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Announcement:

Moody's places Portuguese banks' standalone ratings on review for downgrade

09 Jun 2011

Madrid, June 09, 2011 -- Moody's Investors Service has today placed the standalone credit assessments (Bank Financial Strength Ratings, or BFSRs) of seven Portuguese banks under review for possible downgrade:

- Caixa Geral de Depositos (standalone credit strength D+ / mapping to Ba1 on long-term scale, senior debt and deposit ratings Baa1, all under review for downgrade)

- Banco Comercial Portugues (D/Ba2, Baa3, all under review for downgrade)

- Banco Espirito Santo (D+/Ba1, Baa2, all under review for downgrade)

- Banco Santander Totta (C-/Baa2, A3, all under review for downgrade)

- Banco BPI (D+/Baa3, Baa2, all under review for downgrade)

- Caixa Economica Montepio Geral (D/Ba2, Ba1, all under review for downgrade)

- Banco Internacional do Funchal (Banif) (D-/Ba3, Baa3, all under review for downgrade)

These rating actions expand the review for possible downgrade for Portuguese banks, after the above-mentioned banks' senior debt and deposit ratings were placed under review for downgrade on 6 April 2011 (except for Banco Santander Totta). The long-term debt and deposit ratings of Banco Santander Totta have been placed under review for downgrade today, reflecting the review of its standalone credit assessment.

Moody's also placed the ratings for junior debt classes and hybrids of the aforementioned banks under review for possible downgrade today.

A full list of ratings affected by today's actions can be found below.

The standalone ratings of Banco Portugues de Negocios (E/Caa1) were not affected by today's rating action due to the low level of that rating. The ratings of Banco Itau BBA International are not affected, as it is only modestly exposed to the Portuguese operating environment.

RATIONALE

Today's actions reflect primarily two factors:

1. The increasingly challenging operating environment for Portuguese banks, which we expect to pressure their profitability and asset quality, while further restricting the banks' access to market funding and capital.

2. Pressure on the Portuguese sovereign's credit profile, whose Baa1 rating is currently under review for possible downgrade, combined with the high correlation between the sovereign's and the banks' creditworthiness, given the high exposures of banks to Portuguese Government Bonds (PGBs).

1. INCREASINGLY CHALLENGING OPERATING ENVIRONMENT

The Portuguese economy remains very weak and is expected to contract in 2011, with uncertain prospects in 2012, partly owing to the significant austerity efforts of the government. These adverse economic conditions will likely further weaken profitability and asset quality of the banks, while making it more difficult for the banks to improve their fragile funding profiles and raise capital needed to comply with rising minimum requirements.

i) Funding: Portuguese banks currently have restricted access to market funding, with capital markets largely closed. This poses a risk to their financial profiles, particularly given their fragile funding positions that are characterized by sizeable reliance on wholesale funding sources. A continuation of the current lack of market access will likely lead to further increasing reliance on European Central Bank funding and erosion of their funding and liquidity buffers. The review will focus on how Portuguese banks respond to this challenge.

ii) Capital: Moody's believes that Portuguese banks are challenged to reach increasing capital requirements through internal capital generation or by raising capital from market sources. Banks need to reach minimum core capital levels of 9% before year-end 2011 and of 10% before year-end 2012 as per the bailout programme for Portugal. Banks may need to tap the €12 billion facility included in the support package provided to Portugal by the European Commission, International Monetary Fund and European Central Bank (the Troika).

iii) Profitability and asset quality. Moody's is concerned that the weak economy will cause rising unemployment, lower consumer disposable income and reduced profitability in the small and medium-sized enterprise (SME) and corporate sectors. All these factors will likely contribute to declining profitability and deteriorating asset quality for Portuguese banks, thereby weakening their standalone credit profiles.

2. PRESSURE ON SOVEREIGN AND HIGH CORRELATION BETWEEN BANKS' AND SOVEREIGN'S CREDITWORTHINESS

The Portuguese government's credit profile is under pressure, as reflected in the downgrade of the sovereign rating to Baa1 and placement of the rating under review for possible further downgrade on 5 April 2011. The sovereign's credit profile is weakened by increased political, budgetary and economic uncertainty, which increase the risk that the government will be unable to achieve its ambitious deficit reduction targets and put its finances on a sustainable trajectory.

The weakening sovereign credit profile has negative implications for the standalone credit strength of the Portuguese banks, because their creditworthiness is increasingly closely correlated with the sovereign. This correlation is accentuated by the high exposure of Portuguese banks to Portuguese Government Bonds (PGBs), exceeding 100% of Tier 1 capital for several banks. As such, further deterioration of the sovereign's creditworthiness may have a material impact on the capitalization of several banks. The potential reliance of banks on capital from the €12 billion support facility provided for the government further underpins the high correlation between the banks' and the sovereign's creditworthiness.

DETAIL ON SPECIFIC RATING ACTIONS

The specific rating changes implemented today are as follows:

Caixa Geral de Depositos SA, Caixa Geral de Depositos SA (Madeira), Caixa Geral de Depositos SA (Paris), Caixa Geral de Depositos Finance, and Caixa Geral Finance Limited: The BFSR of D+ (mapping to Ba1 on the long-term scale), the junior subordinated debt ratings of Baa3 (hyb) and the preferred stock of Ba2 (hyb) were placed on review for possible downgrade.

Banco Comercial Portugues SA and BCP Finance Company: The BFSR of D (mapping to Ba2 on the long-term scale) and the preferred stock of B2 (hyb) were placed on review for possible downgrade.

Banco Espirito Santo SA, BES Finance Ltd, Banco Espirito Santo SA London Branch, Banco Espirito Santo SA Cayman Branch and Banco Espirito Santo SA Madeira Branch: The BFSR of D+ (mapping to Ba1 on the long-term scale), the junior subordinated debt ratings of Ba2 (hyb) and the preferred stock of B1 (hyb) were placed on review for possible downgrade.

Banco Santander Totta SA and Banco Santander Totta SA London: The BFSR of C- (mapping to Baa2 on the long-term scale), the long-term deposit ratings and senior unsecured debt ratings of A3, the dated subordinated debt ratings of Baa1 and the junior subordinated debt ratings of Baa2 (hyb) were placed on review for possible downgrade. The short-term Prime 2 ratings were affirmed.

Banco BPI SA, BPI Capital Finance Ltd, Banco BPI SA (Cayman), Banco BPI SA (Santa Maria), Banco BPI SA (Madeira) and Banco BPI Cayman Ltd: The BFSR of D+ (mapping to Baa3 on the long-term scale), the junior subordinated debt ratings of Ba1 (hyb) and the preferred stock of Ba3 (hyb) were placed on review for possible downgrade.

Caixa Economica Montepio Geral SA and Caixa Economica Montepio Geral Cayman Islands Branch: The BFSR of D (mapping to Ba2 on the long-term scale) and the junior subordinated debt ratings of Ba3 (hyb) were placed on review for possible downgrade.

Banif - Banco Internacional do Funchal SA and Banif Finance Limited: The BFSR of D- (mapping to Ba3 on the long-term scale) and the preferred stock of B3 (hyb) were placed on review for possible downgrade.

PREVIOUS RATING ACTION AND METHODOLOGY

The principal methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007.

Previous rating actions on Portuguese banks (except for Banif) took place on 6 April 2011, when Moody's took multiple rating actions on Portuguese banks, including downgrades by one or more notches of the senior debt and deposit ratings of seven banks and downgrades of the standalone credit assessment for five of these banks. Last rating action on Banif took place on 21 December 2010, when Moody's placed on review for possible downgrade the bank's long-term and short-term debt and deposit ratings, following the review for possible downgrade of Portugal's government ratings.

Headquartered in Lisbon, Portugal, CGD reported total unaudited consolidated assets of EUR123.5 billion as of 31 March 2011.

Headquartered in Oporto, Portugal, BCP reported total unaudited consolidated assets of EUR96.6 billion as of 31 March 2011.

Headquartered in Lisbon, Portugal, BES reported total unaudited consolidated assets of EUR80.7 billion as of 31 March 2011.

Headquartered in Lisbon, Portugal, BST reported total unaudited consolidated assets of EUR48.8 billion as of 31 March 2011.

Headquartered in Lisbon, Portugal, BPI reported total unaudited consolidated assets of EUR44.2 billion as of 31 March 2011.

Headquartered in Lisbon, Portugal, Montepio reported total audited consolidated assets of EUR18.2 billion as of 31 December 2010.

Headquartered in Funchal, Portugal, Banif reported total audited consolidated assets of EUR12.4 billion as of 31 December 2010.

Madrid
Maria Jose Mori
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

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 Portuguese banks' standalone ratings on review for downgrade
No Related Data.
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