Espirito Santo Fin Statement re second phase of special limited review
May 30 2014 - 2:00AM
UK Regulatory
TIDMEOS
Espírito Santo Financial Group, S.A. informs on second phase of
special limited review
Luxembourg/Portugal - 29 May 2014 - Espírito Santo Financial
Group S.A. ("ESFG") (NYSE Euronext Lisbon: ESF; Bloomberg: ESF PL;
Reuters: ESF LS) announces the following:
ESFG has been informed that the second phase of the special
limited review of the pro forma consolidated financial statements
of Espírito Santo International, S.A. ("ESI"), a company
incorporated under the laws of Luxemburg with an indirect qualified
participation of 49.2% in ESFG, has been recently concluded by an
independent auditor ("Limited Audit") in respect of its financial
situation as of 31 December 2013.
In the Limited Audit, material irregularities have been
identified in the financial statements of ESI, affecting the
completeness and trustworthiness of its accounting records,
consisting notably in omissions in the accounting of liabilities in
a relevant amount, overvaluation of assets, non-recognition of
provisions for risks and other contingencies, inadequate accounting
records and transactions in a form that does not correspond to the
substance.
As a result of these serious irregularities and considering its
extremely negative financial situation, ESI has decided: (i) to
reinforce its "corporate governance" structure by appointing an
executive committee and implementing changes in the composition of
the board of directors, eliminating the existence of common
directors between ESI and the other financial operating companies
of the Espírito Santo Group ("GES"); (ii) to prepare annual
consolidated accounts starting from 2014 onwards; (iii) to
establish a deleveraging plan, which was reflected in the business
plan and in the cash flow statements projected for the years 2013
through 2023; and (iv) to appoint external advisors to assist in
the deleveraging process and the reorganization programme.
As referred to in the notes to the consolidated financial
statements of ESFG by reference to 31 December 2013, as of that
date the direct exposure of ESFG group to ESI and its subsidiaries
(through Espírito Santo Financière, S.A. and ES Bank Panama, S.A.)
amounted to 1.3 billion euros, being its repayment partially
guaranteed by collateral granted by ESI, notably pledge of Rio
Forte Investments, S.A.´s shares and mortgage of a real estate in
Miami, USA. The indirect exposure of the ESFG group to ESI, notably
resulting from the acquisition of debt instruments issued by ESI
and its subsidiaries by clients of ESFG group amounted, in 31
December 2013, to 6.039 billion euros, of which 3.783 billion euros
were held by retail clients (1.5 billion euros held by retail
clients of Banco Espírito Santo, S.A. ("BES") group).
However, we stress that on 19 May 2014, the amount of the debt
instruments issued by ESI and held by non-institutional investors
of BES group had already been reduced to 395 million euros, while
in turn the amount held by institutional investors had been reduced
to 564 million euros.
In order to deal with the exposure of the ESFG group (including
the exposure of BES group) to ESI's financial situation by
reference to 30 September 2013, the independent auditor had
assessed, in the first phase of the Limited Audit, that it would be
necessary to create a provision corresponding to no less than 700
million euros.
The amount of this provision was calculated assuming that the
reimbursement of the referred debt instruments will be performed
through the implementation of the deleveraging plan, shareholders'
support, their ability to obtain or renew lines of credit before
the financial markets and, finally, through the support from ESFG
group and BES.
It is also important to note that the second phase of the
Limited Audit has not revealed any facts that would imply a
reinforcement of the above mentioned provision of 700 million
euros, which provision is already recognised in ESFG's consolidated
financial statements by reference to 31 December 2013. Likewise,
this Limited Audited has not revealed any fact that would imply
changes to the consolidated financial situation of BES by reference
to 31 December 2013.
ESFG expects that the reorganisation and deleverage plan
prepared by ESI will rebalance its financial situation and allow
the repayment of its debt.
ESFG also informs that it is already implementing a set of
additional measures, notably (i) preparation of the reinforcement
of its consolidated own funds in order to strengthen the existing
capital buffers; (ii) simplification of the group structure and
reinforcement of measures, procedures, mechanisms and strategies
created in the context of the corporate governance, internal
control and risk self-assessment in order to ensure an adequate
independence vis-a vis the non-financial branch of GES, and (iii)
total and final separation of the brands used by each branch of GES
and refraining from selling to retail clients, directly or
indirectly, any debt issued by entities from the non-financial
branch of GES.
The Espírito Santo Financial Group provides, through its
subsidiaries, a global and diversified range of financial services
to its clients including Commercial banking, Insurance, Investment
banking, Stockbrokerage and Asset management in Portugal and
internationally. For additional information on Espírito Santo
Financial Group, its subsidiaries, operations and results, please
visit the Company's website on www.esfg.com
This information is provided by Business Wire
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