Approximately €4 billion of securities affected
Madrid, April 22, 2010 -- Moody's Investors Service downgraded its ratings on certain Portuguese
hybrid securities, in line with its revised Guidelines for Rating
Bank Hybrids and Subordinated Debt, published in November 2009.
This concludes the review for possible downgrade on these ratings initiated
on 18 November 2009. A full list of the individual securities affected
can be accessed through this link:
http://v3.moodys.com/page/viewresearchdoc.aspx?docid=PBC_123396
Prior to the global financial crisis, Moody's had incorporated into
its ratings an assumption that support provided by national governments
and central banks to shore up a troubled bank would, to a large
extent, benefit the subordinated debt holders as well as the senior
creditors. However, during the crisis, systemic support
for these instruments has not been forthcoming in many cases. The
revised methodology has therefore largely removed previous assumptions
regarding systemic support, resulting in today's rating action.
In addition, the revised methodology generally widens the notching
on a hybrid's rating that is based on the instrument's features.
RATING ACTION IN DETAIL
The starting point in Moody's revised approach to rating hybrid
securities is the Adjusted Baseline Credit Assessment (Adjusted BCA).
The Adjusted BCA reflects a bank's standalone credit strength,
including parental and/or cooperative support, if applicable.
The Adjusted BCA excludes any expectation of systemic support.
The characteristics of rated Portuguese junior subordinated debt instruments,
non-cumulative preference shares and perpetual subordinated securities
with conditional coupons are fairly standardised:
• The loss absorption for rated junior subordinated debt while the
issuer remains a going concern stems from the principal write-down
feature and the cumulative deferral feature of its coupon. Coupon
deferral is both mandatory, with a solvency trigger, and optional,
at the discretion of the issuer. Together with the junior subordinated
claim in liquidation, this means that, unless stated otherwise,
these instruments are rated one notch below the Adjusted BCA.
• The loss absorption for rated Perpetual Subordinated Securities
With Conditional Coupons while the issuer remains a going concern stems
from the principal write-down feature and the non-cumulative
coupon suspension feature. Coupon skip is both mandatory,
with a minimum regulatory capital and availability of distributable funds
(balance sheet loss) triggers, and optional, at the discretion
of the issuer. Together with their deeply subordinated claim in
liquidation, this means that, unless stated otherwise,
these instruments are rated three notches below the Adjusted BCA.
• The loss absorption for non-cumulative preferred securities
while the issuer remains a going concern stems from the non-cumulative
coupon suspension feature. Coupon skip is both mandatory,
with a minimum regulatory capital and availability of distributable funds
(balance sheet loss) triggers, and optional, at the discretion
of the issuer. Together with their deeply subordinated claim in
liquidation, this means that, unless stated otherwise,
these instruments are rated three notches below the Adjusted BCA.
The rating actions on each Portuguese bank are detailed below:
1) Banco BPI (BPI)
The Adjusted BCA for BPI is Baa2, which is the same level as its
Baseline Credit Assessment (BCA).
The following securities issued by BPI and subsidiaries were affected
by this rating action:
• Junior subordinated EMTN programme ratings (Upper Tier 2):
Downgraded to Baa3 from A2.
• Non-cumulative preferred securities: Downgraded to
Ba2 from Baa1. This instrument was issued by BPI Capital Finance
Limited, a subsidiary of BPI, guaranteed by BPI.
The outlook for all the affected instruments is negative, in line
with the negative outlook for BPI's C- BFSR and corresponding
Baa2 BCA.
2) Banco Comercial Portugues (BCP)
The Adjusted BCA for BCP is Baa3, which is the same level as its
BCA.
The following securities issued by BCP and subsidiaries were affected
by this rating action:
• Non-cumulative preferred securities: Downgraded to
Ba3 from Baa1. These instruments were issued by BCP Finance Company,
a subsidiary of BCP, guaranteed by BCP.
• Perpetual subordinated securities with conditional coupons:
Downgraded to Ba3 from Baa1.
The outlook for all the affected instruments is negative, in line
with the negative outlook for BCP's D+ BFSR and corresponding
Baa3 BCA.
3) Banco Espírito Santo (BES)
The Adjusted BCA for BES is Baa1, which is the same level as its
BCA.
The following securities issued by BES and subsidiaries were affected
by this rating action:
• Junior subordinated debt and junior subordinated EMTN programme
ratings (Upper Tier 2): Downgraded to Baa2 from A2. The instruments
were issued by BES Finance Limited, a subsidiary of BES, guaranteed
by BES.
• Non-cumulative preferred securities: Downgraded to
Ba1 from A3. This instrument was issued by BES Finance Limited,
a subsidiary of BES, guaranteed by BES.
The outlook for all the affected instruments is stable, in line
with the stable outlook for BES's C- BFSR and corresponding
Baa1 BCA.
4) Espírito Santo Financial Group (ESFG)
The Adjusted BCA for ESFG is Baa2, one notch below BES's Adjusted
BCA, as ESFG's obligations are structurally subordinated to
the direct obligations of BES, which is ESFG's main operating
subsidiary.
The following securities issued by ESFG's subsidiaries were affected
by this rating action:
• Non-cumulative preferred securities: Downgraded to
Ba2 from Baa2. This instrument was issued by ESFG International
Limited, a subsidiary of ESFG, guaranteed by ESFG.
The outlook for the affected instrument is stable, in line with
the stable outlook on BES's C- BFSR.
5) Banco Santander Totta (BST)
The Adjusted BCA for BST is A2, which is one notch higher than its
BCA of A3, due to parental support from Banco Santander, which
is rated Aa2 for long-term deposits, and with a BFSR of B-
corresponding to a BCA of A1.
The following programme issued by BST was affected by this rating action:
• Junior subordinated EMTN programme ratings (Upper Tier 2):
Downgraded to A3 from A1.
The outlook for all the affected instruments is negative, in line
with the negative outlook for BST's C BFSR and corresponding A3
BCA.
6) Caixa Geral de Depósitos (CGD)
The Adjusted BCA used to notch CGD hybrid securities is A3, which
is two notches higher than its BCA of Baa2, due to its government
ownership. The bank's senior unsecured ratings are currently
aligned with the government's own ratings due to its 100%
ownership by the government and the strong role it plays in the Portuguese
banking system. However, the interdependence and interconnection
with the government is not perceived to be so strong that we assign the
same support likelihood for hybrid capital instruments. As a scenario
of selective burden-sharing with hybrid investors has become more
likely across many countries during this financial crisis, the adjusted
BCA reflects CGD's standalone credit strengths and more moderate
parental support from the government for these instruments. .
The following securities issued by CGD and subsidiaries were affected
by this rating action:
• Junior subordinated debt and junior subordinated EMTN programme
ratings (Upper Tier 2): Downgraded to Baa1 from Aa3. The
instruments were issued by Caixa Geral de Depósitos acting through
its Paris Branch and Caixa Geral de Depósitos Finance, a
subsidiary of CGD.
• Non-cumulative preferred securities: Downgraded to
Baa3 from A1. These instruments were issued by Caixa Geral Finance
Limited, a subsidiary of CGD, guaranteed by CGD.
The outlook for all the affected instruments is negative, in line
with the negative outlook for CGD's C- BFSR and corresponding
Baa2 BCA.
7) Banif -- Banco Internacional do Funchal
The Adjusted BCA for Banif is Ba3, which is the same level as its
BCA.
The following securities issued by Banif and subsidiaries were affected
by this rating action:
• Junior subordinated debt and junior subordinated EMTN programme
ratings (Upper Tier 2): Downgraded to B1 from Baa3. The instrument
was issued by Banif Finance Limited, a subsidiary of Banif,
guaranteed by Banif External Financial Branch.
• Non-cumulative preferred securities: Downgraded to
B3 from Ba1. This instrument was issued by Banif Finance Limited,
a subsidiary of Banif, guaranteed by Banif.
The outlook for all the affected instruments is negative, in line
with the negative outlook for Banif's D- BFSR and corresponding
Ba3 BCA.
8) Caixa Económica Montepio Geral (Montepio)
The Adjusted BCA for Montepio is Ba2, which is the same level as
its BCA.
The following programme issued by Montepio was affected by this rating
action:
• Junior subordinated EMTN programme ratings (Upper Tier 2):
Downgraded to Ba3 from Baa3.
The outlook for all the affected instruments is negative, in line
with the negative outlook for Montepio's D BFSR and corresponding
Ba2 BCA.
9) Banco Itaú Europa
The Adjusted BCA for Itaú Europa is Baa2, which is the same
level as its BCA.
The following programme issued by Itaú Europa was affected by this
rating action:
• Junior subordinated EMTN programme ratings (Upper Tier 2):
Downgraded to Baa3 from Baa2.
The outlook for all the affected instruments is negative, in line
with the negative outlook for Itaú Europa's C- BFSR
and corresponding Baa2 BCA.
The principal methodology used in these rating actions was Moody's
Guidelines for Rating Hybrid Securities and Subordinated Debt, published
in November 2009.
The last rating action on BPI was on 18 November 2009, when the
bank's junior subordinated debt programme and preference shares
ratings were placed on review for possible downgrade.
BPI is headquartered in Lisbon, Portugal. At 31 December
2009 it had total unaudited assets of EUR 47.5 billion.
The last rating action on BCP was on 18 November 2009, when the
bank's preference shares and perpetual subordinated securities with
conditional coupons ratings were placed on review for possible downgrade.
BCP is headquartered in Oporto, Portugal. At 31 December
2009 it had total assets of EUR 95.6 billion.
The last rating action on BES was on 18 November 2009, when the
bank's junior subordinated debt and preference shares ratings were
placed on review for possible downgrade.
BES is headquartered in Lisbon, Portugal. At 31 December
2009 it had total assets of EUR 82.3 billion.
The last rating action on ESFG was on 18 November 2009, when the
bank's preference shares rating was placed on review for possible
downgrade.
ESFG is headquartered in Luxembourg. At 31 December 2009 it had
total assets of EUR 85.3 billion.
The last rating action on BST was on 18 November 2009, when the
bank's junior subordinated debt programme was placed on review for
possible downgrade.
BST is headquartered in Lisbon, Portugal. At 30 June 2009
it had total unaudited assets of EUR 43.5 billion.
The last rating action on CGD was on 18 November 2009, when the
bank's junior subordinated debt and preference shares ratings were
placed on review for possible downgrade.
CGD is headquartered in Lisbon, Portugal. At 31 December
2009 it had total assets of EUR 120.9 billion.
The last rating action on Banif was on 18 November 2009, when the
bank's junior subordinated debt and preference shares ratings were
placed on review for possible downgrade.
Banif is headquartered in Funchal, Portugal. At 30 September
2009 it had total unaudited assets of EUR 11.1 billion.
The last rating action on Montepio was on 18 November 2009, when
the bank's junior subordinated debt programme was placed on review
for possible downgrade.
Montepio is headquartered in Lisbon, Portugal. At 31 December
2009 it had total assets of EUR 17.2 billion.
The last rating action on Itaú Europa was on 18 November 2009,
when the bank's junior subordinated debt programme was placed on
review for possible downgrade.
Itaú Europa is headquartered in Lisbon, Portugal.
At 30 September 2009 it had total unaudited assets of EUR 5.1 billion.
Please visit www.moodys.com to access the following documents
for additional information:
Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated
Debt -- November 17, 2009
Frequently Asked Questions: Moody's Guidelines for Rating Bank Hybrid
Securities and Subordinated Debt -- November 17, 2009
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
AVP - Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's lowers hybrid securities ratings in Portugal
