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Rating Action:

Moody's downgrades Banco Espirito Santo's debt ratings to B3, deposit ratings to B2; ratings remain on review for downgrade

11 Jul 2014

Madrid, July 11, 2014 -- Moody's Investors Service has today downgraded the long-term debt ratings of Banco Espirito Santo S.A. (BES) to B3 from Ba3 and the long-term deposit ratings to B2 from Ba3, following the downgrade of the bank's standalone bank financial strength rating (BFSR) to E (equivalent to a ca baseline credit assessment) from E+/b1. The bank's long-term debt and deposit ratings remain on review for downgrade and the short-term ratings are affirmed at Not Prime.

The downgrade of BES's BFSR reflects Moody's concerns regarding BES's creditworthiness that are heightened by the lack of transparency on the ring-fencing of BES against any troubles emerging from its holding company Espirito Santo Financial Group (ESFG) or any other group entity. The rating action also reflects the deteriorating credit strength of ESFG (please refer to "Moodys' downgrades Espirito Santo Financial Group ratings to Caa2 from B2, ratings remain on review for downgrade" published on 9 July 2014, https://www.moodys.com/research/PR_303515).

For additional insight about our recent rating actions on BES please refer to "Moody's reviews Banco Espirito Santo's Ba3 ratings for downgrade" published on 26 June 2014 (https://www.moodys.com/research/PR_302552).

Please refer to the end of this press release for a list of affected ratings.

RATINGS RATIONALE

--- LOWERING OF THE STANDALONE CREDIT ASSESMENT

The downgrade of BES's standalone financial strength rating to E/ca from E+/b1 reflects the risks associated with the bank's direct exposure to the Espirito Santo Group and the likelihood that it may become liable for any further obligations stemming from the group. These concerns are heightened by the lack of information on BES's ring-fencing against these risks.

Today's rating action also incorporates the downgrade of ESFG's long-term issuer and debt ratings to Caa2, on review for downgrade, from B2. ESFG holds a 25.1% stake in BES and the bank is the holding company's main asset. BES disclosed on 10 July 2014 a balance sheet exposure of approximately EUR1.2 billion to the Espirito Santo Group, of which EUR926.8 million corresponded to ESFG and EUR224.3 million to Rioforte (indirect shareholder of ESFG and unrated). The weakened financial position of ESFG, and its vulnerability to a default by any of Espirito Santo Group's companies, raises concerns for the spill-over effect that this may cause for BES.

--- DOWNGRADE OF THE SENIOR DEBT AND DEPOSIT RATINGS

The downgrade of BES's senior debt and deposit ratings reflects (1) the downgrade of its standalone BCA to ca; and (2) Moody's assessment of a high probability of support from the Portuguese government for the bank in case of need. The one notch differential between BES's deposit and debt ratings, reflects our assessment of higher risk for senior debt holders versus the bank's depositors.

The continued review for downgrade of BES's debt and deposit ratings will assess the full extent of the financial liabilities that could emerge for BES from its holding company ESFG and from other parts of the Espirito Santo Group. The downward bias of the review reflects the downside risks to BES's standalone credit strength should the bank be required to support any of the Espirito Santo Group companies or become liable for any of its obligations.

---DOWNGRADE OF SUBORDINATED AND HYBRID RATINGS

In line with the lowering of the bank's BCA, Moody's has today downgraded the senior subordinated debt ratings of BES to C from B2, the junior subordinated ratings to C(hyb) from B3(hyb) and the preferred stock ratings to C(hyb) from Caa1(hyb).

WHAT COULD CHANGE THE RATING DOWN/UP

The ratings have been placed on review for downgrade, indicating downward pressure. In addition, Moody's could downgrade BES's debt and deposit ratings as a result of the evolution of systemic support prospects in Portugal and in the EU, in light of recent developments associated with resolution mechanisms and burden sharing for European banks.

Upward pressure on BES's ratings is unlikely given the current review for downgrade.

LIST OF AFFECTED RATINGS

Issuer: Banco Espirito Santo S.A., London Branch

..Downgrades:

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)C from (P)B2

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)B3 from (P)Ba3; Placed Under Review for further Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to B3 RUR from Ba3 RUR; Placed Under Review for further Downgrade

....Senior Unsecured Deposit Rating, Downgraded to B2 RUR from Ba3 RUR; Placed Under Review for further Downgrade

..Affirmations:

.... Deposit Rating, Affirmed NP

....Multiple Seniority Medium-Term Note Program, Affirmed (P)NP

....Senior Unsecured Deposit Program, Affirmed NP

....Senior Unsecured Commercial Paper, Affirmed NP

Issuer: Banco Espirito Santo S.A., Luxembourg Branch

..Downgrades:

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)C from (P)B2

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)B3 from (P)Ba3; Placed Under Review for further Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to B3 RUR from Ba3 RUR; Placed Under Review for further Downgrade

....Senior Unsecured Deposit Rating, Downgraded to B2 RUR from Ba3 RUR; Placed Under Review for further Downgrade

..Affirmations:

....Deposit Rating, Affirmed NP

....Multiple Seniority Medium-Term Note Program, Affirmed (P)NP

Issuer: Banco Espirito Santo, S.A.

..Downgrades:

.... Adjusted Baseline Credit Assessment, Changed to ca from b1

.... Baseline Credit Assessment, Changed to ca from b1

.... Bank Financial Strength Rating, Downgraded to E STA from E+ NEG

....Junior Subordinated Regular Bond/Debenture, Downgraded to (P)C (hyb) from (P)B3 (hyb)

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)C from (P)B2

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)B3 from (P)Ba3; Placed Under Review for further Downgrade

....Subordinate Regular Bond/Debenture, Downgraded to C from B2 RUR

....Senior Unsecured Regular Bond/Debenture, Downgraded to B3 RUR from Ba3 RUR; Placed Under Review for further Downgrade

....Senior Unsecured Deposit Rating, Downgraded to B2 RUR from Ba3 RUR; Placed Under Review for further Downgrade

..Affirmations:

.... Deposit Rating, Affirmed NP

....Multiple Seniority Medium-Term Note Program, Affirmed (P)NP

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

Issuer: Banco Espirito Santo, S.A., Madeira Branch

..Downgrades:

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)C from (P)B2

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)B3 from (P)Ba3; Placed Under Review for further Downgrade

....Senior Unsecured Deposit Rating, Downgraded to B2 RUR from Ba3 RUR; Placed Under Review for further Downgrade

..Affirmations:

.... Deposit Rating, Affirmed NP

....Multiple Seniority Medium-Term Note Program, Affirmed (P)NP

....Senior Unsecured Deposit Program, Affirmed NP

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

Issuer: Banco Espirito Santo, S.A., Cayman Branch

..Downgrades:

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)C from (P)B2

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)B3 from (P)Ba3; Placed Under Review for further Downgrade

....Subordinate Bank Credit Facility, Downgraded to C from B2 RUR

....Senior Unsecured Deposit Rating, Downgraded to B2 RUR from Ba3 RUR; Placed Under Review for further Downgrade

..Affirmations:

.... Deposit Rating, Affirmed NP

....Multiple Seniority Medium-Term Note Program, Affirmed (P)NP

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

Issuer: BES Finance Ltd.

..Downgrades:

....Backed Junior Subordinated Regular Bond/Debenture, Downgraded to C (hyb) from B3 (hyb) RUR

....Backed Multiple Seniority Medium-Term Note Program, Downgraded to (P)C from (P)B2

....Backed Multiple Seniority Medium-Term Note Program, Downgraded to (P)B3 from (P)Ba3; Placed Under Review for further Downgrade

....Backed Pref. Stock Non-cumulative Preferred Stock, Downgraded to C (hyb) from Caa1 (hyb) RUR

....Backed Senior Unsecured Regular Bond/Debenture, Downgraded to B3 RUR from Ba3 RUR; Placed Under Review for further Downgrade

..Affirmations:

....Backed Multiple Seniority Medium-Term Note Program, Affirmed (P)NP

Issuer: Espirito Santo Investment plc

..Downgrades:

....Backed Multiple Seniority Medium-Term Note Program, Downgraded to (P)C from (P)B2

....Backed Multiple Seniority Medium-Term Note Program, Downgraded to (P)B3 from (P)Ba3

..Affirmations:

....Backed Multiple Seniority Medium-Term Note Program, Affirmed (P)NP

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Banks published in May 2013. 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 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

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 downgrades Banco Espirito Santo's debt ratings to B3, deposit ratings to B2; ratings remain on review for downgrade
No Related Data.
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