Madrid, April 06, 2011 -- Moody's Investors Service has today taken 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.
The rating actions follow the downgrade of Portugal's debt ratings
and also reflect the weakened standalone credit profile of most Portuguese
banks.
The key drivers for today's rating actions are:
(i) The weakened standalone financial strength of most banks;
(ii) The sovereign's reduced financial strength, which raises
the probability that the government may limit its future support for banks;
and
(iii) The sovereign faces harder choices, at a time when the support
environment for smaller banks is weakening across Europe.
The following rating actions have been taken:
(i) The senior unsecured debt and deposit ratings for seven banks have
been downgraded, including a single-notch revision for one
(Caixa Economica Montepio Geral) and downgrades of two or more notches
of six banks (Caixa Geral de Depositos, Banco Comercial Português,
Banco Espirito Santo, Banco BPI, Banco Santander Totta and
Banco Português de Negocios).
(ii) The short-term senior debt and deposit ratings of these seven
banks have been downgraded by one notch.
(iii) The standalone credit assessments of five banks have been downgraded
by one or two notches. The standalone credit assessments for two
banks remain unchanged.
(iv) The senior subordinated debt ratings of six banks have been downgraded
by one to three notches.
(v) The junior subordinated debt and preference share ratings of five
banks have been downgraded by one or two notches, in line with the
downgrade of the standalone credit assessments.
(vi) The government-backed rated senior debt of four institutions
has been downgraded to Baa1, and kept under review for possible
downgrade.
Today's rating actions conclude the review of most Portuguese banks'
standalone bank financial strength ratings (BFSRs), which Moody's
initiated on 9 December 2010. The outlook is negative on most banks'
standalone credit profiles, given the challenging operating environment
in Portugal. The ratings on most banks' senior debt and deposits
remain on review for possible further downgrade, reflecting the
ongoing review for possible downgrade of the sovereign's rating.
The review of Itau BBA International and Espirito Santo Financial Group
ratings will be concluded in the next weeks, in separate rating
actions, as the sovereign rating action does not have a direct impact
on these institutions. Moreover, Moody's will continue
its analysis of Banif and expects to conclude its pending review on the
ratings separately.
Additional information on today's rating action will be published in a
Special Comment "Key Drivers of Moody's Rating Action on Portuguese Banks"
on www.moodys.com.
A full list of affected ratings can be found at this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_132272
RATINGS RATIONALE
The different rating actions announced today are best understood as two
separate analytical processes, each following a relatively straightforward
rationale: (i) the downgrades of the standalone credit profiles
and (ii) our lower government support assumptions due to the sovereign's
reduced financial strength.
RATIONALE FOR THE DOWNGRADE OF THE STANDALONE CREDIT ASSESSMENTS
In Moody's view, the standalone credit assessments of most
Portuguese banks have weakened due to reduced funding flexibility,
weakening profitability and asset-quality deterioration.
The weakening credit strength of Portuguese banks is driven by the challenging
operating environment and a loss of market confidence that is closely
correlated with the sovereign's credit challenges.
These weakening financial fundamentals have led to one or two-notch
downgrades of the standalone credit assessments for five Portuguese banks
(leading to a decline in the average, un-weighted standalone
credit strength of Portuguese banks to D/Ba2 from D+/Ba1),
while the standalone BFSRs for two banks remain unchanged for reasons
discussed below.
Moody's has taken differentiated actions for the BFSRs of the following
banks:
(i) Downgraded the standalone credit assessments for Banco Espírito
Santo (BES), Banco Comercial Português (BCP) and Banco Santander
Totta (BST) by two notches, reflecting:
• High dependence on wholesale funding, resulting in a high
reliance on ECB funding whilst access to wholesale markets remains restricted
• For BST, its relatively high standalone BFSR (previously
at C/A3) had been based on its intrinsic strengths. However,
with the challenges in the operating environment and the negative pressure
on liquidity, asset quality and earnings, BST's intrinsic
strengths may no longer be sufficient to fully offset these pressures
at the high rating level of C. Moody's continues to view
this bank as having the strongest standalone creditworthiness.
However, as a reflection of these pressures, Moody's
has lowered the BFSR by one notch to C- (now translating into Baa2
on the long-term scale) two notches below the previous standalone
credit assessment.
• For BCP, its low financial flexibility -- as
evidenced by its high reliance on ECB funding (at 14% of total
assets) -- as well as its sharp deterioration in asset quality,
with a NPL ratio at the end of 2010 of 4.5% (110bp above
the system average, according to Bank of Portugal criteria) and
the ongoing pressures from its Greek subsidiary, Millennium Bank.
We have lowered the BFSR by one notch to D from D+, now translating
into a Ba2, two notches below the previous standalone credit assessment
of Baa3.
• For BES, its higher exposure to international capital markets
activities -- and its high reliance on market funds,
particularly short-term funding -- heighten its vulnerability
to an extended period of a lack of confidence in Portugal. We have
lowered its BFSR by one notch to D+ from C-, now translating
into Ba1, two notches below the previous standalone credit assessment
of Baa2.
(ii) Downgraded the standalone credit assessments for CGD and BPI by one
notch. This reflects their lower transition risk to a more severe
economic environment and their relatively better flexibility compared
to other Portuguese banks to withstand restricted access to capital markets.
(iii) Moody's has left unchanged its standalone credit assessments
for Montepio and BPN:
• Montepio benefits from a better-than-average liquidity
position, a retail deposit-oriented funding profile,
and continued profitability despite high provisioning levels. Its
stable franchise provides a level of protection against the challenging
environment, particularly against disruption in the wholesale funding
markets. These sources of strength underpin the stable standalone
credit profile at D/Ba2.
• BPN's weak standalone profile at E/Caa1 already reflects
very weak credit fundamentals and is unlikely to drop further, provided
that the government provides ongoing support to this fully government-owned
entity.
RATIONALE FOR THE LOWER SUPPORT ASSUMPTIONS AND THE DOWNGRADE OF THE SENIOR
DEBT AND DEPOSIT RATINGS
Moody's has reduced the level of government support embedded in
its ratings of Portuguese banks. The key drivers for today's rating
actions are:
(i) The reduced financial strength of the sovereign -- the
Portuguese government was recently downgraded across two separate rating
actions to Baa1 from A1, with the rating remaining on review for
further downgrade -- raises the probability that the government
may be unable to provide future support for banks. All other variables
being equal, the sovereign is less able to support the banking sector--
a factor reflected one for one in a one-notch reduction in support
across the sector, including the largest banks.
(ii) The sovereign faces harder choices, at a time when the support
environment for smaller banks is weakening across Europe. The increased
pressure on the government's financial strength increases the likelihood
that it may need to make difficult choices in the coming months and years,
balancing the desire to support the banks against the need to protect
its own balance sheet. There is, more generally, increasing
uncertainty regarding the willingness of authorities in Europe to continue
to support senior creditors of institutions below the first tier in their
domestic markets over the medium term. This uncertainty has further
reduced Moody's systemic support assumptions for two Portuguese
institutions with weaker market shares. In this respect,
today's rating actions partly reflect the agency's recently-announced
broader reassessment of authorities' willingness to support senior
debt issued by smaller financial institutions in Europe. And the
sovereign's loss of financial strength makes it hard to justify
very high levels of support even for larger institutions.
Going forward, the rating agency is differentiating three groups
of Portuguese banks in terms of how much "systemic uplift"
(additional notches over their standalone credit strength) their ratings
receive due to government support:
• Group 1: Caixa Geral de Depositos and Banco Portugues de
Negocios (BPN) with three notches of systemic uplift. Caixa Geral
de Depositos is fully government-owned with a dominating deposit
share and has an exceptionally high likelihood of government support.
Systemic support for Banco Portugues de Negocios (BPN) reflects the government's
full ownership and role as caretaker of this failed bank
• Group 2: Banks with very high likelihood of support (two
notches of uplift). Banks in this group -- Banco
Espirito Santo and Banco Comercial Português --have
national networks with strong deposit or loan shares.
• Group 3: Banks with high to moderate likelihood of support
(one or no notches of uplift). This group -- Banco
BPI, Banco Santander Totta (BST) and Caixa Economica Montepio Geral
(Montepio) -- represents the second tier of Portuguese banks,
with lower national market shares or a more regional presence.
These banks receive one or no notches of systemic uplift.
For all Portuguese banks, the government support-driven uplift
implied in their ratings has declined. This, combined with
the reduced standalone credit strength, have been the major drivers
of today's rating actions.
RATINGS RATIONALE FOR SENIOR SUBORDINATED DEBT
Moody's has downgraded the senior subordinated debt ratings of six banks
in line with the downgrade of these banks' senior unsecured debt ratings.
Moody's has not yet removed systemic support for subordinated debt issuances
in Portugal, but expects to assess this during Q2 2011 alongside
other European countries affected by European regulations and legislation.
If at that time, Moody's assessment results in the partial or full
removal of systemic support for subordinated debt, any further downgrades
of subordinated debt would likely be limited to a maximum of three notches,
given the reduction of the systemic support rating uplift discussed above.
RATINGS RATIONALE FOR THE DOWNGRADE OF HYBRID INSTRUMENTS
Moody's has downgraded the junior subordinated debt of four banks (two
by one notch and two by two notches), as well as the preferred shares
of four banks (two by one notch and two by two notches). In 2010,
Moody's removed all systemic support from the ratings of junior subordinated
debt and other hybrids in Portugal and rated these instruments in view
of the banks' standalone financial strength, but incorporated support
from parents or co-operatives and similar groups.
GOVERNMENT GUARANTEED DEBT
Moody's has downgraded the government-backed rated senior debt
of four institutions to Baa1, and has kept them under review for
possible downgrade. This action follows the downgrade to Baa1 (on
review for possible downgrade) of the Portuguese government bond ratings,
announced on 5 April 2011. The government-backed Baa1 ratings
assigned are based on the unconditional guarantee from the Portuguese
government.
WHAT COULD CHANGE THE RATINGS - UP
An improvement in the banks' standalone BFSRs could exert upward pressure
on the banks' debt and deposit ratings. This could be driven by
a more favorable operating environment that would have a positive impact
on the banks' fundamentals. In this case, Moody's
would expect to see improvements in asset quality, profitability
and liquidity metrics, banks regaining access to market funding
and solvency levels improving.
WHAT COULD CHANGE THE RATINGS - DOWN
All domestic banks' debt and deposit ratings continue to benefit
from systemic support and therefore remain dependent on the creditworthiness
of the Portuguese government and our support assumptions. A reduction
in parental support for BST could exert downward pressure on its debt
ratings. There could be negative rating actions on BFSRs,
if the operating environment in Portugal deteriorates much more than currently
anticipated by the Portuguese and international authorities.
The following ratings have been affected:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_132272
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 took place on 9 and 21 December
2010, when Moody's placed on review for possible downgrade the deposit,
senior debt and subordinated debt ratings of all Portuguese banks and
the standalone BFSRs and hybrids of most Portuguese banks.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
On our website www.moodys.com, you can find further
information and any updates on the Lead Analyst to a specific Credit Rating,
and the office from which the credit rating was issued.
In addition to the above general contact information please find,
for each of the Credit Ratings affected, Moody's regulatory disclosures
on the lead analyst and the Moody's office that has issued the Credit
Rating on the ratings tab of the issuer page at www.moodys.com.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Madrid
Olga Cerqueira
Asst Vice President - 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.
Barbara de Braganza, 2
Madrid 28004
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's takes rating actions on Portuguese banks
