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Espiritu Santo Bank

Autor:   •  November 10, 2017  •  2,050 Words (9 Pages)  •  549 Views

Page 1 of 9

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Balance Sheet

(USD, in thousands)

12/31/14

Total Assets

660,496.00

Total Interest Income

24,049.00

Total Liabilities

611,931.00

Total Non-Interest Income

10,340.00

Total Bank Equity Capital

48,565.00

Total Interest Expense

2,580.00

Domestic Deposits

448,743.00

Total Non-Interest Expense

41,556.00

Total Deposits

449,144.00

Net Income

(10,583.00)

Net Loans & Leases

395,157.00

Net Charge Offs

1,943.00

Loan Loss Allowance

4,606.00

Section E - Capital

Espirito Santo Bank’s capital is currently at a high risk and they need a high level of capital in order to maintain their position. As I was reviewing the capital ratios and growth, I came to realize how in these past years they have been declining. Especially, with 2014 ratios majority being on a negative scale. Their risk has been climbing and at the same time their net income has been dropping slowly every quarter. In Dec 2013, they were at a 3.22% increase and in December 2014, they were at a -18%. This pointed out that clearly they don’t have enough capital to sustain what they currently have and they are in serious trouble at this moment in time. The levels in capital ratio are less than the peer ratios from 2011- 2014.

Yet, in the peer ratio’s it shows that they have been increasing steadily since 2011. Their main source is from core deposits and their least being deposits from foreign offices. In peer, they also went up 2% in loans for 2014 but went down the next quarter. This is probably due to the many closings they had that year. The capital ratio changes in every quarter are all different due to the situations they have been going thru. You can tell by the quarters, that they have been having issues and coming back up with the loan ratios. This is causing their risk to be even higher even though there was a good peer. For 2014, they had a drastic hit on their net income compared to other years. While in 2013, their intangibles took a drastic spike from 37% to 124%.

With that said, their capital ratios have been on a roller coaster ride for the past few years and have shown a significant change in the net income. If they don’t start to manage their loans and deposits equally to reduce the risk they will find themselves in a very tight position to grow. When it comes to their assets, their was a big change from 2012 at 2.4% to 2013 to 19.2% and then a drop to -4.1% for 2014. This shows that they are below and coincides with the roller coaster that they have been having through out the years. They are raising their loans trying to make them at a better capital adequacy but I don’t think it is going to be happening. Their risks are already at high. They even were sued due to the fact of bad investments not once but twice. The law suit hit their capital very hard in which currently they have to figure out a way to bring up capital in order to maintain afloat, not to mention. They also will get affected by the overseas branch.

Section F - Management

Espirito Santo Bank is a bank with only one branch located in Brickell. The board of directors for Espirito Santo Bank are from the parent bank, Banco Espirito Santo S.A., which are based out of Portugal and some from Miami. The management team they chose are here in Miami with some of them being in the board. There was an issue back in June 2014 where the parent bank had a big loss due to some accounting issues, but the management team here in Miami thrived and had profit. The board of directors didn't analyze the risks very well with all the branches overseas and the one here in Miami.

To my understanding, they slacked off due to the issues they were having back at the parent bank. The management team here in Miami was the one running all the operations and overseeing every risk. With this the Miami branch was being planned to be sold because it was considered by the board of directors as a bad bank" / legacy bank. The management team has made profit for their branch. Despite the parent branch being bailed out by the Bank of Portugal, they are now chartered by the FDIC.

The auditing of the branch wasn’t done regularly as it should of, especially with the fact that they were closing a lot of loans and investments. This mismanagement caused them to gain two law suits against them in which caused them to be in a tough spot. If the proper procedures and examinations of the documents were done. They wouldn’t be in this position. Management over looked many details and were worried about just getting the money in because the parent bank was in problems. Basically, both the board of directors and the management team wasn’t doing their job correctly.

Summary

In my personal opinion, this bank, the parent bank, the board of directors, the management team and their employees overlooked a lot of things. By being a single branch in Miami, they could have had more control of all their transactions and a stronger focus on gaining capital. From all the different ratios through out the years there should have been a red flag that their risk is growing and they are losing. Hopefully, they get bought out again by a better institution and can rebuild a stronger financial institution.

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