Case Detail

Case Summary

The Fall of Banco Espirito Santo: Holy Spirit or Devil in Disguise?

Case Number: 5-116-004, Year Published: 2016

HBS Number: KEL969

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Authors: James B. Shein; Jason P. Hawbecker

Key Concepts

Board of Directors, Corporate Governance, Corporate Strategy, Ethics, Family Businesses, Financial Management, Private Equity, Reputations, Risk Management, Turnaround Management


In 2014, after nearly 150 years as one of Portugal's most wealthy and powerful families, the Espírito Santo family completely lost control of its empire, which included Banco Espírito Santo, Portugal's largest bank by market capitalization and second-largest private-sector bank in terms of assets, along with stakes in numerous financial, non-financial, privately held, and publicly traded companies. During the European financial crisis of 2010 to 2014, many of the family's companies required capital investment. To avoid family equity dilution, the family's patriarch, Ricardo Espírito Santo Silva Salgado, engaged in a creative money-go-round structure whereby Banco Espírito Santo would legally raise short-term commercial paper with high interest rates and sell them to third parties that were partially owned by the Espírito Santo family. These third parties then would sell that paper back to the bank's retail clients as safe investments similar to Portuguese deposits. The plan failed, and the house of cards that was the Espírito Santo empire collapsed. Students will consider whether Salgado and the board of Banco Espírito Santo acted appropriately or if they failed their fiduciary duties to the non-family shareholders of the bank.

Learning Objectives

Understand the conflicts of interests that might arise when public and family stakeholders are intertwined; apply to complicated scenarios the doctrine of fiduciary duty of loyalty; identify ways in which legal differences between countries can be used as an advantage or to obscure debt and/or equity positions within a multinational structure; distinguish between financial disclosure rules and what is actually disclosed (specifically related to valuation and debt disclosure)

Number of Pages: 18

Extended Case Information

Teaching Areas: Management

Teaching Note Available: Yes

Geographic: Portugal

Industry: Banking

Organization Name: Banco EspĂ­rito Santo

Organization Size: Large

Decision Maker Position: Executive Chairman

Decision Maker Gender: Male

Year of Case: 2014