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Rating Action:

Moody's affirms Banco Santander Totta's Baa3 deposit ratings on Banif acquisition

22 Dec 2015

Banif's deposit ratings upgraded to Baa3 and withdrawn

Madrid, December 22, 2015 -- Moody's Investors Service has today taken rating actions on Portuguese banks Banco Santander Totta S.A. (BST) and BANIF-Banco Internacional do Funchal, S.A. (Banif), following the announcement by the Bank of Portugal on 21 December 2015 that, under the resolution procedures of Banif, the bank will be liquidated following the sale of major operations, assets and liabilities to BST.

In more detail, the rating agency has affirmed BST's and its supported entities' Baa3/Prime-3 deposit ratings, Ba1/Not Prime senior debt ratings, the (P)Ba2 subordinated debt, the (P)Ba3 junior subordinated debt, the bank's baseline credit assessment (BCA) of ba3 and its counterparty risk assessment (CRA) of Baa3(cr)/Prime-3(cr). The outlook on BST's deposit and senior debt ratings is stable.

The affirmation of the bank's ratings reflects Moody's views that BST's credit profile remains resilient after the acquisition of a large portion of the assets and liabilities from Banif.

At the same time, Moody's has upgraded Banif's deposit ratings to Baa3/Prime-3 from Caa2/Not-Prime. Subsequently, Moody's has withdrawn Banif's deposit ratings. The upgrade and withdrawal have been triggered by the acquisition of Banif's deposits by BST as part of the transaction.

The rating agency has also downgraded Banif's subordinated debt rating to C from Ca and the bank's BCA to ca from caa3, prompted by the Bank of Portugal's announcement that Banif will be liquidated as part of the resolution of the bank, which was approved in conjunction with the European authorities. Moody's has also affirmed Banif's supported entities' backed junior subordinated debt rating and backed preferred shares at C(hyb).

Banif's long-term Counterparty Risk Assessment (CRA) of B3(cr) has been placed on review with direction uncertain (from review for downgrade previously) and its short-term CRA of Not-Prime(cr) on review for upgrade. The review reflects the continued uncertainties in relation to the performance of Banif's senior operating obligations and other contractual commitments. In Moody's view there is a significant possibility that these have also been assumed by BST in the context of the transfer of the majority of Banif's assets and liabilities. Our review will look to establish whether this was indeed the case.

A list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

-- RATIONALE FOR THE AFFIRMATION OF BST'S RATIN

Today's affirmation of BST's BCA follows Moody's assessment of the impact on BST's credit profile of the acquisition of EUR11.1 billion of assets and liabilities from Banif for an amount of EUR150 million. Despite Banif's very weak financial profile, Moody's views that BST's significantly stronger financial fundamentals provide it with sufficient capacity to absorb such an acquisition without a major deterioration of its credit profile.

In affirming the BCA, Moody's has taken into consideration the mitigating effect on BST's asset risk profile (post-acquisition) of the substantial aid measures (EUR2.255 billion) approved by the European Commission (EC) and granted to Banif by the Portuguese government in order to support the sale of its assets and liabilities. An additional buffer of around EUR300 million in the form of a state guarantee has also been approved by the EC to offset changes in the value of the portion acquired by BST. Furthermore, Moody's expects that the impact of the transaction on BST's capital will be at least partly mitigated by the recently approved EUR300 million capital increase (provided by BST's parent, Banco Santander S.A. (A3/A3 positive, baa1)) that will conclude on 30 December 2015.

Moody's also notes that any impact on BST's liquidity and/or capital position as a consequence of integrating the major operations of a resolved entity such as Banif, is expected to be ultimately addressed by its parent in case of need.

Moody's has assessed the impact of BST's acquisition based on available information. The rating agency will assess any further impact on the bank's credit profile that could arise once full disclosure of the transaction is made available, including any additional execution risk to the integration of Banif's asset and liabilities.

BST's Baa3/Prime-3 deposit ratings and its Ba1/Not Prime senior debt ratings, with a stable outlook, reflect (1) the bank's ba3 BCA; (2) the high probability of support from its parent, Banco Santander, resulting in a two-notch uplift and an adjusted BCA of ba1; and (3) the result from the rating agency's advanced loss-given failure (LGF) analysis after considering the impact of the transaction, leading to one notch of additional ratings uplift for the deposit ratings and no further uplift for the debt ratings.

The outlook on the deposit and senior debt ratings is stable reflecting BST's resilient credit profile after the anticipated assumption of the assets and liabilities acquired from Banif, despite the expected pressure on some of BST's key financial metrics such as asset risk and capital.

RATIONALE FOR ACTIONS ON BANIF'S RATINGS

Today's upgrade and withdrawal of Banif's deposit ratings reflects the fact that these liabilities have been acquired and therefore fully assumed by BST.

The downgrade of Banif's BCA to ca from caa3 is prompted by the Bank of Portugal's announcement of the sale of a large part of Banif's assets and liabilities to BST and the transfer of EUR2.2 billion of the bank's problematic assets to an asset management vehicle owned by the Portuguese Resolution fund. According to the Bank of Portugal, Banif will maintain a very limited set of assets that will be wound up in the future, as well as the shareholders' positions, subordinated credit and related entities.

The rating agency has also downgraded Banif's subordinated debt rating to C from Ca and affirmed the junior subordinated debt rating and preferred shares at C(hyb). In addition to the above mentioned aid measures granted by the Portuguese government, the EC has approved a further EUR422 million of public support to cover the transfer of impaired assets to the asset management vehicle. The EC approved these measures in compliance with EU state aid rules; Banif's shareholders and subordinated debt holders fully contributed to the cost of resolution reducing the need for state aid, in line with burden-sharing principles.

Banif's long-term CRA of B3(cr) has been placed on review with direction uncertain and its short-term CRA of Not-Prime(cr) on review for upgrade. The review reflects Moody's assessment that there is a certain likelihood that Banif's operational liabilities will be transferred to BST as part of the transaction with subsequent risk mitigating implications for related creditors.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upward pressure on BST's BCA is unlikely, given the expected pressures on the bank's credit fundamentals following Banif's transaction. Upward pressure on the BCA could result once BST completes the integration and materially improves its key financial metrics, namely capital and asset risk.

Downward pressure on BST's BCA could develop if the bank's financial profile deteriorates further than anticipated, as a result of the Banif deal.

As the bank's debt and deposit ratings are linked to the standalone BCA, any change to the BCA would likely also affect these ratings. Furthermore, BST's deposit and senior debt ratings could be affected as a result of an upgrade/downgrade of the standalone BCA of the parent (Banco Santander).

BST's senior unsecured debt and deposit ratings could also change due to changes in the loss-given failure faced by these securities.

LIST OF AFFECTED RATINGS

Upgrades:

..Issuer: BANIF-Banco Internacional do Funchal, S.A.

....Long-Term Deposit Rating, Upgraded to Baa3 stable from Caa2

....Short-Term Deposit Rating, Upgraded to P-3 from NP

Downgrades:

..Issuer: Banif Finance, Limited

....Backed Subordinate Regular Bond/Debenture, Downgraded to C from Ca

..Issuer: BANIF-Banco Internacional do Funchal, S.A.

....Adjusted Baseline Credit Assessment, Downgraded to ca from caa3

....Baseline Credit Assessment, Downgraded to ca from caa3

....Subordinate Regular Bond/Debenture, Downgraded to C from Ca

Affirmations:

..Issuer: Banco Santander Totta S.A.

....Long-Term Deposit Rating, Affirmed Baa3 stable

....Short-Term Deposit Ratings, Affirmed P-3

....Adjusted Baseline Credit Assessment, Affirmed ba1

....Baseline Credit Assessment, Affirmed ba3

....Short-Term Counterparty Risk Assessment, Affirmed P-3(cr)

....Long-Term Counterparty Risk Assessment, Affirmed Baa3(cr)

....Long-Term Senior Unsecured Medium-Term Note Program , Affirmed (P)Ba1

....Short-Term Senior Unsecured Medium-Term Note Program, Affirmed (P)NP

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 stable

....Senior Unsecured Commercial Paper, Affirmed NP

..Issuer: Banco Santander Totta S.A., London

....Short-Term Counterparty Risk Assessment, Affirmed P-3(cr)

....Long-Term Counterparty Risk Assessment, Affirmed Baa3(cr)

....Long-Term Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba1

....Short-Term Senior Unsecured Medium-Term Note Program, Affirmed (P)NP

....Junior Subordinate Medium-Term Note Program, Affirmed (P)Ba3

....Subordinate Medium-Term Note Program, Affirmed (P)Ba2

..Issuer: Banif Finance, Limited

....Backed Junior Subordinated Regular Bond/Debenture, Affirmed C (hyb)

....Backed Pref. Stock Non-cumulative Preferred Stock , Affirmed C (hyb)

..Issuer: TOTTA (IRELAND) p.l.c.

....Backed Senior Unsecured Commercial Paper, Affirmed NP

On Review for Upgrade:

..Issuer: BANIF-Banco Internacional do Funchal, S.A.

....Short-Term Counterparty Risk Assessment, Placed on Review for Upgrade, currently NP(cr)

On Review Direction Uncertain:

..Issuer: BANIF-Banco Internacional do Funchal, S.A.

....Long-Term Counterparty Risk Assessment, Placed on Review Direction Uncertain, currently B3(cr)

Outlook Actions:

..Issuer: Banco Santander Totta S.A.

....Outlook, Remains Stable

..Issuer: Banif Finance, Limited

....Outlook, Changed To No Outlook From Rating Under Review

..Issuer: BANIF-Banco Internacional do Funchal, S.A.

....Outlook, Changed To Stable From Rating Under Review

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maria Jose Mori
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Banco Santander Totta's Baa3 deposit ratings on Banif acquisition
No Related Data.
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