By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- Portuguese stocks outperformed the
broader European market Monday after Portugal's central bank
unveiled a bailout plan for troubled bank Banco Espírito Santo.
According to a plan outlined late Sunday, toxic assets at Banco
Espírito Santo will be put into a so-called bad bank that will
eventually be wound down. The move comes amid concerns that the
broader euro area could be hurt by troubles in Portugal's banking
sector.
Assets and deposits deemed healthy will be part of a "good" bank
to be rebranded as Novo Banco. That bank will receive an injection
of 4.9 billion euros ($6.58 billion) from a special bank resolution
fund that Portugal set up in 2012. Novo Banco will be sold and the
proceeds will be used to pay back the fund.
Banco Espírito Santo, the second-largest lender by assets in
Portugal, last week posted a record second-quarter loss of EUR3.49
billion ($4.68 billion).
On the data side, producer prices in the euro zone rose 0.1% in
June, Eurostat said Monday. The reading suggests consumer prices
are unlikely to rise rapidly in coming months. It follows the
European Central Bank's introduction of additional stimulus
measures.
Market moves: Trading in shares of Banco Espírito Santo was
halted on Friday, as the company is expected to be delisted. Its
share price has plunged roughly 87% this year, according to FactSet
data.
But stock in Banco Comercial Português SA rose 6.1%, and the
Portugal PSI 20 stock index added 1% to end at 5,854.36.
The pan-European Stoxx Europe 600 index turned down 0.2% to
331.15. The U.K.'s FTSE 100 index slipped nearly 2 points to
6,677.52.
But France's CAC 40 index rose 0.3% to 4,217.22, aided by a 2.4%
rise in AXA SA.
Comments: Citi downgraded Banco Espírito Santo to a sell/high
risk rating saying the value of legacy shares of the "bad" bank is
highly uncertain. "Given the uncertain nature of the outcomes (in
our view), we choose to be conservative and assign a target price
of EUR0.01," wrote analyst Stefan Nedialkov in a report Monday. The
previous rating was neutral/high risk.
Barclays on Monday said the potential impact of Banco Espírito
Santo's troubles on Portugal's economy remains limited, but
investors are likely "to remain guarded about risks which could
stem from latent problems in the financial system as the amount of
financial resources left available to deal with any potential
problem in the banking sector has declined substantially."
German stocks: Germany's DAX 30 fell 0.6% to 9,154.14, a fourth
straight decline. Adidas AG fell 1%, extending losses from last
week after the sportswear retailer cut its 2014 forecast in part
because of risks surrounding Russia. Feeling the effect of EU
economic sanctions on Russia, research group Sentix said Monday its
investor confidence index in August tumbled to 2.7 points.
Expectations were for a reading of 9.0 points.
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