo?   Look out kid Don’t matter what you did Walk on your tip toes Don’t try "No Doz" Better stay away from those That carry around a fire hose Keep a clean nose Watch the plain clothes You don’t need a weather man To know which way the wind blows – “Subterranean Homesick Blues,” Bob Dylan   The entrance to Baghdad's “Green Zone”. Photo credit: Karim Kadim / AP   DELRAY BEACH, Florida – Biggest foreign policy blunder...
  • larry-1Meet Your New Stimulus Allocation Czar
      March Towards Midnight The march towards midnight is both stirring and foreboding.  Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom.  Thoughts of imminent mortality haunt each bite.   Tic-toc, tic-toc...   As far as the economy’s concerned, there’s no stopping its march towards midnight.  The witching hour’s rapidly approaching.  We intend to savor each moment and make the best of...
  • speculatorInterview with Doug Casey
      Natalie Vein of BFI speaks with Doug Casey   Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey for BFI, the  parent company of Global Gold. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for...
  • walmart-st-augustine-flaEvacuate or Die...
      Escaping the Hurricane BALTIMORE – Last week, we got a peek at the End of the World. As Hurricane Matthew approached the coast of Florida, a panic set in. Gas stations ran out of fuel. Stores ran out of food. Banks ran out of cash.   A satellite image of hurricane Matthew taken on October 4. He didn't look very friendly. Image via   “Evacuate or die,” we were told. Not wanting to do either, we rented a car and drove to Maryland. “We’ll just...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank




Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Buy Silver Now!
Buy Gold Now!