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Banco Espirito Santo brings in new managers as founding family’s hold on bank slips

Banco Espirito Santo SA, the Portuguese bank whose problems triggered a sharp wave of selling across global financial markets last week, said Monday it had appointed a new chief executive officer and two other senior managers, removing the Espirito Santo family’s last three members from its management board.

And the influence of the bank’s founding family weakened further as Espirito Santo Financial Group, the holding company through which it has controlled BES in the past, said it had sold a 4.99% stake to meet a margin call, taking its sake down to 20.01%.

BES said it had appointed former central banker and presidential advisor Vitor Bento as CEO, and Jose Alfredo de Almeida Honorio as his deputy, along with Joao Moreira Rato as chief financial officer, with immediate effect.

The changes had already been put on the agenda of an extraordinary shareholder meeting scheduled for July 31, but have been accelerated in reaction to an alarming decline in the bank’s shares, driven by fears about its exposure to other companies owned or controlled by the Espirito Santo family.

The bank said last week it had enough capital to cover any losses from its loans to the diverse companies owned or run by the family, and had also received the backing of the Portuguese central bank.

However, the bank’s shares continue to fall. Two hours after the start of trading in Lisbon Monday, they were down 6.9% at 45 euro cents. They’re now down nearly 70% since the start of April, and by 33% since the bank sold €1.05 billion of new shares in a capital increase in early June.

That collapse in the share price was what triggered ESFG’s announcement Monday. ESFG had  borrowed money in order to subscribe to the capital increase, in order to defend its 25% stake, the threshold above which shareholders can often veto issues of strategic significance.

By contrast with the bank’s shares, European markets have largely calmed down since Thursday, suggesting that market participants see the bank’s problems as an echo, rather than a new phase, of the eurozone’s banking and sovereign debt crisis.

Both European stock indexes, and Portuguese stocks and government bonds, opened broadly higher Monday. Portugal’s 10-year bond yield, a barometer of market sensitivity to contagion risk, had spiked to 3.98% on Thursday but had fallen back to 3.80% by early Monday. Bond yields fall as prices rise.