Debt-heavy Portugal is waiting to find out whether it will continue being eligible for vital financial help from the European Central Bank.
International ratings agency DBRS is due to announce Friday whether it is keeping its investment grade classification for Portugal’s sovereign debt. Toronto-based DBRS is the only main agency that does not rate Portuguese bonds as junk, AP reported.
The ECB, which is buying eurozone members’ bonds as part of an economic stimulus program, can continue providing that help only if countries have at least one investment-grade rating.
Analysts expected DBRS to leave Portugal’s rating unchanged, but the tension underlined doubts among economists and eurozone officials over the anti-austerity strategy of Portugal’s new Socialist government, which is in power due to the backing of the Communist Party and radical Left Bloc.
Meanwhile, Spanish banks are gobbling up a growing slice of Portugal’s financial industry, taking advantage of the country’s halting recovery from Europe’s debt crisis, Bloomberg reported.
CaixaBank SA, a Barcelona-based giant, is the latest pursuer, offering about €900 million ($1 billion) last week for the portion of Oporto-based Banco BPI SA that it doesn’t own. The deal would mark the third Spanish banking purchase in Portugal in less than six months, and may not be the last.
“Portuguese banks need to cut costs and raise capital and they have little capacity to do so on their own,” said Diogo Teixeira, chief executive officer of Optimize Investments, a Lisbon-based firm managing about €120 million. “It’s better to have a solid shareholder.”
The takeovers, which have raised hackles in Portugal, reflect Spain’s larger and faster-growing economy as well as the diverging fortunes of the nations’ bailed-out banking industries. While Spain set up a bad bank and forced its weakest lenders into a painful cleanup, Portuguese banks, after recognizing roughly €40 billion of impairments, still have among the highest proportion of bad loans in the eurozone.
Portuguese authorities are also still picking up the pieces after the collapse of Banco Espirito Santo SA. The cornerstone of one of the country’s largest family dynasties, the lender had to be saved in 2014 at a cost of €4.9 billion.
After trying and failing to sell the surviving business carved out of Banco Espirito Santo—called Novo Banco SA—the Bank of Portugal is putting it up for sale again. Spain’s biggest lender, Banco Santander SA, and Banco Popular Espanol SA have indicated they plan to take a look.
