A SUPPLEMENT TO EUROMONEY/MARCH 1998: PORTUGAL
The brand new Lisbon Bolsa, slicing a gleaming alabaster wedge out of the blue Portuguese sky, is the perfect symbol of the changes that have taken place in this country over the past two years. On the outside the building is everything that is modern – all angles, with the requisite tower of black glass and steel rising from the white base. Inside, the technology is state of the art. Pass through the tight security and you can catch a glimpse of a trading floor overhung by massive digital read-outs.
But on a Wednesday afternoon, the trading room is empty. Vacant chairs are lined up to receive a presentation from an empty podium. The only life is in an anteroom to the exchange floor. Here a group of 20 or 30 elderly men in shirtsleeves and cardigans, one or two wearing soft caps, are staring up at two video displays suspended from the ceiling. The small screens flash stock quotes at them. Smoking cigarettes and swapping stories, they would look more at home under a large olive tree in the Portuguese countryside. “Retail investors,” explains the stock exchange’s PR representative.
Whether in banking, privatization, capital markets, telecommunications or electrical power, retail is the driving force in the Portuguese market. The Portuguese citizen wants more electricity, more computers, more telephones, more banking services and more access to investment in the capital markets. Where capital markets and the banking sector are concerned, it is the corporate and institutional client base that needs to be developed, not the country’s growing pool of private investors. All of the fundamentals are in place – liberalized trading laws, a growing private sector, the networks and personnel to execute sophisticated financial transactions – but one thing is lacking. “If we have a real problem with our capital markets it’s that there are not enough issuers,” says Antonio de Sousa, governor of the Bank of Portugal.
Banks in Portugal rely on core deposits for 65% of their funding needs. Cash rich, newly privatized industrial companies, growing off the boom in retail services, are not looking to borrow or raise equity if they can help it. Much of the privatization programme will be completed by the end of this year and retail investors will play an important part in it. But they are also turning their sights abroad. Post-Emu, they will have the ability to invest in French, German or Italian credits should they so choose, and Portuguese companies will lose their hegemony over this investor base. The challenge for them will be to improve their profiles as they compete for capital in a borderless Europe.
Moving to the centre of Europe
For Portugal, keen to shake off its image as a junior partner to Spain, joining Emu will be a matter of national pride. It should make the first wave comfortably
For the past few years, under governments of both left and right, Portugal’s economic policies have been geared towards meeting the Maastricht convergence targets for Emu. A few months away from the decision on which countries will join monetary union, Portugal appears to have achieved its goal. It seems sure to enter the single-currency mechanism in the first round. In 1996 there were fears that Spain’s inability to meet the targets would hold back Portugal, but this has ceased to be an issue since Spain is also on schedule for the first wave.
Oddly enough, the escudo is tied more closely to the Deutschmark than it is to the peseta. “We have a higher volatility against the peseta than the Deutschmark,” says Bank of Portugal governor Antonio de Sousa. “This is understandable when you take into account the fact that Spain is only our second or third market. If you look at the Deutschmark zone as a whole, including Germany, Austria and the Benelux countries, it is our number-one supplier and our largest market by far.” More than 80% of Portugal’s exports and imports are with EU countries, a slightly higher figure even than for Belgium. For the future, Portugal’s economy will be affected more dramatically by what happens in the EU core countries than by what happens in the other half of the Iberian peninsula.
The central bank is doing everything it can to ensure that convergence to German interest rates is as close as possible. It has pretty well achieved convergence on the long end of the yield curve, with 10-year rates a mere 25 to 26 basis points above the 10-year Bund. On the short end, a lot of progress has been made, with the gap on three-month rates closing from over 300bp to 130bp or 140bp. But there is still a small tightening to come and the short end of the Portuguese yield curve is inverted at present.
“We want our short-term interest rates to converge with those of the core countries,” says de Sousa. “But we have tried to achieve that without affecting exchange-rate stability. That is our major objective. We have been criticized for being too cautious. But caution is necessary to creating credibility and that is very important for the real economy.”
The government has used its significant privatization revenues to pay down debt during 1997. “We have a diversification approach to our debt structure,” says Fernando Teixeira dos Santos, secretary of state for treasury and capital markets at the ministry of finance. “It is not quite true that you get a better rate in domestic markets than foreign. When we access external debt markets it is because we are looking for lower interest rates. We are keeping the share of foreign debt stable at 18% to 20% of the total. We want to avoid excessive exposure.” Portugal’s debt management and 2.5% budget deficit (versus a 2.9% target) helped to earn it an upgrade to AA minus from Standard & Poor’s last year.
Portugal’s macroeconomic indicators are extremely positive. In 1996 the country had real GDP growth of 3.5% and in 1997 it is expected to show 3.8% growth. The average rate of growth of the consumer price index last year was 2.2%, slightly below the government’s 2.25% to 2.5% target, and comfortably within the Maastricht reference of 2.8% – the average of the three best EU inflation rates plus 1.5%.
In the fourth quarter of 1997, unemployment was down to 6.5%. Third-quarter unemployment was 6.7%, compared with 7.2% a year earlier, according to the Bank of Portugal’s monthly statistics report. The fall is partly the result of a change in employment patterns from full-time work to contract employment. The number of staff employees rose by 1.6% in the fourth quarter of 1997, while the number of independent workers rose by 5.8% during this period. Fixed-term contract workers represent 14.7% of the total employed workforce. “Portugal is second only to the UK in terms of the flexibility of its labour market,” says de Sousa.
That is not to say that its labour laws are very flexible – indeed they are prohibitive when it comes to allowing firms to rationalize. Outsourcing has been the corporate answer to this problem and has resulted in the flexibility of the labour market.
The Portuguese population is enjoying a rise in its standard of living and is starting to spend. Overall private consumption was up in 1997, with a particularly strong retail sales performance in the last quarter. Consumer goods imports rose 9.5% between January and September 1997. Sales of light passenger vehicles grew by 7.4% in 1997, following a 17.4% increase in 1996. Construction boomed in 1996 and 1997, with housebuilding outpacing non-residential construction for most of 1997. On the back of consumer demand, imports grew by 7.0% from January to October 1997. Exports during this period grew by 4.6%.
Privatization fuels the equity boom
Foreigners used to buy most of the shares on Lisbon’s stock exchange. Then, in a wave of popular interest in privatization, Portuguese investors discovered equities. Now the market is booming. But Portuguese companies are wary of issuing new equity or bonds. After Emu, local investors may find other places to put their money
It is an understatement to describe 1997 as a bumper year for the Lisbon stock market. The value of shares listed on the Lisbon Bolsa increased by 87% to reach a total of Esc7.2 trillion ($41 billion) by the end of the year. Turnover more than tripled from an average of Esc4.5 billion a session in 1996 to Esc14.9 billion in 1997. The underlying fundamentals of Portuguese companies had a lot to do with the rise. Much of the 75% rise in the BVL30 index and the 65.3% rise in the BVL General index can be attributed to the perceived strength of the Portuguese economy.
But even more important to the unprecedented growth were continued privatizations which brought to the market another 177 million shares of electrical power company EDP, 16 million shares of highway construction company Brisa, 37.8 million more shares of Portugal Telecom, and 71.5 million shares of five other issuers. Privatizations accounted for 53% of main listings on the Lisbon exchange.
Privatizations had a lot to do with bringing the retail investor to the stock market. With household names such as EDP and Portugal Telecom for sale, these investors very quickly familiarized themselves with the concept of equity investment. “EDP was 50 times oversubscribed on the retail side,” says Antonio Mexia, managing director of BES Group’s investment bank Banco Essi.
EDP’s Esc390 billion public offering of 30% of its stock was the biggest flotation ever in Portugal. “It was a landmark,” says secretary of state of the treasury Fernando Teixeira dos Santos. “Eight hundred thousand people subscribed to EDP, that is 8% of the population.”
Banks are finding they cannot slake the retail thirst for the returns that equity can offer. This demand is behind the growth in mutual funds, as well as other equity-linked investment products. BCI has designed an index-linked deposit account for retail clients. “The remuneration is linked to the stock market. It has a guaranteed floor of 0% and a 9% ceiling on a one-year deposit, and a 15% ceiling on an 18-month deposit,” says Eduardo Stock da Cunha, managing director of Banco Santander de Negocios Portugal.
Portuguese institutional investors have also caught the equity bug. “Until two years ago equity investors were mostly foreigners,” observes da Cunha. “At the end of 1996, in the entire mutual-fund industry, only 3% were equity funds. Now 8.5% are in equities. Pension funds had less than 5% of their portfolios in equities a few years ago. By the end of 1997 this had grown to 12%.” These investors were responding to the same attractions as retail buyers – much higher returns than could be achieved in the bond market. With privatized companies creating their own pension funds and a change in the pension-fund laws which mandates increased coverage, pension funds should be a growing investor group over the next few years. “When you consider that the pension fund of Portugal Telecom has grown from Esc30 million to Esc300 million, that tells you about the magnitude of growth of assets under management,” points out Paulo Gray Pereira, vice-president at Citibank Portugal.
Foreign investment in the Portuguese market has also grown. “Foreign investors represent more than 50% of the stock market,” says Banco Mello’s CEO Francisco de Lacerda. Foreign investors have taken an increasing interest in the big-name issuers. Some 40% of EDP’s flotation was bought by foreign investors. There are no restrictions on foreign investment in Portugal.
Like many small stock exchanges, the Lisbon bourse is dominated by a small number of larger companies. It is putting its efforts into broadening the scope of the market and is carrying out a publicity campaign to educate potential issuers about the advantages of listing on the exchange. “We have a plan to get small and medium-size companies to list,” says Jose Carlos Pestana Teixeira, the Bolsa’s chief executive. “But we’re still continuing to visit the big companies.”
In 1998 privatization will continue to feed the various investors who have developed a taste for Portuguese equities. But aside from these deals, new issues may be thin on the ground. “The large companies in Portugal don’t need cash,” points out Bank of Portugal governor Antonio de Sousa.
Indeed many companies are using their healthy cashflows to pay down debt. “Portugal Telecom is a growth company at the bottom line and at the top line,” says vice-chairman Miguel Horta e Costa. “Our revenues grew 11.3% in 1996 and 11.8% in the first half of 1997. Net income rose 50% in 1996 and 44% in the first half of 1997. The group is a strong cashflow generator and we will use this for our investments. We have a low debt-to-equity ratio, just above 30%, which is quite low compared with our competition. It is mainly loans from the European Investment Bank which we have at a very favourable rate.”
Most of the large companies tell a similar story. EDP’s cashflow is twice its yearly capital expenditure. The company is paying off its bank debt and does not need to raise equity, according to a company spokesman. Good for them, bad for the capital markets, particularly for corporate bond issuance.
While privatization has brought much new equity to the market, there has been no great increase in bond issuance. The total of outstanding debt listed on the Lisbon exchange rose by 6% in 1997 to reach a total of Esc7.11 trillion. Public debt accounted for 92% of the bond market’s turnover. But market capitalization of corporate bonds increased by 9.2% in 1997. There has been a trend towards fewer, bigger bonds. As various corporate issuers redeemed debt, the number of listed corporate issues decreased by 52 to 105. The number of issuers in the bond market as a whole decreased by 20 in 1997.
The banks are the main non-government issuers. Their bond financings tend to be plain vanilla and do not stray into exotic areas such as securitization. Although there have been one or two issues, the mortgage-backed market in Portugal is microscopic compared with the market for straight debt issues. Other asset-backed classes are even smaller.
The slower bond market is partly a function of low interest rates which have driven return-hungry investors into equities. But in part the problem is a deeper psychological one. Many corporations still bear the scars from five years ago when interest rates rose to 25%. Debt has become the dirtiest word in the Portuguese treasurer’s vocabulary.
The caravela market for escudo-denominated bonds from foreign issuers has been the saving grace of Portugal’s debt markets. Dominated by supranationals such as the European Investment Bank which need escudos for investment in projects in Portugal, the caravela market has been worth some Esc500 to Esc600 billion a year. It will disappear with Emu, having at least helped to educate the Portuguese investor base to foreign credit. Certain issuers, particularly those from Brazil, will continue to seek out this source of capital.
Portuguese investors are taking an interest in foreign investment. “Once the exchange-rate issue disappears, Portuguese corporates will be competing for the Portuguese investor,” says Citibank’s Gray. “Portuguese investors are savvy. They have experience with emerging markets. They will no longer be a captive audience. Issuers need to be educated about how to compete for capital once this happens. This is where the government has been very forward thinking, and done an excellent job of marketing itself internationally.”
If Portuguese corporates do not put some effort into educating foreign investors about their credit, they may find unified Europe a very unfriendly place.
| Lisbon Stock Exchange: daily turnover by share | |||||
| Rank | Volume | Share | Value | Share | |
| (units m) | (%) | (Esc m) | (%) | ||
| 1 | Portugal Telecom | 100 | 9.9 | 692 | 19.2 |
| 2 | EDP | 140 | 14.0 | 446 | 12.4 |
| 3 | Banco Comercial Portugues | 95 | 9.5 | 313 | 8.7 |
| 4 | Cimpor | 69 | 5.9 | 286 | 7.9 |
| 5 | Telecel | 17 | 1.7 | 241 | 6.7 |
| 6 | BESCL | 38 | 3.8 | 162 | 4.5 |
| 7 | Sonae | 23 | 2.3 | 150 | 4.2 |
| 8 | Banco Portugues de Investimento | 37 | 3.6 | 124 | 3.5 |
| 9 | Banco Totta & Acores | 40 | 4.0 | 122 | 3.4 |
| 10 | Jeronimo Martins & Filho | 9 | 0.9 | 92 | 2.5 |
| Others | 567 | 56.6 | 2,629 | 73.0 | |
| TOTAL | 1,001 | 100.0 | 3,599 | 100.0 | |
| Source: Lisbon Stock Exchange | |||||
A steady flow of sell-offs
Fernando Teixeira dos Santos, secretary of state for treasury and capital markets at the ministry of finance, talks to Euromoney about the forthcoming privatization programme and the future of Portugal’s capital markets
How much money did the government make on privatizations in 1997?
Privatization had a very good performance in 1997. Total revenues were Esc873 billion ($4.7 billion). That is more than 5% of GDP. We were able to use this money to decrease public debt, which went down to 62.4% of GDP from 65.6% in 1996.
Will you be able to do the same in 1998?
Nineteen ninety seven was an exceptional year for privatization. But there is still more to come. We expect to see Esc400 billion in 1998 and the same again in 1999.
Which companies will be sold?
Cimpor, the cement company, will finish this year. We will sell another 19% of EDP, the electricity generating company. Some of that may be to partners, probably about 4.5%. The rest will be done as a public offering and book-building operation. The second tranche of Brisa, the highway construction company, will be privatized. We have privatized 35% already.
As for companies that haven’t already hit the market, we intend to privatize the airline TAP this year. It has ended its economic and financial recovery. The company is celebrating an agreement with partner Swissair.
We are also preparing the privatization of the airport ANA. It is a delicate process because we have to break down the company into two parts. One is the airport management company which will be private. The other is air traffic control, which we will not privatize. We have to decide how to split the personnel and define their career paths. We also have to clarify what we will do about the new Lisbon airport, and how this will affect ANA.
We will also privatize government oil and gas activities. Petrogal has an oil refinery. There are two companies for natural gas distribution; Transgas and Gas de Portugal. We have to set up a strategy for our industrial policy in this area. Is it better to combine the oil and gas businesses or is it more sensible to have two separate companies? The combined company might be stronger as one company, as each side could smooth over cashflows for the other.
The state owns the majority of the capital in both the pulp and paper sectors. We believe we can be very competitive in these industries, but we need to develop a common strategic view.
These are the major issues facing us on privatization for 1998. Some will have an immediate impact like Cimpor, EDP and Brisa.
What about the remaining 25% of Portugal Telecom?
We do not intend to privatize any more of PT.
How much has privatization had to do with the development of the capital markets?
Our stock market had a very impressive performance in 1997 and an astounding performance in 1998 so far. The privatization process contributed a lot to the evolution of that market. Especially EDP, because it was the biggest ever in Portugal. PT came after, and was almost as big, but EDP’s success helped the privatizations that followed. Brisa was the last one last year, and was a quarter the size of EDP, but 400,000 investors subscribed to it, half as many as subscribed to EDP.
Is the awareness of Portuguese equity improving internationally?
When Morgan Stanley announced in December 1997 that it would include Portugal in its [developed markets] index, this gave the market another dimension. It showed that we had liquidity and a significant volume of transactions. It improved our international image and fostered interest among foreign investors.
How will the introduction of the single currency affect the Portuguese capital markets?
With the introduction of the euro there will be more competition for capital. We will see some major changes on the issuer side. There will always be the danger of foreign takeovers of Portuguese companies. In some ways they are the benchmark of our national economic success.
But the state will keep golden shares to dissuade the development of a harmfully aggressive takeover environment.
Banks are still finding their way
Portugal’s biggest private banks are all going through the same painful process of restructuring, regrouping and redefining strategy after being sold by the state. With margins under pressure and foreign competition growing, there is plenty of change still to come
The mid-1990s was a period of consolidation for Portuguese banks. The financial sector accounted for 51% of all Portuguese mergers and acquisitions, according to statistics from Banco Finantia, an independent investment bank.
A core group of large banks swallowed up the small banks the government was selling off, and then began to digest these acquisitions by reorganizing themselves. Several takeovers were seen as hostile by the marketplace, although Bank of Portugal governor Antonio de Sousa claims this perception is inaccurate. “You think of it as a ‘hostile’ takeover when the shareholders are against each other,” he says. “In several of these cases, the shareholder was the government, and the government wanted to sell. The management teams were public-sector managers who may have had specific ideas about how they wanted the bank to be privatized, but from the government’s point of view, dispersion of capital was the important idea.” Rumours are rife that more consolidation is to come.
Five major Portuguese bank groups account for 80% to 85% of the assets in the banking system. Add in the sixth largest bank and this group accounts for 90% of total banking assets. Each of the bank groups includes at least one commercial bank, one investment bank, a mutual fund and an insurance company, although each group is structured differently.
In recent years they have begun to address the question of how to coordinate the marketing of these activities to their customer base; some have been more successful than others in developing a strategy. With the exception of Caixa Geral de Depositos, the largest of the six with Esc6 trillion ($34 billion) in assets, all of the banks owned by these groups were privatized in the first half of the 1990s, with the bulk coming onto the market in 1992 and 1993. Aside from Caixa, which had always been state-owned, all banks in Portugal were nationalized after the 1974 revolution.
Set up as a provider of residential mortgages, Caixa used to have a monopoly on this market. Now that the legislation has changed and other banks can make mortgage loans, Caixa has lost considerable market share to the competition. Nonetheless, it still has an estimated 25% of the retail-banking business. Its mutual-fund arm, an area of growing importance to retail investors, has Esc1 trillion under management. This makes it one of the two equal largest bank players in the mutual-fund business. It is the only bank group that does not own an investment bank. Caixa will eventually be privatized, and this could be the spark for more consolidation, although Caixa itself is unlikely to be an acquisition target. “They won’t privatize more than 50%,” says Luis Borges Nogueira, director at Banco Finantia. “It will happen some time in the next couple of years.”
The private banks break down into three tiers by asset value. The Banco Comercial Portugues (BCP) group and the Champalimaud group are the two largest groups. BCP is slightly the larger with assets of Esc5.5 trillion.
The BCP group’s operating entities include the commercial bank Banco Comercial Portugues; an investment bank, Banco Cisf; and another commercial bank, Banco Portugues Atlantico. It picked up the last of these for Esc305 billion in a hostile bid in 1995 which enticed the government to sell the last 25% stake it held in Banco Portugues Atlantico. Although analysts generally like BCP, they are keeping a wary eye on the way this acquisition is folded into the group.
BCP has a particular strength in insurance, leading the market with premiums for the first three quarters of 1997 of Esc108.7 billion and a 24% market share. BCP has roughly a 20% share of the retail banking market. Its mutual-fund arm is the same size as Caixa’s, and it has a 30% share of the mutual-fund market.
Champalimaud has a Esc5.3 trillion asset base. Its main subsidiaries include commercial bank Banco Pinto & Sotto Mayor which bought Banco Totta & Acores, Credito Redial Portugues and Banco Chemical. Champalimaud’s acquisition strategy has been aggressive, with last year’s hostile purchase of Banco Totta & Acores the most recent. Totta Fundos, the fund-management business which came with this acquisition, has roughly $1.5 billion of funds under management.
Although it is one of the largest bank groups, with an estimated 17% to 18% of the retail banking market and third place in mortgages, Champalimaud may have furthest to go in setting its house in order, say bank analysts. Its internal disorganization has frequently made Champalimaud the subject of takeover gossip, and for the past 10 months its name has been coupled with Banco Espirito Santo. As its board member and administrator Manuel Pinho points out, Espirito Santo has fairly recently completed its own successful internal consolidation, and is not likely to want to go through it again any time soon.
Banco Espirito Santo and Banco Portugues de Investimento form the middle tier of Portuguese banking. Espirito Santo is currently the darling of the industry. Its profits in the first three quarters of 1997 were up 45% on the same period in the previous year and it was recently given an upgrade on its long-term debt rating from A minus to A by Standard & Poor’s. It has an asset base of Esc3.5 trillion. Espirito Santo was one of the early bank privatizations, going private in 1991 and 1992. This has given the bank longer than its competitors to develop a new structure and complete rationalization, which has largely been achieved through early-retirement programmes. “Espirito Santo has a strong financial culture,” says Finantia’s Nogueira. “It has a good reputation in other countries like Luxembourg, Switzerland and the US. Its strategy is consistent.”
Banco Espirito Santo is throwing its weight behind a retail strategy. “Our growth areas are bank insurance, mortgages, consumer credit and asset management in the form of mutual funds,” says Pinho. “Espirito Santo also has a name in private banking in the domestic market.” Its mutual fund, ESAF, has Esc600 billion under management. Its investment bank, Banco Essi, handles privatizations, corporate finance and equity trading. Debt and derivatives trading are handled within the flagship commercial bank. Its broker, ESER, has by far the largest market share in Portugal.
Banco Portugues de Investimento is slightly smaller than Banco Espirito Santo, with assets of Esc2.9 trillion. It is also known as one of the three most competitive banks in Portugal, the other two being Espirito Santo and BCP. Banco Portugues de Investimento group holdings include Banco Fumento, which it acquired from the government over the protests of Fumento’s management. The group has a strong retail presence, but its distinguishing characteristic is that it started out as an investment bank. This is reflected in its continuing strength in the capital markets.
Bringing up the rear in the top group is Banco Mello, with Esc1.2 trillion in assets. In mid-1995 Mello acquired Uniao de Bancos Portugueses, and in 1996 underwent a highly successful rebranding campaign, creating a single identity, Banco Mello, for all the bank’s retail operations. Although it is much smaller than its competitors, Mello is 50% owned by Imprio, the number-one insurance company in Spain. This shareholding may protect Mello from potential takeovers but that has not stopped it being the subject of consolidation rumours. “We are controlled by one shareholder, and we are not interested in being bought,” says CEO Francisco de Lacerda. “A hostile takeover is not going to happen.” As de Lacerda sees it, Mello has come through its difficult period and carried out the rationalization that was needed. “Now we need to grow the business.” With 130% of loans covered by deposits, he has plenty of capital to do it with.
One area of growth is mortgage lending, where Mello has the potential to increase its 4% market share. Its subsidiary, Banco Mello de Investimentos, which includes a portfolio manager and a securities broker, may also provide scope for growth. Banco Mello de Investimentos has Esc332 billion of funds under management.
All of the main bank groups are looking to the same growth areas – retail fund management, mortgages, consumer loans and insurance. They are all feeling pressure on margins and have begun to increase their fees for services as a result.
Because of its history of state ownership, the Portuguese banking system has been the last in continental Europe to charge for typical account services like monthly statements, cheque processing or ATM transactions. In their efforts not only to begin tracking these services but also to compare the profitability of their different business areas, each of the major bank groups is making significant investment in upgrading information technology. With their new systems in place, banks will be able to increase the services they can offer their retail clients, who until now have not had a lot to choose from.
Chasing corporate clients is a much tougher slog for banks, but that hasn’t stopped any of them from doing it. There aren’t many companies of any real size in Portugal, so the 30 largest can state their own terms. Corporations are still reliant more on bank debt than on publicly traded debt, but they are carefully paying down their bank debt. Corporate treasurers remember only too well the 25% interest-rate environment of five years ago.
Investment banking offers some scope for servicing corporate clients, although a large part of the work in this area has been fuelled by privatizations. The government generally uses a Portuguese adviser and one or two foreign advisers on big flotations. It rotates the domestic role among the top group of Portuguese banks, so there is not a large amount of government work for any one firm. The real value the investment-banking business is bringing to the banks is fund-management capacity and retail brokerage. Some also have a certain amount of expertise in private banking, a growing business in Portugal.
Expansion in the domestic market is quickly turning into a scrap for market share, but even so, Portuguese banks remain cautious about expanding abroad. “We will increase our presence in markets where we have a special affinity, markets where Portugal has been active by tradition,” says Banco Espirito Santo’s de Pinho. “In Brazil we have a special expertise.”
Several Portuguese banks have been increasing their links with institutions in other European countries. This is largely a defensive move in the run up to Emu. A number of the banking groups are host to a significant chunk of foreign capital. Banco Espirito Santo has a 19% investment from France’s Crédit Agricole through a mixture of direct and indirect holdings. Banco Portugues de Investimento is roughly 28% foreign-owned, 10% by Spanish building society La Caixa, 10% by Brazilian Banco Itau, and 8% by German insurer Allianz. Spain’s Banco Central Hispano owns a 20% stake in BCP. But these investments function largely as financial holdings. As in other parts of Europe, to date no one has had any significant success with trying to run a retail banking network cross-border.
Two Spanish banks have tried to enter the market through acquisitions. Banco Santander bought Banco de Comercio e Industria, and Banco Bilbao Vizcaya picked up Lloyds’ former Portuguese operations. Their Portuguese competition does not think much of their results, but the Spanish see it differently. “Portugal is a natural extension of our home market,” says Eduardo Stock de Cunha, managing director, deputy CEO and country manager of Banco Santander de Negocios Portugal.
| Portugal’s leading banks | ||||||||||
| 1997 estimates | Market | Net earnings | EPS | P/E | Return | Capital | ||||
| capitalization | growth | ratio | equity | on assets | adequacy | |||||
| (Esc billion) | (Esc million) | (%) | (%) | (%)* | (%) | |||||
| Banco Portugues de Investimento | 349 | 23 | 19 | 15 | 24 | 13 | ||||
| Banco Comercial Portugues | 587 | 43 | 63 | 13 | 19 | 10 | ||||
| Banco Totta & Acores | 217 | 16 | 0 | 14 | 12 | 12 | ||||
| Banco Espirito Santo | 479 | 29 | 24 | 16 | 19 | 9 | ||||
| Banco Pinto & Sotto Mayor | 271 | 15 | 26 | 18 | 12 | 8 | ||||
| *Bank of Portugal’s definition, 1996 | ||||||||||
| Source: Banco Finantia | ||||||||||
