Haven’t we spent the last year or two hearing European talking heads banging on about how they have/are tackling future bank risks? At the minimum we write something once a week on it.

So why has the market gone running around like its hair is on fire over the Espirito saga?

Ok, it’s still a long drawn out ‘work in progress’ situation but we have bail in rules and backstops in place to supposedly limit the risk of any real damage, and more importantly contagion. It is therefore a surprise that the market has reacted this way to what should now be just routine procedure kicking in. It shows that the market has a complete distrust that the EU/ECB/national governments have, and can contain, any future crises, and that should be a worry.

A lot can happen in a short space of time as at the end of March the BES confirmed that they had a €2.1bn excess over the capital buffer they were required to hold . Now sources say that they have a €2-3bn shortfall. To cover the situation it’s been reported that the government can call on €6.4bn of unused funds that were set aside for bank recaps. There is also a chance that there is going to be some bail in or creditor loses imposed.

What we are sure of is that it is a big mess and looks very dodgy if you drill down into it.

BES’s two main share holders are Credit Agricole (15%) and Espirito Financial group (25%), who is 49% owned by Espirito Santo Irmaos, which is fully owned by Rioforte investments, which is owned by Espirito Santo International and most of all that is part of the Espirito Santo family empire. That’s going to take some untangling and I’d hate to be the auditor of that lot.

I aired other thoughts about the stock moves yesterday but a big part of the falls were over the BES. Late yesterday and so far today the market has been soothed that the problem isn’t as bad as some feared.

The EU have had a snapshot of how the market will react to bank problems and that should spur them to get things done even faster (“should” being the key word). European stocks have bounced as the fear factor comes out but we’ll need to watch the next few sessions closely to see if the BES was the sole driver of the falls we’ve seen this week.