Banco Espirito Santo's collapse

Banco Espirito Santo traced its roots back more than a century and had long been one of Portugal's most prominent lenders, closely tied to the Espirito Santo family's sprawling network of holding companies and industrial interests. Cracks emerged in mid-2014 when regulatory filings revealed serious accounting irregularities and undisclosed losses at Espirito Santo International, one of the family's holding companies with financial ties to the bank, raising doubts about the group's solvency just as Portugal was emerging from its own EU-IMF bailout program. As depositors and investors lost confidence through July 2014, Portugal's central bank stepped in with an emergency rescue, splitting Banco Espirito Santo into a healthy 'good bank,' Novo Banco, which retained deposits and viable operations, and a 'bad bank' that absorbed toxic assets and was left to wind down, imposing losses on shareholders and some bondholders. The roughly €4.9 billion rescue was funded mainly through Portugal's bank resolution fund, backed by a state loan, and the collapse became one of the clearest examples of the family-conglomerate banking risks that had built up across southern Europe's financial systems before the crisis.