Banco Espirito Santo to be split in €4.9bn rescue plan

The use of the bank resolution fund – which will eventually have to reimburse the state after recouping money from future investors – is aimed at limiting the political fallout of using taxpayer money to prop up a bank at a time when Portugal is emerging from a deep economic downturn, according to Reuters.

Shares in the lender tumbled at the end of last week as first-half losses of €3.6bn wiped out its existing capital buffer and took it below the minimum level required by regulators.

The bank said on Wednesday that it would begin raising cash to meet the Portuguese central bank’s capital rules, blaming “extraordinary events” that resulted in costs of €4.25bn during the period.

But a 42pc fall in the bank’s shares on Thursday and a further 40pc on Friday – before trading was suspended – increased speculation that

it would need state help to plug the hole in its balance sheet.

After share values plunged last week, the government and Bank of Portugal realised that using public funds was the only solution for now, sources close to the situation said.

Last month, Ricardo Salgado, who recently quit as head of the bank, was arrested in connection with a long-running money laundering investigation.

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