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Rating Action:

Moody's takes rating actions on Portuguese Banks

04 Dec 2018

Action follows likely full depositor preference in Portugal

Madrid, December 04, 2018 -- Moody's Investors Service has today taken actions on six Portuguese banking groups. The rating actions reflects the anticipated implementation in Portugal of a new legal framework, which would establish full depositor preference over senior unsecured debt instruments in the event of a bank resolution.

Among the actions taken today by Moody's on the affected banks are the following:

- Caixa Geral de Depositos, S.A. (CGD): long-term deposit and senior unsecured debt ratings affirmed at Ba1. The outlook on the long-term deposit ratings remains stable and the outlook on the long-term senior unsecured debt ratings has been changed to negative from stable.

- Banco Comercial Portugues, S.A. (BCP) and its supported entities: long-term deposit and senior unsecured debt ratings affirmed at Ba3. The outlook on the long-term deposit ratings remains positive and the outlook on the long-term senior unsecured debt rating has been changed to developing from positive.

- Banco Santander Totta S.A. (BST): long-term deposit ratings affirmed at Baa2 and long-term senior unsecured debt rating affirmed at Baa3. The outlook on the long-term deposit ratings remains stable and the outlook on the long-term senior unsecured debt rating has been changed to negative from stable.

- Banco BPI S.A. (BPI): long-term deposit ratings affirmed at Baa1, long-term issuer rating affirmed at Baa2 and senior unsecured programme rating affirmed at (P)Baa2. The outlook on the long-term deposit ratings remains stable and the outlook on the long-term issuer rating has been changed to negative from stable.

- Caixa Economica Montepio Geral, Caixa Economica Bancaria, S.A. (CEMG): long-term deposit ratings affirmed at B3 and long-term senior unsecured programme rating affirmed at (P)B3. The outlook on the long-term deposit ratings remains positive.

- Novo Banco, S.A. (Novo Banco) and its supported entities: all long-term ratings and rating assessments confirmed at current levels. The outlook on the bank's Caa1 long-term deposit ratings has been changed to positive from ratings under review and the outlook on the senior unsecured debt ratings has been changed to negative from rating under review. The rating action on Novo Banco's ratings concludes the rating review that was initiated on 16 October 2018.

Moody's has also withdrawn today all ratings and assessments of Banco BPI S.A. (Cayman) for reorganization reasons. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

Other ratings and rating assessments of CGD, BCP, BST, BPI, CEMG and Novo Banco are unaffected by today's rating action.

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

RATINGS RATIONALE

-- RATIONALE FOR THE ACTION ON DEPOSIT AND SENIOR DEBT RATINGS

On 8 November 2018, the Portuguese cabinet approved a draft law to transpose the European Union's Directive 2017/2399 into Portuguese law, including the introduction of a new non-preferred senior unsecured debt class. However, the proposal deviates from the EU directive by modifying the priority of claims laid out in the current Portuguese insolvency law and providing preference to all bank deposits -- including "junior" corporate and institutional deposits -- relative to senior unsecured creditors. If enacted in its current form, it would establish full depositor preference - in insolvency and by extension in resolution - over senior unsecured debt instruments, rather than "junior" corporate and institutional deposits ranking pari passu with senior unsecured claims. If approved, the draft law is expected to be implemented by year end, in accordance requirements of the Directive.

This framework would increase the protection from which junior deposits benefit as they no longer rank pari passu with senior unsecured liabilities, thereby reducing expected loss-given-failure for rated deposits. By the same token, the volume of loss-absorbing liabilities that would rank alongside senior unsecured debt would be reduced and therefore the loss rates for senior creditors in the event of failure would therefore increase.

Should the proposed change be adopted, the increased loss-given-failure would be sufficiently large to result in lower ratings for Portuguese senior unsecured debt; and therefore Moody's has changed the outlook to negative on these instruments in most cases. Moody's does not however expect the impact on deposit ratings under a depositor preference scenario to be sufficiently large to result in higher ratings for these liabilities. Therefore, the rating agency has affirmed the deposit ratings and maintained the corresponding outlooks at current levels.

For BCP, the developing outlook on its senior unsecured debt ratings also reflects the positive pressure that could develop on these ratings if the bank continues to reduce the stock of problematic assets and improve its loss-absorption capacity over the outlook period.

Should the draft law be enacted as planned, Moody's will reflect the revised legal ranking in its Advanced Loss Given Failure (LGF) analysis. However, the issuance of Minimum Requirements for Own Funds and Eligible Liabilities (MREL) compliant debt instruments could offset or partially mitigate the negative impact on senior debt ratings of changes to the current legal framework for bank resolutions and giving priority to all deposits over senior unsecured debt. As a result, Moody's has factored these potentially offsetting drivers into the respective outlooks of Portuguese banks' senior unsecured debt and issuer ratings. The rating agency will assess the related credit implications over the 12-18 months outlook horizon.

RATIONALE FOR THE CONFIRMATION OF NOVO BANCO's RATINGS

The confirmation of Novo Banco's standalone baseline credit assessment (BCA) at caa2, reflects the ongoing challenges to the bank's credit profile stemming from its very weak asset risk and loss making operations. In confirming the bank's BCA, the rating agency has also taken into consideration the medium-term benefits from the bank's five-year restructuring plan, which was agreed by the bank's shareholders and the European Commission at the closing of Novo Banco's sale in late 2017. Notwithstanding these planned positive developments, Moody's considers that limited progress has been achieved so far to materially de-risk the bank's balance sheet and to transform it into a sustainably profitable entity.

On 16 October 2018, Moody's initiated a review for upgrade of Novo Banco's caa2 BCA to reflect the improvement in Portugal's Macro Profile to Moderate, which recognized the improving operating conditions for Portuguese banks underpinned by the country's economic recovery. As part of the review process, the rating agency also aimed to get more clarity on the bank's medium-term strategy and measures that are being considered to ensure its future viability. The confirmation of Novo Banco's BCA at the current level therefore reflects prevailing uncertainties to the bank's strategic targets, as well as on the timing and effectiveness of the actions that it intends to undertake as part of its restructuring plan.

The confirmation of the bank's long-term deposits at Caa1 and of its senior unsecured debt ratings at Caa2 reflects: (1) the confirmation of the bank's BCA and adjusted BCA at caa2 (2) maintaining the uplift from Moody's Advanced LGF analysis that results in one notch of uplift for the deposit ratings and no uplift for the senior unsecured ratings; and (3) unchanged low government support assumptions for Novo Banco, which provides no further rating uplift.

The positive outlook on Novo Banco's long-term deposit ratings reflects the positive pressure that could develop on the bank's ratings if it starts to successfully deliver on the key targets of its restructuring plan, namely a substantial improvement of its asset risk profile, a transformation of its operations and an improvement of its revenue generation capacity. The positive outlook also takes into consideration the upward pressure that could develop for the bank's deposit ratings if Portugal's proposed legal change of moving to a depositor preference framework is put into effect; and/or the bank increases the volume of bail-in-able liabilities, which will translate into a lower loss-given-failure for rated deposits.

The negative outlook on Novo Banco's long-term senior debt ratings reflects the downward pressure that could develop if the new legislation is approved as proposed by the Portuguese government, which could result in an increased loss-given-failure for this class of debt, similar to its domestic peers. However, over the outlook horizon, Moody's will assess this downside risk in combination with the benefits of a potential improvement in the bank's credit profile and an increase in the volume of bail-in-able instruments.

FACTORS THAT COULD LEAD TO AN UPGRADE

Portuguese banks' standalone BCAs could be upgraded as a consequence of a further material decline in the stock of problematic assets, coupled with a sustained recovery of recurrent profitability levels. The banks' BCAs could also be upgraded on the back of stronger Tangible Common Equity (TCE) levels.

As the banks' debt and deposit ratings are linked to the standalone BCA, any change to the BCA would likely also affect these ratings.

The bank's deposit and senior debt ratings could also experience upward pressure from movements in the loss-given-failure faced by these securities.

FACTORS THAT COULD LEAD TO A DOWNGRADE

Downward pressure on the banks' BCAs could develop as a result of: (1) a reversal in current asset risk trends with an increase in the stock of non-performing loans (NPLs) and/or other problematic exposures; (2) banks failing to maintain their risk-absorption capacity due to asset quality weakening and/or additional provisioning efforts in excess of capital generation capacity; and/or (3) a deterioration in the banks' liquidity position.

As the banks' debt and deposit ratings are linked to the standalone BCA, any change to the BCA would likely also affect these ratings.

The bank's deposit and senior debt ratings could also experience downward pressure from movements in the loss-given-failure faced by these securities. Furthermore, Portuguese banks' senior debt ratings could be downgraded if a depositor preference framework is approved by the Parliament and the higher loss-given-failure resulting from this change is not sufficiently compensated by the issuance of new debt instruments.

LIST OF AFFECTED RATINGS

Issuer: Caixa Geral de Depositos, S.A.

..Affirmations:

....Long-term Bank Deposits, affirmed Ba1, outlook remains Stable

....Senior Unsecured Regular Bond/Debenture, affirmed Ba1, outlook changed to Negative from Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Ba1

..Outlook Action:

....Outlook changed to Stable(m) from Stable

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

..Affirmations:

....Senior Unsecured Regular Bond/Debenture, affirmed Ba1, outlook changed to Negative from Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Ba1

..Outlook Action:

....Outlook changed to Negative from Stable

Issuer: Banco Santander Totta S.A.

..Affirmations:

....Long-Senior Bank Deposits, affirmed Baa2, outlook remains Stable

....Senior Unsecured Regular Bond/Debenture, affirmed Baa3, outlook changed to Negative from Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Baa3

..Outlook Action:

....Outlook changed to Stable(m) from Stable

Issuer: Banco Santander Totta S.A., London

..Affirmation:

....Senior Unsecured Medium-Term Note Program, affirmed (P)Baa3

..No Outlook assigned

Issuer: Novo Banco, S.A.

..Confirmations:

....Long-term Counterparty Risk Ratings, confirmed at B2

....Long-term Bank Deposits, confirmed at Caa1, outlook changed to Positive from Rating under Review

....Long-term Counterparty Risk Assessment, confirmed at B2(cr)

....Baseline Credit Assessment, confirmed at caa2

....Adjusted Baseline Credit Assessment, confirmed at caa2

....Senior Unsecured Regular Bond/Debenture, confirmed at Caa2, outlook changed to Negative from Rating under Review

....Subordinate Regular Bond/Debenture, confirmed at Caa3

..Outlook Action:

....Outlook changed to Positive(m) from Rating under Review

Issuer: NB Finance Ltd.

..Confirmations:

....Backed Senior Unsecured Regular Bond/Debenture, confirmed at Caa2, outlook changed to Negative from Rating under Review

..Outlook Action:

....Outlook changed to Negative from Rating under Review

Issuer: Novo Banco S.A., Luxembourg Branch

..Confirmations:

....Long-term Counterparty Risk Ratings, confirmed at B2

....Long-term Bank Deposits, confirmed at Caa1, outlook changed to Positive from Rating under Review

....Long-term Counterparty Risk Assessment, confirmed at B2(cr)

....Senior Unsecured Regular Bond/Debenture, confirmed at Caa2, outlook changed to Negative from Rating under Review

..Outlook Action:

....Outlook changed to Positive(m) from Rating under Review

Issuer: Novo Banco S.A., London Branch

..Confirmations:

....Long-term Counterparty Risk Ratings, confirmed at B2

....Long-term Bank Deposits, confirmed at Caa1, outlook changed to Positive from Rating under Review

....Long-term Counterparty Risk Assessment, confirmed at B2(cr)

..Outlook Action:

....Outlook changed to Positive from Rating under Review

Issuer: Novo Banco, S.A., Cayman Branch

..Confirmations:

....Long-term Counterparty Risk Ratings, confirmed at B2

....Long-term Bank Deposits, confirmed at Caa1, outlook changed to Positive from Rating under Review

....Long-term Counterparty Risk Assessment, confirmed at B2(cr)

..Outlook Action:

....Outlook changed to Positive from Rating under Review

Issuer: Novo Banco, S.A., Madeira Branch

..Confirmations:

....Long-term Counterparty Risk Ratings, confirmed at B2

....Long-term Bank Deposits, confirmed at Caa1, outlook changed to Positive from Rating under Review

....Long-term Counterparty Risk Assessment, confirmed at B2(cr)

..Outlook Action:

....Outlook changed to Positive from Rating under Review

Issuer: Banco Comercial Portugues, S.A.

..Affirmations:

....Long-term Bank Deposits, affirmed Ba3, outlook remains Positive

....Senior Unsecured Medium-Term Note Program, affirmed (P)Ba3

..Outlook Action:

....Outlook remains Positive

Issuer: BCP Finance Bank, Ltd.

..Affirmation:

....Backed Senior Unsecured Regular Bond/Debenture, affirmed Ba3, outlook changed to Developing from Positive

..Outlook Action:

....Outlook changed to Developing from Positive

Issuer: Banco Comercial Portugues, SA, Macao Br

..Affirmations:

....Long-term Bank Deposit, affirmed Ba3, outlook remains Positive

..Outlook Action:

....Outlook remains Positive

Issuer: Banco BPI S.A.

..Affirmations:

....Long-term Bank Deposits, affirmed Baa1, outlook remains Stable

....Long-term Issuer Rating, affirmed Baa2, outlook changed to Negative from Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Baa2

..Outlook Action:

....Outlook changed to Stable(m) from Stable

Issuer: Banco BPI S.A. (Cayman)

..Withdrawals:

....Long-term Counterparty Risk Rating, previously rated Baa1

....Short-term Counterparty Risk Rating, previously rated P-2

....Long-term Counterparty Risk Assessment, previously rated Baa2(cr)

....Short-term Counterparty Risk Assessment, previously rated P-2(cr)

..Outlook Action:

....Outlook changed to Rating Withdrawn from Stable

Issuer: Caixa Economica Montepio Geral, CEB, S.A.

..Affirmations:

....Long-term Bank Deposits, affirmed B3, outlook remains Positive

....Senior Unsecured Medium-Term Note Program, affirmed (P)B3

..Outlook Action:

....Outlook remains Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating 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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

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
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
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