Espirito Santo Financial Group to file for bankruptcy

One of the parent companies of Portugal's embattled Banco Espirito Santo confirmed it was to file for bankruptcy on Thursday, adding to the saga at the lender which needed a state bailout back in August.

PATRICIA DE MELO | AFP | Getty Images

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Espirito Santo Financial Group (ESFG) said the move followed decisions of the Luxembourg district court, which last week denied it a form of protection against creditors last week. ESFG added that its subsidiary, Espírito Santo Financière (ESFIL), had also filed for bankruptcy.

"It is expected that the Luxembourg district court sitting in commercial matters will pass a bankruptcy order and appoint one or more receivers over the estates of ESFG and ESFIL in its hearing on Friday 10th October 2014," the group said in a statement Thursday.

Complicated structure

ESFG is majority owned by Espirito Santo International (ESI), which faced concerns over its financial condition following an audit by the country's central bank in May.

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The troubles came to a head in July when debt repayments to clients on commercial paper issued by ESI were delayed. Shortly afterwards, ESFG asked for its shares to be suspended due to "material difficulties" at ESI.

ESFG holds 25 percent of Banco Espirito Santo, and shares in both companies plunged during the summer as investors fled from the bank's stock. The selloff had repercussions around the globe as investors became concerned of contagion to other European banks.

In August, the Central Bank of Portugal gave Banco Espirito Santo a lifeline, providing a state bailout of roughly $6.5 billion and splitting the lender into a "bad bank/good bank" model. BES's activity and assets have been transferred to a "good bank," called Novo Banco. Depositors and senior bondholders were told that they wouldn't lose any money.

The convoluted structure of the bank - with parent parts of the group based in Luxembourg rather than Portugal - meant it was hard for many investors to determine the scope of any potential contagion.

Analyst Gildas Surry from French bank BNP Paribas told CNBC via email that the bankruptcy was expected and was all part of the restructuring taking place at the Portuguese banking group. "It does not change much. It is just a small step forward in what will be a long and complex process," he said.