Banco Espirito Santo: Bank Capital Discussion

Introduction 
This internship‟s project is focused on the analysis of Banco Espirito 
Santo (“BES”) Bank Capital Structure, as requested by the client. 
My division (Debt Capital Markets/Financial Institution Group) will try to help the 
client to raise money by selling debt or equity securities to investors. 
Our objective is that of determining the optimal placement strategy to be used by 
BES, and in order to do that we start our analysis with a comprehensive 
understanding of the current volatile market conditions, key aspect for a successful 
transaction. 
Then, we analyze BES Bank Capital Structure and its solvency ratios highlight that 
BES Group has got strong positions to finance possible future growth. 
Comparing BES‟ ratios with those of its peers we‟ll realize that BES may 
benefit from raising its Capital Ratio that now it‟s lower than that of the European 
peers. 
To make the bank raise this ratio, we proposed three key issuance alternatives 
available for the client: 
o Tier I Issuance 
o Tier II Issuance 
o Tier III Issuance. 
Our analysis shows that BES has attractive opportunities across different 
maturities but, finally we believe that a € 300 million Tier III issue could be the best 
strategy to follow because of the following reasons: 
I. Best pricing 
II. Least execution risk 
III. BES has considerable capacity to issue Tier III in order to improve its Total 
Capital Ratio and reach that of international peers 
Lehman Brothers then utilized all the resources necessary for successfully 
marketing, bookrunning and placing of the issuances. 
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1.Lehman Brothers International 
Lehman Brothers Holdings Inc. (Lehman Brothers) serves the financial 
needs of corporations, governments and municipalities, institutional clients and 
high-net-worth individuals worldwide. The Company provides an array of services 
in equity and fixed income sales, trading and research, investment banking, asset 
management, private investment management and private equity. The Company 
operates three business segments: Capital Markets, Investment Banking and 
Investment Management. Lehman Brothers generates client-flow revenues from 
institutional, corporate, government and high-net-worth clients by advising on and 
structuring transactions; serving as a market maker and/or intermediary in the global 
marketplace, including having securities and other financial instrument products; 
originating loans for distribution to clients in the securitization or principals market; 
providing investment management and advisory services, and acting as an 
underwriter to clients. 
Founded in 1850, Lehman Brothers maintains leadership positions in equity 
and fixed income sales, trading and research, investment banking, private 
investment management, asset management and private equity. The Firm is 
headquartered in New York, with regional headquarters in London and Tokyo, and 
operates in a network of offices around the world. 
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1.1. History 
The history of Lehman Brothers parallels the 
growth of the United States and its energetic drive 
toward prosperity and international prominence. What 
would evolve into a global financial entity began as a 
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general store in the American South. Henry Lehman, 
an immigrant from Germany, opened his small shop in 
the city of Montgomery, Alabama in 1844. Six years later, he was joined by 
brothers Emanuel and Mayer, and they named the business Lehman Brothers. 
In 1850 Henry, Emanuel and Mayer Lehman founded the Firm in 
Montgomery, Alabama. In 1858 Cotton was the cash crop of the time, and the 
Lehmans accepted it from the local farmers as currency to settle accounts. The 
brothers traded the cotton for cash or merchandise, becoming brokers for buyers and 
sellers of the crop. In 1858, they opened an office in New York, which was the 
commodity trading center of the country. 
The Civil War disrupted the Lehmans‟ 
business. When hostilities ended, the brothers moved 
north and concentrated their operations in New York, 
where they helped establish the Cotton Exchange. The 
post-war period witnessed the rapid growth of 
railroads, sparking the transformation of the nation 
from an agrarian to an industrial economy. At the time, Lehman Brothers' future 
merger partner, Kuhn, Loeb, was underwriting much of the financing for railroad 
construction. Railroad bonds represented a significant advance in the development 
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 Primary source: Lehman Brothers Web Site (www.lehmanbrothers.com) 
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of capital markets. Their affordable price attracted a great number of individual 
investors and Lehman Brothers, recognizing a trend, expanded its commodities 
business to include the sale and trading of securities. The Firm also moved into the 
area of financial advisory, which provided the foundation for underwriting expertise. 
During the vigorous economic expansion of the 
second half of the 19th century, Lehman Brothers 
broadened its expertise beyond commodities brokerage 
to merchant banking. Building a securities trading 
business, they became members of the New York Stock 
Exchange in 1887. Setting the stage for future global 
growth, Jacob Schiff, a Kuhn, Loeb partner, led the Firm to establish investment-
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banking relationships in Europe and Japan. 
At the turn of the century, Lehman Brothers was a founding financier of 
emerging retailers, including Sears, Roebuck & Company, F.W. Woolworth 
Company, May Department Stores Company, Gimbel Brothers, Inc. and R.H. Macy 
& Company. 
In the 1920s, Robert Lehman perceived dynamic changes occurring in the 
nation's economy, and focused the company on rapidly developing consumer 
industries such as retailing, airlines and communications. Lehman Brothers was a 
strong supporter of the entertainment sector and advised on the consolidation of 
major movie theater chains. Start-up ventures, including film studios RKO, 
Paramount and 20th Century Fox, benefited from financing arranged by the Firm. 
Triggered by the stock market crash of 1929, the Depression placed 
tremendous pressure on the availability of capital. Lehman Brothers was one of the 
pioneers of innovative financing techniques such as private placements, arranging 
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 Primary source: Lehman Brothers Web Site (www.lehmanbrothers.com) 
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loans between blue-chip borrowers and private lenders. These loans offered strict 
safeguards and solid returns for lenders, while enabling borrowers to raise much-
needed capital. 
The 1930s witnessed the explosive growth of radio and experimentation 
with a developing technology called television. Lehman Brothers underwrote the 
initial public offering for DuMont, the first television manufacturer, and helped fund 
the Radio Corporation of America, known as RCA. Beginning in the 1930s, the 
increasing demand for oil set off waves of wildcat drilling in search of the resource. 
Companies like Halliburton and Kerr-McGee relied on Lehman Brothers for capital 
to fund their activities 
The end of World War II ignited an unprecedented era of prosperity, fueling 
the growth of consumer industries such as home appliances and auto manufacturing. 
Lehman Brothers became an important financial advisor and underwriter for many 
growing companies and established a number of long-term relationships that are still 
active today. 
Economic expansion accelerated in the 1950s with the dawn of the Electronics Age, 
and Lehman Brothers arranged start-up financing for companies such as Litton 
Industries. The Firm also lent its expertise and advisory skills to Burlington Mills, 
Schenley Industries and American Export Lines. This period was also the beginning 
of the computer era, and Lehman Brothers provided IPO underwriting for industry 
pioneer Digital Equipment. The Firm later arranged the acquisition of Digital by 
Compaq. The travel industry benefited from the sustained economic growth of the 
period, and Lehman Brothers sponsored the IPO of Hertz Rent-a-Car. The focus on 
transportation and travel continued into the 1960s, with Lehman Brothers advising 
Ford Motor Company, TWA, American Airlines and Continental Airlines. At this 
time, consumer-driven companies such as General Foods, Campbell Soup and 
Philip Morris turned to Lehman Brothers to help finance the growth necessary to 
satisfy burgeoning demand for their products. 
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 By the 1960s and 1970s, many of Lehman Brothers' clients were expanding 
overseas. To meet their financial needs, the Firm opened an office in Paris in 1960, 
followed by a location in London in 1972 and Tokyo in 1973. This growing 
international presence was enhanced by the merger with Kuhn, Loeb. With 
continued advances in electronics and information technology in the 1970s, Lehman 
Brothers worked with leading players such as IBM and QUALCOMM in 
telecommunications and Loral in defense electronics. 
In the 1980s, Lehman Brothers played an important role in the dawn of the 
Information Age, helping fund such companies as Intel and new technology 
businesses of the period, which later became the leading players in the high-tech 
revolution. During the robust merger and acquisition activity of the 1980s, Lehman 
Brothers advised companies such as Chrysler, American Motors, General Foods, 
Philip Morris and Hoffman-LaRoche on expanding domestic and international 
operations. In the mid-1980s, breakthrough research in the life sciences introduced 
the biotech era, revolutionizing the healthcare industry. Lehman Brothers assisted a 
number of new businesses in obtaining the capital needed to fund research and 
development. A leading advisor to the healthcare sector, the Firm worked with 
major pharmaceutical companies during the international consolidation and 
globalization of the industry. 
American Express divested Shearson in 1993, and the independent Firm 
once again became known solely as Lehman Brothers. 
In 2000 Lehman Brothers celebrates its 150th year anniversary. The Firm 
joins the S&P 100 Index and its stock price hits $100 for the first time. Lehman 
Brothers becomes the first firm to underwrite corporate debt on the Internet. The 
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 Primary source: Lehman Brothers Web Site (www.lehmanbrothers.com) 
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