The group will be split into two – a “good bank” with the healthy assets and a “bad bank” with the riskier ones.
The “good bank”, which will be called Novo Banco, will be loaned 4.9 billion euros ($6.6 billion) from what is left of Portugal’s bailout fund.
The move had been expected after BES on Friday reported a record loss of 3.6 billion euros for the first half of the year.
Since June, when concerns about the financial health of the company first came to light, its shares have plunged 89%.
BES, which is Portugal’s largest listed lender, will be delisted from the stock market on Monday, with shareholders set to lose almost all their investment.
All of BES’s depositors will be protected.
“The plan carries no risk to public finances or taxpayers,” said Carlos Cosa, Portugal’s central bank governor at a late night news conference in Lisbon.
“There was an urgent need to adopt a solution to guarantee the protection of deposits and assure the stability of the banking system,” he added.
Novo Banco will consist of the bank’s core business of taking deposits and lending to home-buyers and companies.
It is so far unclear what will happen to the “bad bank”, most of which relates to other businesses in the Espirito Santo Group, which include tourism, health and agriculture.
The cash injection for Novo Banco comes from a so far unused part of Portugal’s bailout fund from the EU and the International Monetary Fund (IMF).
The idea is that Novo Banco will be run by the “resolution fund” – set up as part of the eurozone’s banking reforms and funded by Portugal’s financial institutions. The bank will eventually be sold off, with the proceeds used to pay back the 4.9 billion euro loan from the bailout fund.
In a statement, Novo Banco’s chief executive, Vitor Bento said “the key uncertainties that have been hanging over the institution for some time have now been removed”.
“Novo Banco is also taking with it… a dedicated workforce, a strong customer focus and comprehensive banking services that help to drive the Portuguese economy,” he added.
Vitor Bento was installed as chief executive of BES just three weeks ago as part of a management reshuffle designed to restore confidence in the bank.
The European Commission said it approved of the rescue plan.
“The adoption of this resolution measure is adequate to restore confidence in financial stability and to ensure the continuity of services and avoid potential adverse systemic effects,” it said in a statement.
Portugal itself only recently emerged from a three-year bailout plan. It was lent 78 billion euros in total by the EU and the IMF on the condition that it implemented severe austerity measures.
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