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Rating Action:

Moody's places Caixa Geral de Depositos' B1 long term deposit and senior debt ratings on review for downgrade

06 Jun 2016

Madrid, June 06, 2016 -- Moody's Investors Service has today placed on review for downgrade Caixa Geral de Depositos, S.A.'s (CGD) B1 long-term deposit and senior debt ratings. At the same time, the rating agency has placed on review with direction uncertain: (1) The bank's baseline credit assessment (BCA) and adjusted BCA of b3; (2) the bank's subordinated debt ratings of Caa1; (3) the junior subordinated debt ratings of Caa2(hyb) issued by CGD's Paris branch; (4) the backed preference stock ratings of Caa3(hyb) issued by Caixa Geral Finance Limited; and (5) the bank's long-term Counterparty Risk Assessment (CR Assessment) of Ba2(cr).

CGD's Not Prime short-term deposit and senior debt ratings were unaffected by today's rating action as well as the short-term CRA of Not-Prime(cr).

The review with direction uncertain of the bank's BCA reflects Moody's uncertainties regarding the evolution of CGD's standalone credit profile that displays substantial downside risks given its very weak risk-absorption capacity and thin capital buffers relative to prudential requirements set by the European Central Bank (ECB) and the Bank of Portugal. However, the review with direction uncertain also reflects the rating agency's view that the bank's credit profile could be bolstered in case it receives a capital injection from its parent the Portuguese government (Ba1 stable).

The review for downgrade of CGD's long-term deposit and senior debt ratings reflects downside risks to these ratings that could arise as a result of Moody's Advanced Loss Given Failure (LGF) Analysis after incorporating the bank's balance sheet structure at end-December 2015 and its near-term funding plan. Downward pressure on CGD's long-term deposit and senior debt rating could be offset by a positive evolution of the bank's BCA.

Moody's expects to conclude the review on CGD's ratings once the rating agency will have further visibility on the feasibility and size of the government's capital injection and the extent of restructuring measures approved as part of the capital support provided to the bank. The rating agency anticipates that further clarity is likely to be achieved before year-end 2016.

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

RATINGS RATIONALE

-- RATIONALE FOR THE REVIEW WITH DIRECTION UNCERTAIN OF THE BCA

The review with direction uncertain of CGD's b3 BCA reflects Moody's uncertainties regarding the likelihood of a capital injection from the Portuguese government, that is required to offset pressures on the bank's tight solvency levels. CGD currently displays a very weak risk-absorption capacity that namely stems from its loss-making operations and lack of flexibility to raise capital from internal resources. In the absence of the planned capital increase by its parent, Moody's views there are significant downside risks to the bank's BCA.

CGD reported a phased-in Common Equity Tier 1 (CET 1) ratio of 10.4% at end-March 2016 compared to 10.9% at end-December 2015. Moody's considers CGD's level of capitalization to be very weak compared to upcoming prudential capital requirements (SREP requirements have not been publicly disclosed), which will also add a 1% CET1 buffer as systemic institution in Portugal from January 2017 onwards. In addition, CGD's capital will be further eroded in the coming months as the bank is likely to remain loss-making in 2016 (at end-March 2016 CGD reported a loss of EUR68 million).

Moody's review with direction uncertain also reflects upside pressure that could develop on the bank's BCA if its capital position is bolstered by a capital injection. Being a fully-government owned institution, CGD will have to resort to the Portuguese state and any government funded equity provision will have to be compatible with European state aid rules, potentially leading to an approval by the European Commission (EC) subject to certain conditions. In concluding the rating review, the rating agency expects to incorporate the medium term benefits of any restructuring measures or other EC requirements likely to accompany the government's capital injection. However, as the materialization and size of the capital injection, as well as the scope of the restructuring measures are still undefined Moody's has therefore not taken a more positive stance on CGD's credit profile, given the persistent and substantial challenges to its financial fundamentals.

Moody's bases its view of a likely capital support to CGD from its parent, on the government's recent statement, which outlined its strong commitment to maintain its ownership of CGD as a state owned-bank and the government's confidence that the bank could be recapitalized under the same terms and conditions as any other privately owned bank, while complying with the European state aid rules. The capital injection is still pending to receive relevant approvals by the European authorities.

-- RATIONALE FOR THE REVIEW FOR DOWNGRADE OF THE DEPOSIT AND SENIOR DEBT RATINGS

The review for downgrade of CGD's B1 long-term deposit and senior debt ratings reflect (1) the review with direction uncertain of the bank's BCA and (2) the results of Moody's Advanced Loss Given Failure (LGF) Analysis.

Taking account of CGD's balance sheet structure at end-December 2015 and its near term funding plan, the rating agency's LGF Analysis indicates that the bank's deposits and senior debt are likely to face 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 b3 for deposits and senior debt, in line with the BCA. This is lower than under the previous analysis, which was based on data as of end December 2014 and resulted in a PRA of b2, because CGD has since amortized significant volume of debt instruments, which have reduced the loss absorption for deposit and senior debt liabilities issued by the bank.

However, positive developments for CGD's b3 BCA could offset downside risks for CGD's deposit and senior debt ratings and hence the review for downgrade instead of a straight downgrade of the ratings as indicated by Moody's LGF updated LGF analysis.

Moody's assumption of a moderate probability of government support for CGD's deposit and senior debt results in a one-notch uplift, incorporated into the long-term deposit and senior debt ratings of B1.

RATIONALE FOR THE REVIEW WITH DIRECTION UNCERTAIN OF THE SUBORDINATED AND HYBRID DEBT INSTRUMENTS

CGD's subordinated debt ratings of Caa1, the junior subordinated debt ratings of Caa2(hyb) issued by CGD's Paris branch and the backed preference stock ratings of Caa3(hyb) issued by Caixa Geral Finance Limited were placed on review with direction uncertain, reflecting the respective review placement of the bank's BCA and Moody's approach of notching off these ratings from the bank's baseline assessment.

RATIONALE FOR THE CR ASSESSMENT

As part of today's action, Moody's also placed on review with direction uncertain CGD's long-term CR Assessment of Ba2(cr), which is four notches above the adjusted BCA of b3. The rating review of the CR Assessment follows the review with direction uncertain of CGD's b3 BCA. The CR Assessment is driven by standalone assessment and by the considerable amount of subordinated instruments likely to shield counterparty obligations from losses, accounting for three notches of uplift relative to the BCA, as well as one notch of government support, in line with the agency's support assumptions on the bank's deposits and senior debt.

WHAT COULD CHANGE THE RATINGS UP/DOWN

An improvement of the BCA could be driven by visible progress in the bank's risk absorption capacity after the planned government capital injection.

Downward pressure on CGD's standalone BCA could arise following any failure to receive the relevant approvals for a capital injection or if such provision of capital is insufficient to bolster the bank's very weak risk absorption capacity in Moody's opinion.

As the bank's debt and deposit ratings are linked to the standalone BCA, any change to the BCA would likely also affect these ratings. Positive developments for CGD's b3 BCA could offset downside risks for its deposit and senior debt ratings as a result of increased loss-given failure following significant debt redemptions. A confirmation of the bank's BCA could lead to a one notch downgrade of deposit and debt ratings based on the increased loss-given failure while a downgrade of the bank's BCA could result in multi-notch downgrades of its long-term ratings.

LIST OF AFFECTED RATINGS

Issuer: Caixa Geral de Depositos, S.A.

..Placed on Review for Downgrade:

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

....Senior Unsecured Regular Bond/Debenture, currently B1, outlook changed to Rating Under Review from Negative

....Long-term Deposit Ratings, currently B1, outlook changed to Rating Under Review from Stable

..Placed on Review Direction Uncertain:

.... Adjusted Baseline Credit Assessment, currently b3

.... Baseline Credit Assessment, currently b3

.... Long-term Counterparty Risk Assessment, currently Ba2(cr)

.... Subordinate Medium-Term Note Program, currently (P)Caa1

....Subordinate Regular Bond/Debenture, currently Caa1

..Outlook Actions:

....Outlook, changed to Rating Under Review from Stable(m)

Issuer: Caixa Geral Finance Limited

..Placed on Review Direction Uncertain:

....Backed Pref. Stock Non-cumulative, currently Caa3(hyb)

..Outlook Actions:

....No Outlook

Issuer: Caixa Geral de Depositos Finance

..Placed on Review for Downgrade:

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

..Placed on Review Direction Uncertain:

....Backed Junior Subordinated Regular Bond/Debenture, currently Caa2(hyb)

....Backed Subordinate Regular Bond/Debenture, currently Caa1

..Outlook Actions:

....No Outlook

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

..Placed on Review Direction Uncertain:

....Long-term Counterparty Risk Assessment, currently Ba2(cr)

..Outlook Actions:

....No Outlook

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

..Placed on Review Direction Uncertain:

....Long-term Counterparty Risk Assessment, currently Ba2(cr)

..Outlook Actions:

....No Outlook

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

..Placed on Review for Downgrade:

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

....Senior Unsecured Regular Bond/Debenture, currently B1, outlook changed to Rating Under Review from Negative

..Placed on Review Direction Uncertain:

....Long-term Counterparty Risk Assessment, currently Ba2(cr)

....Junior Subordinated Regular Bond/Debenture, currently Caa2(hyb)

....Subordinate Medium-Term Note Program, currently (P)Caa1

....Subordinate Regular Bond/Debenture, currently Caa1

..Outlook Actions:

....Outlook, changed to Rating Under Review from Negative

Issuer: Caixa Geral de Depositos/New York

..Placed on Review for Downgrade:

....Long-term Deposit Rating, currently B1, outlook changed to Rating Under Review from Stable

..Placed on Review Direction Uncertain:

....Long-term Counterparty Risk Assessment, currently Ba2(cr)

..Outlook Actions:

....Outlook, changed to Rating Under Review from Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings 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

Moody's places Caixa Geral de Depositos' B1 long term deposit and senior debt ratings on review for downgrade
No Related Data.
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