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Rating Action:

Moody's confirms CGD's deposit and senior debt ratings at B1; outlook stable

22 Mar 2017

The bank's standalone BCA upgraded to b2 from b3 following government recapitalization

Madrid, March 22, 2017 -- Moody's Investors Service has today confirmed with a stable outlook the B1 long-term deposit and senior debt ratings of Caixa Geral de Depositos, S.A. (CGD). At the same time, the rating agency has upgraded the bank's baseline credit assessment (BCA) and adjusted BCA to b2 from b3 as well as the long-term Counterparty Risk Assessment (CR Assessment) to Ba1(cr) from Ba2(cr).

The rating action follows CGD's announcement on 10 March 2017 of its 2016 annual results and the key targets of its 2017-2020 restructuring plan. At the same time the European Commission (EC) announced that it had approved such plan as well as CGD's government funded recapitalization that was made according to market terms and hence in line with European Union state aid rules. In reassessing the bank's credit profile and ratings, Moody's anticipates the upcoming completion of the Portuguese government's (Ba1 stable) recapitalization totaling EUR3.9 billion and the market funded issuance of EUR930 million of additional Tier 1 (AT1) capital instruments (of which EUR500 million will be issued in the next weeks). The rating agency considers these measures critical to stabilizing CGD's loss absorption capacity, allowing it to execute its structural transformation under the 2017-2020 restructuring plan that aims to restore the bank's long-term profitability and viability.

As part of today's rating action, CGD's subordinated debt ratings were upgraded to B3 from Caa1 as well as various ratings of junior subordinated instruments to Caa1(hyb) from Caa2(hyb) and preference stock to Caa2(hyb) from Caa3(hyb), which are guaranteed by CGD and issued by several issuing vehicles. The bank's short-term deposit ratings of Not Prime were unaffected, as was the short-term CRA of Not-Prime(cr).

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

Today's rating action on CGD closes the review on the bank's ratings which was opened on 6 June 2016 (please see: "Moody's places Caixa Geral de Depositos' B1 long term deposit and senior debt ratings on review for downgrade"; https://www.moodys.com/research/--PR_350055) and extended on 22 November 2016 (please see: " Moody's extends the review for downgrade on Caixa Geral de Depositos' deposit and senior debt ratings"; https://www.moodys.com/research/--PR_358414).

RATINGS RATIONALE

- RATIONALE FOR UPGRADING THE BCA

The upgrade of CGD's BCA to b2 from b3 reflects Moody's view that the completion of the government funded recapitalization will enhance and stabilize the bank's risk-absorption capacity that was significantly impacted by the large losses it booked at year-end 2016.

On 10 March 2017, the EC approved the recapitalization of CGD by the Portuguese government as well as its 2017-2020 restructuring plan, which aims for a deep restructuring of the bank's operations to ensure its long-term profitability and viability.

On 4 January 2017 the state concluded the first stage of CGD's recapitalization and increased its capital by EUR1.4 billion, while Moody's expects the second stage of the recapitalization to conclude in the coming weeks, when the Portuguese government will acquire new ordinary shares of CGD worth EUR2.5 billion. The plan also incorporates other capital enhancement measures such as the issuance of EUR930 million (EUR500 million will be launched before end-March 2017 while the remaining EUR430 million before early 2018) of AT1 capital instruments to be funded by private investors and eligible as regulatory capital.

At end-December 2016, CGD reported a large loss of EUR1.9 billion, largely driven by an extraordinary provisioning effort that was made as part of its long-term restructuring plan. This had a substantial impact on CGD's capital metrics. Moody's adjusted tangible common equity (TCE) over risk-weighted assets declined to 2% at end-December 2016 from 6% at end-June 2016. However, incorporating the EUR3.9 billion recapitalization by the Portuguese government, CGD's TCE ratio rises very significantly to 9%, and is the key driver behind Moody's BCA upgrade to b2 and the stabilization of the bank's weak loss absorption capacity.

This improvement is also visible in CGD's regulatory capital ratios, with the phased-in Common Equity Tier 1 ratio standing at 7% at end-December 2016 but reportedly raising to 12% after incorporating the state's recapitalization and the planned AT1 issuance. The rating agency considers that renewed market access upon the successful completion of the AT1 issuance, will also underpin CGD's funding and liquidity profile that is currently supported by a large and resilient retail deposit base.

In upgrading the bank's BCA, Moody's has taken into consideration the long-term benefits of CGD's 2017-2020 restructuring plan, namely in terms of deep balance sheet deleveraging, improving cost efficiency and plans to reduce over time the stock of problem loans. However, the rating agency views that any further material improvement to the bank's credit profile is unlikely in the short to medium term and that it will remain constrained by persistently weak asset risk indicators and very weak profitability. For 2017, Moody's expects CGD to remain loss making driven by the targeted restructuring charges and the rating agency's expectation that pressures from Portugal's weak operating environment will prevent to achieve more meaningful improvements of the bank's weak operating income.

- RATIONALE FOR CONFIRMING THE LONG-TERM DEPOSIT AND SENIOR DEBT RATINGS WITH A STABLE OUTLOOK

The confirmation of CGD's long-term deposit and senior debt ratings at B1 reflects: (1) the upgrade of the bank's BCA and adjusted BCA to b2 from b3; (2) no uplift from Moody's Advanced LGF analysis; and (3) Moody's assessment of moderate probability of government support for CGD, which results in an unchanged one notch of uplift for both the deposit and the senior debt ratings.

Taking account of the bank's balance sheet structure at end-June 2016 (latest audited financial data available) and its near term funding plan and debt redemption schedule, the rating agency's LGF Analysis indicates that the bank's deposits and senior debt are likely to face a moderate loss-given failure, due to the loss absorption provided by subordinated debt, as well as the volume of deposits and senior debt themselves. This results in a Preliminary Rating Assessment (PRA) of b2 for deposits and senior debt, at the same level as the BCA. This is lower than under the previous analysis, which was based on data as of end-December 2015 and resulted in a one notch uplift from the BCA, mainly because of the conversion of the EUR900 million contingent capital securities into shares by the Portuguese government in January 2017 and some senior debt amortizations that have reduced the loss absorption for deposits and senior debt liabilities issued by the bank.

Moody's has maintained its expectation of government support for CGD's deposits and senior instruments at moderate in line with the rating agency's view of its domestic systemic importance. This results in a one-notch of uplift from the bank's b2 PRA.

The outlook on CGD's debt and deposit rating is stable. Despite ongoing challenges to its credit profile stemming from Portugal's operating environment and persistently weak core profitability, Moody's expects CGD's credit profile to remain commensurate with a b2 BCA over the next 12 to 18 months. The stable outlook also reflects the rating agency's expectation that the execution of CGD's 2017-2020 restructuring plan will gradually proceed and benefit the further stabilization of the bank's overall risk profile and the restoring of its longer-term viability.

- RATIONALE FOR UPGRADING THE CR ASSESSMENT

As part of today's rating action, Moody's has also upgraded by one notch the CR Assessment of CGD to Ba1(cr) following the one notch upgrade of the bank's BCA.

The CR Assessment, prior to government support, is positioned three notches above the Adjusted BCA of b2. This is based on the cushion against default provided to the senior obligations represented by the CR Assessment by subordinated instruments amounting to 11% of Tangible Banking Assets. The CR Assessment also benefits from one notch of systemic support, in line with our support assumptions on deposits and senior debt.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upward pressure on the BCA could be driven by a substantial improvement on CGD's key financial metrics following a material progress in the restructuring of the bank, principally in terms of profitability and asset risk while maintaining capital at recently restored levels.

Downward pressure on CGD's standalone BCA could arise if the recapitalization and restructuring of the bank proves insufficient to bolster its profitability and reduce the large stock of problem loans. Furthermore, downward pressure could develop on the bank's BCA if the planned AT1 issuance fails to succeed or the second phase of the Portuguese government recapitalization is unexpectedly delayed.

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

In addition, any changes to our considerations of government support could trigger downward pressure on the bank's deposit and debt ratings.

LIST OF AFFECTED RATINGS

Issuer: Caixa Geral de Depositos, S.A.

..Confirmations:

....Long-term Bank Deposits, confirmed at B1, outlook changed to Stable from Ratings under Review

....Senior Unsecured Regular Bond/Debenture, confirmed at B1, outlook changed to Stable from Ratings under Review

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

..Upgrades:

....Long-term Counterparty Risk Assessment, upgraded to Ba1(cr) from Ba2(cr)

....Subordinate Regular Bond/Debenture, upgraded to B3 from Caa1

....Subordinate Medium-Term Note Program, upgraded to (P)B3 from (P)Caa1

....Adjusted Baseline Credit Assessment, upgraded to b2 from b3

....Baseline Credit Assessment, upgraded to b2 from b3

..Outlook Action:

....Outlook changed to Stable from Rating under Review

Issuer: Caixa Geral Finance Limited

..Upgrades:

....Backed Preferred Stock Non-cumulative, upgraded to Caa2(hyb) from Caa3(hyb)

..Outlook Action:

....No Outlook assigned

Issuer: Caixa Geral de Depositos Finance

..Confirmation:

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

..Upgrades:

....Backed Subordinate Regular Bond/Debenture, upgraded to B3 from Caa1

....Backed Junior Subordinated Regular Bond/Debenture, upgraded to Caa1(hyb) from Caa2(hyb)

..Outlook Action:

....No Outlook assigned

Issuer: Caixa Geral de Depositos, S.A. (London)

..Upgrade:

....Long-term Counterparty Risk Assessment, upgraded to Ba1(cr) from Ba2(cr)

..Outlook Action:

....No Outlook assigned

Issuer: Caixa Geral de Depositos, S.A. (Madeira)

..Upgrade:

....Long-term Counterparty Risk Assessment, upgraded to Ba1(cr) from Ba2(cr)

..Outlook Action:

....No Outlook assigned

Issuer: Caixa Geral de Depositos, S.A. (Paris)

..Confirmations:

....Senior Unsecured Regular Bond/Debenture, confirmed at B1, outlook changed to Stable from Ratings under Review

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

..Upgrades:

....Long-term Counterparty Risk Assessment, upgraded to Ba1(cr) from Ba2(cr)

....Subordinate Regular Bond/Debenture, upgraded to B3 from Caa1

....Subordinate Medium-Term Note Program, upgraded to (P)B3 from (P)Caa1

....Junior Subordinated Regular Bond/Debenture, upgraded to Caa1(hyb) from Caa2(hyb)

..Outlook Action:

....Outlook changed to Stable from Rating under Review

Issuer: Caixa Geral de Depositos/New York

..Confirmations:

....Senior Unsecured Deposit Rating, confirmed at B1, outlook changed to Stable from Ratings under Review

..Upgrade:

....Long-term Counterparty Risk Assessment, upgraded to Ba1(cr) from Ba2(cr)

..Outlook Action:

....Outlook changed to Stable from Rating under Review

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 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

No Related Data.
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