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Rating Action:

Moody's confirms Banco Comercial Portugues' B1 senior unsecured debt and deposit ratings; outlook negative

12 Feb 2015

Caa3 subordinated debt rating confirmed with a stable outlook

Madrid, February 12, 2015 -- Moody's Investor Service has today confirmed the B1 long-term senior unsecured debt and deposit ratings of Banco Comercial Portugues, S.A. (BCP) and its supported enties with a negative outlook. At the same time, the rating agency has affirmed the standalone bank financial strength rating of E (equivalent to a caa2 baseline credit assessment [BCA]). Concurrently, the bank's Caa3 subordinated ratings were confirmed and now carry a stable outlook. The bank's Not-Prime short-term ratings and the C(hyb) preference stock rating were not affected by today's action and remain unchanged.

This rating action was prompted by the publication of BCP's financial results for 2014 published on 3 February 2015. Based on the bank's results announcement, it is Moody's understanding that BCP is highly likely to have satisfied supervisory expectations for improving its capitalisation from own resources. During the European Central Bank's (ECB) Comprehensive Assessment in 2014, a capital shortfall was identified for BCP which the bank has to close before mid-2015. Moody's confirmation of BCP's senior unsecured debt and deposit and subordinated debt ratings at their current levels acknowledges the continued risks faced by the bank in a challenging operating environment, and the rating agency notes that these risks are adequately captured in the bank's current rating levels.

Today's rating action concludes the review for downgrade initiated on 30 October 2014 (see "Moody's takes rating actions on six EU banks post ECB Comprehensive Assessment"; https://www.moodys.com/research/--PR_311330), which was prompted by the capital shortfalls identified during the ECB's Comprehensive Assessment of the euro area's 130 largest banks that was concluded on 26 October 2014.

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

RATINGS RATIONALE

-- RATIONALE FOR THE CONFIRMATION/AFFIRMATION

The confirmation of BCP's B1 long-term senior unsecured debt and deposit ratings and Caa3 subordinated debt rating and the affirmation of BCP's standalone bank financial strength rating of E (equivalent to a caa2 BCA) reflects Moody's assessment that the bank is highly likely to have closed the EUR1.1 billion capital gap identified by the ECB's assessment before the mid-2015 deadline, thereby lowering the risk of supervisory intervention and, therefore, risks to creditors.

BCP was required to cover the EUR1.1 billion (or 251 bps) capital shortfall identified under the ECB's "adverse" scenario. BCP's Common Equity Tier 1 (CET1) ratio of 12.22% at end-December 2013 was significantly affected by the Asset Quality Review (AQR) that reduced the ratio by 196 bps to 10.26%. The ratio under the ECB's "base" scenario stood at 8.84%, and was at 2.99% under the ECB's "adverse" scenario, which is significantly below the 5.5% minimum requirement.

Subsequent to the release of the Comprehensive Assessment results by the ECB, BCP announced a set of measures that aimed to offset the capital gap, bringing the CET1 to 5.55%, which is just above the minimum requirement. These measures included (1) the sale of its 49% stake in its non-life insurance company in May 2014 and the agreement with the buyer to distribute excess capital of this company as a dividend to shareholders in 2014; (2) the sale of a securitisation programme in October 2014; and (3) a target of EUR946 million for year-end 2014 operating profits versus the ECB's estimate of EUR372 million under the ECB's "adverse" scenario. Moody's notes that the bank has reported a year-end 2014 pre-provision income of EUR1.062 billion, which should be sufficient to comply with supervisory expectations. In its financial results announcement, the bank confirmed that it is not required to sell any strategic assets or raise capital. The phased-in Basel III CET1 ratio reported by BCP stood at 12.0% as of year-end 2014, and the fully loaded CET1 ratio was at 8.9%, despite a full-year loss of EUR218 million caused by weak recurring revenues and a high level of credit impairments.

In addition, Moody's says that BCP's current ratings adequately capture continued challenges that the bank is facing such as weak risk-absorption capacity despite the broad public-sector support received in 2012, its very weak profitability ratios and the high level of non-performing loans in its domestic portfolio.

-- RATIONALE FOR THE OUTLOOK

The negative outlook on BCP's long-term debt and deposit ratings takes into account the recent adoption of the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) regulation in the EU. In particular, this regulation reflects that -- with the legislation underlying the new resolution framework now in place and the explicit inclusion of burden-sharing with unsecured creditors as a means of reducing the public cost of bank resolutions -- the balance of risk for banks' senior unsecured creditors has shifted to the downside. Although Moody's support assumptions are unchanged for now, the probability has risen that they will be revised downwards to reflect the new framework. For further details, please refer to Moody's Special Comment: "Reassessing Systemic Support for EU Banks", published on 29 May 2014 (https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_170460).

The outlook on BCP's Caa3 subordinated debt rating is stable. In accordance with Moody's notching guidelines, BCP's subordinated debt is rated one notch below the bank's BCA. As such, the stable outlook on this rating is consistent with our view on the bank's caa2 BCA.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upward pressure on BCP's ratings could be driven by clear visibility of a sustainable recovery in its recurring earnings and capacity to generate capital. Any significant GDP growth beyond Moody's central scenario of 1.3% in 2015 could also have positive rating implications.

Downward pressure on BCP's ratings could develop if (1) asset-quality and profitability indicators deteriorate beyond Moody's expectations, leading to significant pressure on the bank's capital base; (2) operating conditions fall short of the rating agency's expectations; and/or (3) the bank's liquidity profile deteriorates significantly.

As BCP's debt and deposit ratings are linked to the BCA, any change to the BCA would likely also affect these ratings. Furthermore, any change in Moody's systemic support assumptions may directly impact the bank's senior debt ratings.

LIST OF AFFECTED RATINGS

Confirmations:

..Issuer: Banco Comercial Portugues, S.A.

....Long-term Bank Deposit Rating, Confirmed at B1 negative

....Senior Unsecured Regular Bond/Debenture, Confirmed at B1 negative

....Senior Unsecured Medium-Term Note Program, Confirmed at (P)B1

....Subordinate Medium-Term Note Program, Confirmed at (P)Caa3

..Issuer: Banco Comercial Portugues, SA, Macao Br

....Long-term Bank Deposit Rating , Confirmed at B1 negative

....Senior Unsecured Medium-Term Note Program, Confirmed at (P)B1

....Subordinate Medium-Term Note Program, Confirmed at (P)Caa3

..Issuer: BCP Finance Bank, Ltd.

....Backed Senior Unsecured Regular Bond/Debenture, Confirmed at B1 negative

....Backed Subordinate Regular Bond/Debenture, Confirmed at Caa3 stable

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)B1

....Backed Subordinate Medium-Term Note Program, Confirmed at (P)Caa3

..Issuer: BCP Finance Company

....Backed Subordinate Shelf, Confirmed at (P)Caa3

Affirmations:

..Issuer: Banco Comercial Portugues, S.A.

.... Adjusted Baseline Credit Assessment, Maintained caa2

.... Baseline Credit Assessment, Maintained caa2

.... Bank Financial Strength Rating, Affirmed E

Outlook Actions:

..Issuer: Banco Comercial Portugues, S.A.

....Outlook, Changed To Negative(m) From Rating Under Review

..Issuer: Banco Comercial Portugues, SA, Macao Br

....Outlook, Changed To Negative(m) From Rating Under Review

..Issuer: BCP Finance Bank, Ltd.

....Outlook, Changed To Negative(m) From Rating Under Review

..Issuer: BCP Finance Company

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

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Banks published in July 2014. 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.

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 Vinuela
Analyst
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

Johannes Felix Wassenberg
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 confirms Banco Comercial Portugues' B1 senior unsecured debt and deposit ratings; outlook negative
No Related Data.
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