Madrid, June 02, 2010 -- Moody's Investors Service has today concluded the first part of
its review for possible downgrade of ten rated Portuguese banks by confirming
the standalone bank financial strength rating (BFSR) of seven Portuguese
banks at their respective current levels. At the same time,
Moody's is maintaining the ongoing review for possible downgrade
of the long-term debt and deposit ratings of nine Portuguese banks
and confirmed the ratings of one bank. The rating agency will conclude
the review of these debt ratings upon the conclusion of Moody's
ongoing review of the Portuguese government's rating.
SUMMARY OF RATING ACTIONS
On 5 May 2010, Moody's had placed the standalone BFSRs of
eight banks on review for possible downgrade. (From among the ten
rated Portuguese banks, the E+ BFSR with a negative outlook
of Banco Portugues de Negocios had not been placed under review;
also, the rated Espirito Santo Financial Group does not have a BFSR
assigned because it is a holding company.) Of these eight banks,
Moody's has today downgraded the BFSR of Caixa Geral de Depósitos
(CGD) by one notch to D+ (mapping to the long-term scale of
Baa3) and has confirmed the BFSRs of the remaining seven banks.
Today's rating action concludes the review for possible downgrade
of the BFSRs of the eight banks which had been initiated on 5 May 2010.
With regard to the long-term debt and deposit ratings of the ten
banks, Moody's has today confirmed the long-term debt
and deposit ratings of Banco Itaú Europa at Baa1 with a negative
outlook, and downgraded the long-term debt and deposit ratings
of CGD by one notch to Aa3, maintaining it on review for possible
further downgrade. Please see below for a full list of ratings
and rating actions.
Moody's is therefore maintaining the review for possible downgrade
of the long-term debt and deposit ratings for all Portuguese banks
apart from Banco Itau Europa. (This is because the rating of Banco
Itau Europa does not benefit from Portuguese government support,
but rather benefits from the support of its Brazilian parent, Itau
Unibanco (rated Baa3/Prime-3/B-)).The rating agency
explains that the rating of the Portuguese government is a key factor
in assessing the ability and willingness of Portuguese authorities to
support Portuguese banks. Therefore, the conclusion of the
review of debt and deposit ratings is dependent on and will take place
at the same time as the conclusion of the ratings review of the Portuguese
Republic. Any potential downgrade of banks' ratings is likely
to be limited to one notch and in a few cases to possibly two notches.
SUMMARY RATING RATIONALE
"Moody's review of the banks' standalone credit profile
focused on three aspects: (1) the impact on profitability of higher
funding costs; (2) the resilience of banks to different liquidity
stresses; and (3) the impact on asset quality and solvency of a challenged
operating environment," explains Olga Cerqueira, Assistant
Vice President and Moody's lead analyst for Portuguese banks.
"Moody's stress-tests of the banks' ratings under
these three aspects showed that the current standalone rating levels of
most Portuguese banks incorporated a sufficient degree of asset quality
and profitability deterioration," adds Ms. Cerqueira.
Apart from Banco Santander Totta, which has a standalone rating
of C (mapping to the long-term scale of A3), the standalone
ratings of all other reviewed banks range from C- to D-
(mapping to Baa2/Baa3 on the long-term scale for the largest domestic
banks and to the Ba category for smaller domestic banks). At these
levels, the ratings incorporate life-time expected losses
in their loan and securities portfolios, ranging from 2.59%
to 4.8 % in Moody's base case scenario, based
on year-end 2009 figures. (Please refer to Moody's
Special Comment entitled "Moody's Approach to Estimating Expected
Losses for Portuguese banks", published in September 2009.)
"Moody's analysed the impact of higher funding costs by applying
recent spreads to all refinancing needs for 2010 (using Portuguese government
CDS spreads for our base case and Greek spreads for our stressed case
scenario)," Ms Cerqueira continues. The rating agency
also adjusted its liquidity analysis downwards in cases where banks have
funding shortfalls over the next 12 months, assuming they have no
access to capital or interbank markets and also assuming a deposit outflow
of 7.5% for retail deposits and 15% for other deposits.
"Together with other conservative revenue and expense assumptions,
this analysis did not reveal further weaknesses in the banks' standalone
credit profile beyond what had been already incorporated,"
says Ms. Cerqueira.
Despite the structural dependence of Portuguese banks on wholesale funding,
Moody's notes that all Portuguese banks could survive a closure
of wholesale funding markets for a period of 12 months by making use of
currently available liquid assets and increasing their reliance on European
Central Bank funds. During the ongoing financial crisis,
Portuguese banks have been able to continue to tap the wholesale markets
on several occasions and their recourse to ECB funding has been relatively
contained. However, this situation changed in recent weeks
as markets have been closed, interbank funding has reduced and ECB
funding has increased. Nevertheless, while noting that the
ECB is the key backstop for funding needs, Moody's believes
that the actual funding costs for Portuguese banks are still significantly
below these stressed assumptions.
RATING ACTIONS IN DETAIL
Moody's has taken the following rating actions:
CAIXA GERAL DE DEPOSITOS (CGD)
Moody's has today downgraded CGD's BFSR by one notch to D+ (which
maps to the Baa3 on the long-term scale) from C- (which
maps to a Baa2). The outlook on the BFSR is stable. The
downgrade primarily reflects Moody's concerns about CGD's profitability
levels, which have been very pressured since the beginning of the
crisis. Additionally, the downgrade reflects the rating agency's
expectation that there will not be a reversal in this trend over the short
term given the low interest rate environment (which particularly impacts
CGD given the long-term nature of its loan book), the increase
in its wholesale funding costs, and the ongoing asset quality deterioration.
Despite the increase in the bank's wholesale funding dependence
in the recent past, CGD continues to display the lowest ratio of
loans to deposits among Portuguese banks. In addition, it
displays a good liquidity profile and can survive a closure of capital
markets for a period of 12 months.
"Although CGD has one of the most stable retail deposit bases and
should benefit in its funding from its ownership by the government,
Moody's primary concern is that the bank's profitability may
come under increasing pressure as its owner, the Portuguese government,
is trying to address the challenges of fiscal austerity while ensuring
sufficient credit flow," explains Ms. Cerqueira.
"Moody's believes that CGD may therefore not be defending
its margins at all costs in these economically challenged times,
thereby deliberately accepting weaker internal capital generation,
but with the implicit backstop of government support to offset some of
this standalone weakening."
The stable outlook on the bank's BFSR is underpinned by its good
resilience to a liquidity squeeze in wholesale funding which is lower
than that of its peers. The stable outlook also reflects Moody's
view that the anticipated deterioration in profitability, efficiency
and asset quality is sufficiently incorporated within its D+ BFSR.
Negative pressure on the BFSR could come about in the event of a faster
decline in profitability and a lack of internal capital generation,
or the need to incur upfront losses that go beyond Moody's anticipated
scenario of low- to mid-single-digit expected losses
in its base case scenario.
CGD's LT debt and deposit ratings were downgraded to Aa3 from Aa2,
reflecting the weakened standalone credit profile. These ratings
remain under review for possible downgrade pending the conclusion of the
review for downgrade of the Portuguese sovereign rating. CGD's
short-term ratings were affirmed at Prime-1. The
uplift for CGD's long-term ratings from its Baa3 BCA continues
to reflect Moody's view of its very high probability of systemic support,
given its dominant position in Portugal and its 100% government
Moody's has also downgraded CGD's senior subordinated debt to A1
from Aa3, and is maintaining this rating on review for further possible
downgrade. CGD's junior subordinated debt was downgraded
to Baa2 with a stable outlook, from Baa1(under review for downgrade).
The bank's preferred securities were downgraded to Ba1 with a stable
outlook, from Baa3 (under review for downgrade).
BANCO COMERCIAL PORTUGUES (BCP)
Moody's has today confirmed BCP's BFSR at D+ (which maps to a Baa3
on the long-term scale), with a negative outlook.
Despite BCP's structural dependence on wholesale funding,
with a loan-to-deposit ratio of around 170%,
and its net interbank borrowing position, today's confirmation
of the rating reflects the bank's sufficient liquid assets to cover
all wholesale funding that matures in the next 12 months -- although
Moody's notes that BCP has increased its reliance on ECB funding
since the beginning of 2010.
Moody's believes that the challenging operating environment in Portugal
is sufficiently factored into the bank's current D+ BFSR.
BCP's asset quality and profitability deterioration has been deeper
than it has been for the other large, privately owned Portuguese
banks. However, Moody's expects further declines in
BCP's profitability to be more moderate than for some of its peers,
as BCP suffered from the decline in interest rates earlier than some of
its peers. The reinforcement of its capital over the past year
has also increased BCP's risk absorption capacity. Moreover,
Moody's notes that the restructuring of the bank's subsidiary
in Poland has started to have a positive contribution to profits after
a few difficult quarters in late 2008 and beginning of 2009. Despite
these positive developments, Moody's believes that BCP's
domestic operations will continue to have a very weak performance,
given: (i) the low interest rates, the increase in wholesale
funding costs and the reduced business activity; and (ii) the ongoing
asset quality deterioration, particularly on the corporate loan
book, and the related provisioning needs.
With respect to international operations, Moody's believes
that these are likely to add some volatility, mainly as result of
its exposures to Greece and Turkey, although this should be compensated
by the better performance of Polish and African operations. In
addition, BCP continues to finance some of its shareholders,
a situation inherited from the past. While Moody's acknowledges
the current management's intention to reduce this, the rating
agency believes that this situation continues to pose a risk for BCP,
particularly in the current economic crisis.
The negative outlook is driven by the challenging operating environment
the bank faces both in Portugal and in some of its international operations
as well as by the negative trend in terms of asset quality, which
could position Moody's expected losses closer to the stressed scenario.
Moody's is maintaining BCP's A1/Prime-1 long-term
and short-term debt and deposit ratings on review for possible
downgrade. The uplift that the debt and deposit ratings receive
from the standalone BFSR of D+ (Baa3 on the long-term scale)
reflect the key systemic importance of BCP as the largest privately owned
Portuguese bank and therefore Moody's assessment of a very high probability
of systemic support.
Moody's is also maintaining BCP's A2 senior subordinated debt on
review for possible downgrade. BCP's Tier 1 capital instruments
were confirmed at Ba3 and assigned a negative outlook.
Furthermore, Moody's has also confirmed the long-term
deposit ratings of BCP's subsidiary, Bank Millennium,
(BM), at Baa2 with a negative outlook. The confirmation is
based on the rating action of the parent bank BCP and concludes the review
for possible downgrade initiated on 5 May 2010.
BANCO ESPIRITO SANTO (BES)
Moody's has today confirmed BES's BFSR at C-, but reflected
the pressures on the bank by changing the long-term scale equivalent
rating (BCA) to Baa2 from Baa1. The outlook on the BFSR is negative.
The confirmation of the bank's BFSR reflects the fact that Moody's
stress-tests of profitability and liquidity show that they would
not jeopardize BES's satisfactory financial fundamentals.
In changing the BCA to Baa2, Moody's notes that BES has the
highest reliance on wholesale funding among Portuguese banks --
with a loan-to-customer-deposit ratio of almost 200%
-- and also the greatest exposure to capital markets activities.
Despite the bank's current ability to pay all wholesale funding
maturities in the next 12 months with currently available liquid assets,
BES's structural dependence on wholesale markets raises some concerns
in terms of funding and liquidity. Moody's will therefore
continue to monitor the evolution of liquid assets and developments of
customer deposits. The negative outlook is underpinned by (i) the
challenging operating environment in Portugal where Moody's anticipates
a decline in terms of earnings (mostly due to lower net interest income)
and an ongoing deterioration in asset quality; (ii) BES's traditional
exposure to capital markets, which make it more vulnerable to stress
situations and more volatile earnings; and (iii) the bank's
higher exposure to wholesale funding and the consequent need to prudently
manage its liquidity position under adverse liquidity scenarios.
Moody's is maintaining BES's A1/Prime-1 debt and deposit
ratings on review for possible downgrade. The uplift from the Baa2
BCA reflect the key systemic importance of BES for the Portuguese financial
system and therefore Moody's assessment of a very high probability of
BES's A2 senior subordinated debt remains under review for possible downgrade.
BES's junior subordinated debt was downgraded by one notch to Baa3,
with a negative outlook, in line with the downgrade by one notch
of its adjusted BCA to Baa2. BES's Tier 1 capital instruments were
also downgraded by one notch to Ba2, with a negative outlook.
The potential impact of this rating action on BES's rated subsidiary,
BES Investimento do Brasil, SA will be discussed in a separate press
ESPÍRITO SANTO FINANCIAL GROUP (ESFG)
Moody's is maintaining ESFG's issuer rating of A3 on review for possible
downgrade in line with maintaining the review of the A1 long-term
debt and deposit rating of BES, which is ESFG's main operating subsidiary
and accounted for 78% of ESFG's pre-tax income in 2009.
The Prime-2 short-term ratings of ESFG's ECP programme also
remain on review for possible downgrade. The senior subordinated
debt rated Baa1 was also maintained on review for possible downgrade,
while the preferred securities were downgraded to Ba3 with a negative
outlook, from Ba2 (under review for downgrade), as result
of the downgrade of BES's adjusted BCA to Baa2.
BANCO BPI (BPI)
Moody's has today confirmed BPI's BFSR at C- (mapping to a Baa2
on the long-term scale), with a negative outlook.
The confirmation primarily reflects BPI's good liquidity position,
with a more limited reliance on wholesale funding than its Portuguese
peers, its better-than-average asset quality and its
currently satisfactory financial fundamentals. Moody's notes
that BPI's profitability and efficiency indicators compare modestly
with those of the other large Portuguese banks and that profitability
has been largely supported by its international operations (predominantly
Angola), which accounted for 62% of net profits in Q1 2010.
The negative outlook reflects further profitability pressures (not only
at net interest income level, but also due to potential losses on
its sizeable fixed income portfolio), which will only be partially
compensated by the international activity. The negative outlook
also takes account of the pressure on the bank's capitalization
under Moody's stressed scenario as tangible common equity --
which excludes minority interests -- would fall below minimum
BPI's A1/Prime-1 debt and deposit ratings remain under review for
possible downgrade. Overall, Moody's believes that the probability
of systemic support in the event of need is very high, resulting
in the debt and deposit ratings receiving a significant uplift from the
BPI's senior subordinated debt rating also remains on review for possible
downgrade. BPI's junior subordinated debt was confirmed at
Baa3, with a negative outlook. BPI's preferred securities
were confirmed at Ba2, with a negative outlook.
BANCO SANTANDER TOTTA (BST)
Moody's has today confirmed BST's BFSR at C (mapping to a A3 on the long-term
scale), with a negative outlook. The confirmation primarily
reflects: (i) the bank's strong liquidity position,
despite its significant dependence on wholesale funding; and (ii)
the good performance of the bank during the crisis and the resilience
of its financial fundamentals to a stress-test on profitability,
liquidity and asset quality. BST displays the lowest problem loan
ratio among Portuguese banks, as well as strong capitalization levels
and the best profitability indicators in Portugal. The negative
outlook reflects the deteriorating operating environment in Portugal (BST
has a negligible international contribution to earnings), which
will continue to adversely affect asset quality and profitability.
Moody's also notes that BST has a greater-than-average
reliance on wholesale funding (with a loan-to-deposit ratio
of close to 200%) and therefore a greater exposure to market turmoil,
although it is expected to be able to resort to parental funds in case
BST's Aa3 long-term debt and deposit ratings remain under review
for possible downgrade. Overall, Moody's assesses the bank's
probability of systemic support in case of need to be very high and expects
a high probability of parental support from Santander (rated B-/Aa2/Prime-1).
Moody's has also affirmed the bank's short-term ratings
Prime-1. BST's A1 senior subordinated debt remains under
review for possible downgrade, while BST's junior subordinated
debt was confirmed at A3, with a negative outlook.
CAIXA ECONOMICA MONTEPIO GERAL (Montepio)
Moody's has today confirmed Montepio's BFSR at D (mapping to a Ba2 on
the long-term scale), with a stable outlook. The confirmation
primarily reflects the resilience of Montepio to liquidity stresses,
given the modest refinancing needs in the next 12 months, the availability
of liquid assets and the relatively moderate reliance on wholesale funding.
Although Moody's anticipates a decline in profitability in 2010
-- as a result of pressured net interest income, higher provisioning
needs related to its high problem loans ratio and the expected absence
of trading revenues -- but this decline should be compatible with
a D BFSR. The stable outlook is underpinned by the low risk of
ratings transition under a more adverse economic scenario. Moody's
believes that the negative operating environment will weaken the bank's
financial fundamentals but that they will still be at a level compatible
with its D BFSR.
Montepio's Baa1/Prime-2 debt and deposit ratings remain under review
for possible downgrade. Moody's expects a high probability of systemic
support for the bank, hence the several notches of uplift from the
Montepio's Baa2 senior subordinated debt remains under review for possible
downgrade, while the junior subordinated debt was confirmed at Ba3,
with a stable outlook, in line with the stable outlook of Montepio's
Moody's has today confirmed Banif's BFSR at D- (mapping to a Ba3
BCA), with a stable outlook. The confirmation primarily reflects
the bank's ability to survive a closure of capital markets for a period
of 12 months, because of its low refinancing needs and despite its
net interbank borrowing position and a relatively small cushion of available
liquid assets. Banif has significantly increased its usage of ECB
funding since the beginning of the year, but it also continues to
enlarge the pool of assets that can be pledged with the ECB. Banif
already displays modest profitability indicators (particularly bottom-line
profits) and any stress on the bank's profitability does not change
significantly Moody's assessment of the bank's creditworthiness.
Banif significantly reinforced its capital position in 2009 and plans
to increase capital further in 2010. Despite addressing one of
Moody's main concerns -- namely low capitalization levels --
Moody's notes that this institution continues to have high related-party
lending and other corporate governance issues that constrain the current
Banif's Baa1/Prime-2 debt and deposit ratings remain under review
for possible downgrade. Moody's expects a high probability of systemic
support for this bank, resulting in several notches of uplift from
the Ba3 BCA.
Banif's Baa2 senior subordinated debt remains under review for possible
downgrade. Banif's junior subordinated debt was confirmed
at B1 with a stable outlook in line with the stable outlook of the BFSR.
Banif's preferred securities were confirmed at B3, with stable
outlook, in line with the stable outlook on the BFSR.
The potential impact of Banif's ratings confirmation on other rated subsidiaries
will be discussed in separate press releases.
BANCO ITAÚ EUROPA (BIE)
Moody's has today confirmed BIE's BFSR at C- (mapping to a Baa2
on the long-term scale), with a negative outlook.
The confirmation primarily reflects the resilience of the bank to several
liquidity stresses and profitability stress based on an increase in funding
costs. BIE has been relatively immune to the liquidity and profitability
pressures that Portuguese banks have experienced, as a result of
its low exposure to the Portuguese operating environment. Excluding
its equity stake of around 9%in BPI, BIE's exposure
to Portugal represents less than 5% of its operating income.
In addition, BIE has a very comfortable liquidity position as it
places funds with Central Banks and displays modest refinancing needs
over the next 12 months.
The negative outlook is underpinned by the challenges BIE faces as a result
of its very rapid growth in the recent past and the need to consolidate
its position in the very competitive worldwide private banking business.
As result of several group acquisitions/mergers over the past two to three
years, BIE has tripled its assets under management to EUR8.2
billion at the end of March 2010 from EUR2.5 billion at the beginning
of 2007. Despite the significant recent volume growth, which
makes year-on-year comparisons challenging, BIE's
underlying performance remains modest with risk-adjusted profitability
measures inflated by the strong increase in commission income from off-balance
sheet assets that have not translated into an increase in risk-weighted
Moody's has today confirmed the Baa1 long-term debt and deposit
rating of BIE and assigned a negative outlook. The short-term
ratings were also affirmed at Prime-2 and the senior and junior
subordinated MTN programmes were affirmed at Baa2 and Baa3, respectively.
PREVIOUS RATING ACTIONS
The previous rating actions on Banif, BCP, BES, BPI,
ESFG, Itaú Europa and Montepio were implemented on 5 May
2010, when Moody's placed their BFSRs, long-term debt
and deposit ratings and short-term ratings under review for possible
downgrade. The last rating actions on BST and CGD were implemented
on 5 May 2010, when Moody's placed their BFSRs and long-term
debt and deposit ratings under review for possible downgrade, and
affirmed the short-term ratings. The last rating action
on BPN was implemented on 5 May 2010, when Moody's placed its long-term
debt and deposit ratings and short-term ratings under review for
possible downgrade, and affirmed its BFSR. The last rating
action on Banco Millennium was implemented on 5 May 2009, when Moody's
placed its long-term debt and deposit ratings under review for
possible downgrade, following the review for possible downgrade
of the parent bank's ratings.
RATING METHODOLOGIES APPLIED
The principal methodologies used in rating these issuers are Moody's "Bank
Financial Strength Ratings: Global Methodology", published
in February 2007, "Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology", published
in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities
and Subordinated Debt", published in November 2009, which
are available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Rating Methodologies
sub-directory on Moody's website.
Banif is headquartered in Funchal, Portugal. At 31 December
2009, it had total unaudited assets of EUR11.6 billion.
BCP is headquartered in Oporto, Portugal. At 31 December
2009, it had total assets of EUR95.6 billion.
BM is headquartered in Warsaw, Poland. At 31 December 2009,
it reported IFRS consolidated total assets of PLN44.9 billion (EUR10.9
BES is headquartered in Lisbon, Portugal. At 31 December
2009, it had total assets of EUR82.3 billion.
BPI is headquartered in Lisbon, Portugal. At 31 December
2009, it had total assets of EUR47.5 billion.
BST is headquartered in Lisbon, Portugal. At 31 December
2009, it had total unaudited assets of EUR45.7 billion.
CGD is headquartered in Lisbon, Portugal. At 31 December
2009, it had total assets of EUR120.9 billion.
ESFG is headquartered in Luxembourg. At 31 December 2009,
it had total assets of EUR85.3 billion.
Itaú Europa is headquartered in Lisbon, Portugal.
At 31 December 2009, it had total assets of EUR5.1 billion.
Montepio is headquartered in Lisbon, Portugal. At 31 December
2009, it had total assets of EUR17.2 billion.
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's confirms most Portuguese banks' standalone ratings; maintains review of debt ratings
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
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