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Rating Action:

Moody's downgrades Banco Pastor to A2/C, negative outlook

15 Sep 2008

Madrid, September 15, 2008 -- Moody's Investors Service has today downgraded Banco Pastor's long-term bank deposit and senior debt ratings to A2 from A1, and the bank financial strength rating (BFSR) to C from C+. The C BFSR translates into a baseline credit assessment of A3. The P-1 short-term debt and deposit rating was affirmed at Prime-1. The outlook on the long-term debt and deposit ratings and the bank financial strength is negative.

"Compared to other C+ rated peers, the downgrade reflects the bank's lower risk absorption capacity amid the pronounced correction in the Spanish real estate market to which the bank not only has a greater exposure than C+ rated peers, but this exposure is also in geographical areas in which Moody's expects a more significant adjustment of the real estate sector," says Olga Cerqueira, Moody's Madrid-based lead analyst for Banco Pastor.

The bank's significant growth in recent years has been concentrated outside its home region, and the areas of expansion have concentrated the exposure to real estate and also accounted for a substantial part of rising delinquencies. In 2008, the bank recorded a rapid deterioration in asset quality, with the level of problem loans more than doubling in the first six months of the year. "Moody's downgrade also reflects the high concentration per borrower, with the majority of the largest exposures being real estate developers or construction companies," explains Ms Cerqueira.

Moody's negative outlook on the BFSR and debt and deposit ratings reflects the concern that Banco Pastor's asset quality may continue to deteriorate further in the coming months, and therefore a progressive reduction in the bank's ability to face an increase in delinquencies without impacting profitability, efficiency, capital adequacy or impairing Banco Pastor's franchise. At the end of June 2008, the NPL ratio stood at 2.16% (up from 0.99% at year-end 2007 and excluding securitised assets de-recognised from the balance sheet due to the transfer of credit risk) and the coverage ratio was 104%, down from 230% at year-end 2007,

Moody's added that the Spanish economy's pace of deterioration, which has been very rapid and abrupt, is translating into a more severe downturn in the credit cycle in the Spanish banking system than initially anticipated.

Moody's notes that Banco Pastor currently has financial flexibility to withstand a deterioration in asset quality due to its unrealised capital gains, most of which stem from its 1.9% stake in Union Fenosa and from its insurance operations (which the bank plans to sell). Banco Pastor also displays a satisfactory liquidity profile as it has almost no long-term market funds maturing in the next 18 months, while a significant part of its assets mature in the next 12 months.

Moody's cautions that a further downgrade of Banco Pastor's rating could be prompted by a potential increase in problem loans of a magnitude that the absolute level of problem loans would either represent around 50% of the bank's loan loss reserves and shareholders equity or would wipe out one-year recurrent profits due to the high provisions required.

Moody's assesses the probability of systemic support for Banco Pastor in the event of need as being high. This results in a one-notch uplift in the deposit ratings to A2/Prime-1 from the A3 baseline credit assessment.

The following ratings were downgraded:

..Issuer: Banco Pastor, S.A.

.Bank Financial Strength Rating, Downgraded to C from C+

.LT Issuer Rating, Downgraded to A2 from A1

.LT Bank Deposit, Downgraded to A2 from A1

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

.Subordinate Debt Rating, Downgraded to A3 from A2

.Junior Subordinate Regular Bond/Debenture, Downgraded to A3 from A2

..Issuer: Pastor International Finance

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

..Issuer: Pastor International Capital

.Subordinate Debt Rating, Downgraded to A3 from A2

..Issuer: Pastor Particip. Preferent., S.A. Unipersonal

.Preferred Stock, Downgraded to Baa1 from A3

..Issuer: Pastor Internacional Debt, S.A. Unipersonal

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Subordinate Debt Rating, Downgraded to A3 from A2

Outlook Actions:

..Issuer: Banco Pastor, S.A.

.Outlook, Changed to Negative from Stable

..Issuer: Pastor International Finance

.Outlook, Changed to Negative from Stable

..Issuer: Pastor International Capital

.Outlook, Changed to Negative from Stable

..Issuer: Pastor Particip. Preferent., S.A. Unipersonal

.Outlook, Changed to Negative from Stable

..Issuer: Pastor Internacional Debt, S.A. Unipersonal

.Outlook, Changed to Negative from Stable

Moody's previous rating action on Banco Pastor was implemented on 13 April 2007, when the bank's BFSR was downgraded to C+ from B- as result of the implementation of Moody's Joint Default Analysis and BFSR methodologies.

Based in La Coruña, Spain, Banco Pastor reported consolidated total assets of EUR29.4 billion as at 31 June 2008.

London
Johannes Wassenberg
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Madrid
Olga Cerqueira
Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Banco Pastor to A2/C, negative outlook
No Related Data.
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