FRANKFURT (MNI) – Standard and Poor’s has downgraded the long-term
counterparty rating on four Portuguese banks and two relatex
subsidiaries to ‘BBB-‘ following the agency’s downgrade of Portugal
earlier this week. The ratings agency also said that the outlook is
negative.

The following is the verbatim text of the S&P press release,
detailing the downgrade, as well as the reasons for it:

Portuguese Banks Downgraded Following Sovereign Rating Cut

* Following our downgrade of Portugal to ‘BBB-‘ on March 29, 2011,
on news on ESM lending conditions, we are lowering our long-term
ratings on four Portuguese banks and two related subsidiaries that
were rated at the same level as the sovereign.
* The outlook on the ratings on the banks is negative, reflecting
the possibility of a further sovereign downgrade, and the impact
that it would have on our view of Portuguese banks’
creditworthiness.
* The long-term and short-term ratings on Millennium bcp remain on
CreditWatch with negative implications, reflecting the possibility
of a further downgrade in the short term if we see that the bank
is unable to implement a plan to strengthen its financial profile.

MADRID (Standard & Poor’s) March 31, 2011–Standard & Poor’s
Ratings Services said today that it had lowered its long-term
counterparty ratings to ‘BBB-‘ from ‘BBB’ on Banco Santander Totta, S.A.
(Santander Totta), Caixa Geral de Depositos S.A. (CGD), Banco Espirito
Santo, S.A. (BES) and its core subsidiary Banco Espirito Santo de
Investimento, S.A. (BESI), Banco BPI S.A. (BPI) and its core subsidiary
Banco Portugues de Investimento S.A. At the same time, we removed the
long-term ratings from CreditWatch and affirmed the ‘A-3′ short-term
ratings. The outlook is negative.

We are maintaining the ‘BBB-/A-3′ long- and short-term ratings on
Banco Comercial Portugues, S.A. (Millennium bcp) on CreditWatch with
negative implications.

As a result of these actions, all our ratings on Portuguese
financial institutions are now at the same level as that on the Republic
of Portugal (BBB-/Negative/A-3). None of our ratings on these banks
incorporates any uplift from parent or government support over our
assessments of their stand-alone credit profiles.

The downgrades of the four banks and their core subsidiaries follow
the weakening we see in the creditworthiness of the sovereign, as
reflected in our one-notch downgrade of the Republic of Portugal, and
reflect our view that financial institutions should only in rare
circumstances be rated above the sovereign of their country of domicile.
This is because:

* Given financial institutions’ highly leveraged balance sheets and
high exposure to liquidity risks, we believe that it is unlikely
that any of the Portuguese financial institutions that we rate
will overcome the financial difficulties associated with a
sovereign under stress, in particular the likely intense liquidity
pressures that normally occur.
* Like any other sovereign, Portugal has regulatory and supervisory
powers through which it can influence the behavior of banks under
its jurisdiction.
* Portuguese financial institutions benefit, in our view, from the
Portuguese authorities’–in the EU framework–supportive stance
toward their financial system, which, among others, facilitates
banks’ access to extraordinary liquidity, such as that provided by
the European Central Bank. It would therefore generally be
difficult to justify de-linking the benefits of such a supportive
framework for banks from the creditworthiness of the sovereign
backing that framework.
* Portuguese banks have a level of direct exposure to the sovereign
and other public sector entities that we consider to be material
when compared with their capital bases.

The impact of the tougher economic and financial environment on the
banks’ creditworthiness was already incorporated in our rating actions
on these banks earlier this week.

Our affirmation of the short-term ratings on the banks at ‘A-3′
follows the typical correlation of our short-term and long-term ratings
scales.

The negative outlooks on the ratings on Santander Totta, CGD, BES
and its core subsidiary BESI, and BPI and its core subsidiary Banco
Portugus de Investimento reflect the possibility of a further downgrade
to below investment grade should the sovereign be downgraded again. A
negative outlook implies a greater than one in three possibility of a
downgrade over the next two years. Specifically, this could happen if,
in our view, the economy weakens beyond our current expectations and/or
a political impasse undermines the effective implementation of
Portugal’s adjustment program, leading to significant policy slippages.
Standard & Poor’s believes that the outlook for Portugal’s GDP
performance is highly uncertain and will depend as much on the
resilience of the export sector as on domestic policy decisions.

Conversely, all things being equal, an outlook revision to stable
on Portugal would likely lead to a similar action on the banks, as it
would reflect our view of an overall healthier economic and financial
outlook for the country and therefore for its financial system.

Our ratings on Millennium bcp were not directly affected by the one
notch downgrade of Portugal as this bank was already rated below the
sovereign at ‘BBB-/A-3′.

The ratings on Millennium bcp remain on CreditWatch with negative
implications based on the possibility of a downgrade in the short term
if we see that the bank is unable to design and implement a plan to
strengthen its financial profile, narrowing the gap with its domestic
peers. In our view, Millennium bcp’s financial profile is weaker than
that of its peers (notably its funding, asset quality, risk exposure,
and capitalization), which makes it more vulnerable to the currently
difficult operating environment.

RELATED CRITERIA AND RESEARCH

All articles listed below are available on RatingsDirect on the
Global Credit Portal, unless otherwise stated.

* Republic of Portugal Ratings Lowered To ‘BBB-/A-3′ On ESM Lending
Conditions; Outlook Neg; Teleconf Today At 4:30PM BST, March 29,
2011
* Five Portuguese Banks And Related Subsidiaries Downgraded After
Portugal Downgrade; Long-Term Ratings Still On Watch Neg, March
28, 2011
* Rating Government-Related Entities: Methodology And Assumptions,
Dec. 9, 2010
* Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1,
2010
* Use Of CreditWatch And Outlooks, Sept. 14, 2009
* Bank Rating Analysis Methodology Profile, March 18, 2004
* Criteria/Financial Institutions: Sovereign Risk for Financial
Institutions, Feb 16, 2004

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$]