What could happen?
Portugal’s banking problems could further hit debt markets and make it costlier for its government to borrow. This would make it harder for its economy to recover from the sovereign debt crisis of 2011. However, Jim Iuorio, managing director at TJM Institutional Services, told CNBC that the current problems may be hitting so-called peripheral Europe but wouldn’t be a full-blown fear for the greater region until core countries like France were being affected.
“One thing we can almost all agree on is that there probably is some sort of bubble in European peripherals and it could have a destabilizing effect,” he said.
The euro zone’s periphery had enjoyed a significant bounce-back over the past few months with the yields on some Spanish and Portuguese bonds beating those of even the U.S.
“Are Portuguese and Greek bonds mispriced?” asked Iuorio, “Of course they are, and it’s just a function of every central bank throwing tons of money into this system.”
He added that the situation was “worth watching” with the real trigger point in asset markets being when French government bonds begin to sell off.
Read More Watch French bonds for signs of real trouble: Trader
Analysts Gildas Surry and Geoffroy de Pellegars at French bank BNP Paribas said there was potentially three outcomes for Banco Espirito Santo. These were either an orderly resolution at the bank, a going concern or even a forced liquidation.
Any resolution, they said, could involve the intervention of cash-rich investors – such as sovereign wealth funds from Angola or Venezuela — which would solve the funding crisis for the parent company, Espírito Santo International . Alternatively, there could be a “fire sale” of assets, in particular the selling of the group’s stake in Banco Espirito Santo and other financial entities.
Analysts at CreditSights, an independent research provider, believed that the Portuguese bank could well survive and the situation would easily stabilize over time. John Raymond, the senior European banks analyst at the company, said that capital would have to be found from somewhere and that the European Central Bank would be keen to resolve the issues. He added that there could be losses imposed on low-ranking debt holders of its commercial paper.
“There’s uncertainty at the moment,” he said on a conference call to clients on Thursday afternoon. “We should see that most of this is within the group, once we get clarity that should help stabilize the rest of the market.”
Banco Espírito Santo was not immediately available for comment when contacted by CNBC.