By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- European stocks were largely flat
Monday, with markets cautious after Portugal's central bank
unveiled a bailout plan for troubled bank Banco Espírito Santo.
Under a plan outlined late Sunday, toxic assets at Banco
Espírito Santo will be put into a so-called bad bank that will
eventually be wound down. The move that comes amid concerns that
the broader euro area could be hurt by troubles in Portugal's
banking sector.
Assets and deposits deemed healthy will be part of a "good" bank
to be rebranded as Novo Banco. That bank will receive an injection
of 4.9 billion euros ($6.58 billion) from a special bank resolution
fund that Portugal set up in 2012. Novo Banco will be sold and
proceeds used to pay back the fund.
Banco Espírito Santo, the second-largest lender by assets in
Portugal, last week posted a record second-quarter loss of EUR3.49
billion ($4.68 billion), after its embattled parent company found
ways to use the bank and its customers to raise funds now largely
unrecoverable.
On the data site, producer prices in the euro zone rose 0.1% in
June month-on-month, Eurostat said Monday. The reading suggests
consumer prices are unlikely to rise rapidly in coming months and
comes after the European Central Bank, with an eye on low
inflation, introduced additional stimulus measures.
Market moves: Shares of Banco Espírito Santo were halted on
Friday and were expected to be delisted. They've plunged roughly
87% for the year, according to FactSet data.
But stock in Banco Comercial Português SA rose 3.1% while Banco
Internacional do Funchal SA lost 2.3%. The Portugal PSI 20 stock
index edged up less than 3 points to 5,800.01.
On the broader European market, the Stoxx Europe 600 index was
off less than 1 point at 331.87. Germay's DAX fell 0.1%. But
France's CAC 40 index rose 0.5% to 4,224.56 and the U.K.'s FTSE 100
index was up 0.4% at 6,702.
Comments: Citi downgraded Banco Espírito Santo to a sell/high
risk rating saying the value of legacy shares of the "bad" bank is
highly uncertain. "Given the uncertain nature of the outcomes (in
our view), we choose to be conservative and assign a target price
of EUR0.01," wrote analyst Stefan Nedialkov in a report Monday. The
previous rating was neutral/high risk.
Barclays on Monday said the sovereign financial implications of
Banco Espírito Santo's troubles remains limited, but investors are
likely "to remain guarded about risks which could stem from latent
problems in the financial system as the amount of financial
resources left available to deal with any potential problem in the
banking sector has declined substantially."
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