Moody's Downgrades 7 Portuguese Banks

Tyler Durden's picture

Moody's which is already not all that loved in Portugal, is about to make some more friends after it just downgraded the 7 biggest Portuguese banks, all of which, incidentally, passed the Stress Test that nobody remembers any more.

Moody's Investors Service has today downgraded the debt ratings of seven Portuguese banks.
Today's rating actions were triggered by the downgrade of the rating of the Republic of Portugal to Ba2 from Baa1 last week.
The following banks have been downgraded:
(i) Caixa Geral de Depositos ("CGD"): long-and short-term senior unsecured debt and deposit ratings were downgraded to Ba1/Not-Prime from Baa1/Prime-2.
(ii) Banco Espirito Santo ("BES"): downgraded to Ba1/NP from Baa2/P-2.
(iii) Espirito Santo Financial Group ("ESFG"): downgraded to Ba2/NP from Baa1/P-2.
(iv) Banco Comercial Portugues ("BCP"): downgraded to Ba1/NP from Baa3/P-3.
(v) Banco BPI ("BPI"): downgraded to Baa3/P-3 from Baa2/P-2.
(vi) Banco Santander Totta ("BST"): downgraded to Baa1/P-2 from A3/P-2; BST's standalone BFSR downgraded to D+/Baa3 from C-/Baa2.
(vii) Caixa Economica Montepio Geral ("Montepio"): downgraded to Ba2/NP from Ba1/NP.

At the same time, the downgrade of the banks' debt ratings also triggered a downgrade of most of the banks' dated and junior subordinated debt and preference share ratings.
All these banks' debt, standalone and prime short-term ratings remain on review for possible downgrade, pending the finalisation of their deleveraging plans which they are currently discussing with Portuguese and European authorities.
A full list of affected ratings can be found on this link:
Separately, the ratings of the following three banks are unaffected by today's rating action:
- Banco Itau BBA International ("Itau"), rated Baa2/P-2/D+ (mapping to
Baa3 on the long-term scale).
- Banco Internacional do Funchal ("Banif"), rated Ba2/NP/D- (mapping to
Ba3 on the long-term scale).
- Banco Portugues de Negocios ("BPN"), rated B1/NP/E (mapping to Caa1 on the long-term scale)
Itau's ratings are not under review for possible downgrade, whereas the review for possible downgrade continues for Banif.
Today's rating action on Portuguese banks has been driven by the downgrade of the Republic of Portugal on July 5, 2011. (Please see "Moody's downgrades Portugal to Ba2 with a negative outlook from Baa1").
Moody's downgrade of the Republic of Portugal to Ba2 implies a weakened ability of the Portuguese government to support its banking system.
Moody's therefore assumes that the possibility of support from the government could not take a bank's rating to more than one notch above the government rating of Ba2, and that only banks with a standalone financial strength rating at or below the Republic of Portugal's Ba2 rating could therefore benefit from ongoing government support.
The banks whose debt ratings are affected by this are:
- CGD, BCP and BES (and indirectly ESFG, its holding company), whose debt ratings have been downgraded to Ba1 (Ba2 for ESFG reflecting structural subordination to its operating company BES).
- BPI, which has been downgraded to Baa3, the same level as its standalone rating (D+/Baa3).
- Montepio, whose downgrade to Ba2 is a reflection of both its lower standalone rating at D/Ba2 and of its lower systemic importance in Moody's view, as compared to CGD, BES and BCP.
Only Banif retains its current level of support, which is providing uplift for its debt rating to Ba2 from its standalone rating of D-/Ba3.
Moody's has also downgraded the BFSR of Banco Santander Totta by one notch to D+/Baa3 from C-/Baa2. While the review for downgrade referred to below will assess the wider implications of the sovereign downgrade for Portuguese banks' standalone strength, Moody's is of the opinion that the rising pressures on asset quality, profitability, liquidity and capital levels that Moody's sees as likely consequences of the government austerity measures, are limiting the standalone strength of banks to be not more than two notches above the sovereign rating of Ba2. Banco Santander Totta's debt ratings continue to incorporate two notches of support from its parent, Banco Santander S.A., (rated Aa2/ B- mapping to
A1 on the long-term rating scale; negative outlook).
All the above standalone financial strength and long-term debt ratings (including the ratings of Banif and the Prime short-term ratings of BPI and BST) remain under review for downgrade until the review of these banks' standalone financial strength rating can be concluded.
The ongoing review on all banks' standalone financial strength ratings will focus on the deleveraging plans currently under discussion between the banks and Portuguese and EU authorities and will be key to determining the banks' capital and funding strategies over the short to medium term. Moody's expects these plans to be finalised over the next couple of months, which should allow the rating agency to conclude the reviews in the first half of September.
Moody's review will also take into account the following factors, as previously highlighted in its press release of 7 July 2011: (i) the magnitude of banks' direct exposure to government debt; (ii) their exposure to risk factors that are interrelated with the sovereign's credit risk, such as market confidence and access to market funding;
(iii) the high degree of correlation between the macroeconomic factors that affect financial institutions' asset quality and the sovereign's financial health, which can be partly mitigated by geographical diversification.
The review will incorporate any further news regarding the support that is likely to be available to Portuguese banks from either the Portuguese government or other European authorities.
The ratings of BPN will be reviewed separately, once the privatisation process of the bank has been concluded. BPN's weak standalone profile at
E/Caa1 already reflects very weak credit fundamentals and is unlikely to drop further, provided that the government maintains its ongoing support for this fully government-owned entity.
Moody's has downgraded the senior subordinated debt ratings of seven banks in line with the downgrade of these banks' senior unsecured debt ratings.
Moody's has not yet removed systemic support for the senior subordinated debt issuances in Portugal, but expects to also assess this during the current review. If, at that point, Moody's assessment results in the partial or full removal of systemic support for subordinated debt, then the rating agency would consider further downgrades of this type of debt.
The one notch downgrade of junior subordinated debt of BES, BPI, Totta and Montepio -- for which no systemic support is incorporated -- to one notch below the dated subordinated debt reflects the risk differentiation between junior subordinated debt and dated subordinated debt due to the legal subordination of junior subordinated debt.
In the case of CGD, the junior subordinated debt and preference share ratings have been affected by the downgrade of the Portuguese sovereign, since Moody's incorporates support from the sovereign for all classes of debt instruments due to the parental role of the Portuguese government.
They are now notched off the Ba1 rating of CGD.
All of these ratings also remain on review for possible downgrade

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TheTmfreak's picture

Phew the last few days has categorized this week as the week of downgrades.

Highrev's picture

Would someone please ask Buffett to take a breather.

johny2's picture

Mad Max of the rating agencies. 

Archimedes's picture

Things are beginning to stir....Market can't seem to pump higher without daily POMO. I am calling 1370 the Top for 2011. All those who are calling for 1440 on the S&P are delusional.


caerus's picture

banks for the memories!

bigwavedave's picture

S&P have put the entire US banking biz on credit watch negative. Take that bitchez!

centerline's picture

EU/US central bank circle-jerk, round two.  Will Spain get to play this time?  Will China survive around round?  What happens when the USD breaks support?  Hmmm.  Seems like we are going to find out sooner rather than later (months rather than years).

shushup's picture

It's not that nobody remembers anymore it's that no one cared to begin with.

Sudden Debt's picture


And let's not forget that Moody's looks to banks through pink glasses, so a fart = pile of shit.


carbonmutant's picture

This is like shooting fish in a barrel...

candyman's picture

Is there anything left to downgrade? Pile on baby... this must mean it's the bottom.

Dick Darlington's picture

Credibility of the soviet union of europe just got lifted up another notch.

bigwavedave's picture

NEW YORK (Reuters) - Standard & Poor's on Friday put a broad range of financial companies on negative credit watch, warning they could all be downgraded soon if the United States has its credit rating cut.


The move added fresh pressure to the Washington negotiations over raising the country's debt ceiling, which has already prompted S&P to put the sovereign ratings of the country on negative watch.


The S&P action takes in Fannie Mae , Freddie Mac , all "AAA"-rated insurers, clearinghouses, fixed-income and exchange-traded funds and hedge funds, some Federal Home Loan Banks and Farm Credit System Banks, among others.


S&P characterized its targets as "entities with direct links to, or reliance on, the federal government."


The clearinghouses in particular guarantee contracts tied to everything from oil contracts to shares of Google and are critical to U.S. financial-market stability.

Highrev's picture

This looks like news (better late than never on the S&P's part).

The Axe's picture

Still the bond market sleeps....

Oh regional Indian's picture

It's so strange that a huge part of this game is going to get decided one way or another basedonthe opinions of these highly compromised and owned ratings agencies.


kito's picture

jim rogers says euro will survive-- anybody agree?

Dr. Engali's picture

Maybe if they renanme it the deutschmark.

Urban Redneck's picture

Global F/X flow balances on a three-legged stool USD-EUR-JPY.  JPY is literally radioactive, and without electricity to power industry it is a broken leg- two legs left USD & EUR - too many big players are tired of USD hegemony and frustrated with the US exporting inflation - therefore they have a vested interest in keeping EUR alive until whatever comes next (as a viable alternative) appears... weather the vested interests like the Euro or even think it is a good idea is irrelevant, as it is the only current alternative to USD in terms of market depth and infrastructure.

swissinv's picture

I highly doubt the EUR is the only alternative and that it will replace the USD...

ThirdCoastSurfer's picture

Are the rating agencies hiring? 

So a Republic of Portugal downgrade to Ba3 will trigger a review and downgrade all over again, right? There are more steps to these ratings than there are championship belts in boxing so there sure must be a lot of work available.  

r101958's picture

Not very surprising. Seems these are always announced right when the dollar needs propping up, or gold and silver are getting too high, or treasuries need to be bought. They are happening a lot more often these days, eh?

Highrev's picture

Kind of makes you wonder about the almighty USD.

Dr. Engali's picture

Yeah but they have Bank of America at A2 and Citi at A3. Probably time to upgrade them.

r101958's picture

Yes, so they can be incorporated into JPM and/or Goldman when the time is right.

Joe Sixpack's picture

Derivatives events must be occuring behind the scenes (as well as the CDS events in a more transparent way). The final derivatives collapse may be imminent here soon.

scratch_and_sniff's picture

Well done Moodys, you have pulled the rabbit out of the hat again - such timinig, such grace.

Curtis LeMay's picture

This is welcome news indeed.

Guys, just like Greece, the Portuguese don't build anything anymore. It's a pretend economy and pretty much their entire income is, again like Greece, based solely on tourism.

But who in euroland soon will even THINK of going on a vacation?

Just remember...Portugal isn't Greece...Ireland isn't Portugal...Spain isn't am, er, am...

Highrev's picture

Oh yeah? Where do those citrus products the rest of Europe consumes come from?

(And that's but one such example - and that's not to downplay the importance of such either, just ask California or Florida.)

Get with it ninnies. Start doing some serious analysis.

Curtis LeMay's picture

Fair enough.

The hell with the ninnies. Been there, done that.

Anyway, Greece and Portugal have trivial economies compared to Germany, France, etc.

Yet, and accordingly, they are bringing down the euro monstrosity.

There will be no eurobond.

Now what?

midnight's picture

Tourism accounts for ~6% of Portuguese GDP. From wiki:

The major industries include: oil refineries, petrochemistry, cement production, automotive and ship industries, electrical and electronics industries, machinery, pulp and paper industry, injection moulding, plastic products, textile, footwear, leather, furniture, ceramics, beverages and food industry and cork (leader producer). Automotive and other mechanical industries are primarily located in and around Setúbal, Porto, Lisbon, Aveiro, Braga, and Santarém. Coimbra and Oeiras have growing technological-based industries, including pharmaceuticals and software. Sines is a major petrochemical centre. Maia has one of the largest industrial parks of the country, including noted wood processing and food industries. Figueira da Foz is a major centre of pulp and paper industry. Marinha Grande is the most reputed glass making centre of Portugal. Leiria, Oliveira de Azeméis, Vale de Cambra and Viseu, have important light industries, including injection moulding and plastics. Alverca, Covilhã,[30] Évora,[31] and Ponte de Sor are the main centres of the Portuguese aerospace industry.

Highrev's picture

That's what I call a quality comment!

swissinv's picture

We all give a shit about Moody's -> following S&P and the others...

bbq on whitehouse lawn's picture

"Moody's which is already not all that loved in Portugal"

Thats called a funny. You can laugh, but it may hurt, just a little.

Buck Johnson's picture

Believe it or not, there has been nothing but bad news coming out of Europe and the US.  The media is trying to find good news or make bad into good.  Downgrading 7 Portugal banks (which judging from the size of that country is all their big banks) essentially says that Portugal is done.  Then spain having 6 of it's Caja banks fail the "stress test" is a joke.  Everyone knows that ALL of their Caja's are insolvent, they are just moving debt from one to another via consolidation.  We haven't heard anything about the financial issues with Luxembourgh, isn't one of their banks hit hard by this mess in Europe.  The EU will be done soon and so will the Euro. 

Elliott Eldrich's picture

In 1348 the Black Death first swept through Europe. As of now I'm thinking a better name for the European Debt Crisis would be the "Black Debt." It too is contagious, destructive, and relentless.

Cameli's picture

Oh come on...who the feck is listening to these cretins any longer? They couldn't even rate a few mortgages and we should believe they are capable of rating something a tad more intricate?

disabledvet's picture

Financial Advisor to Prince Philip II: "your ships are coming in King Phillip!"

Prince Philip II: "Excellent! Let me see!"

Prince Philip the II gazes through his "telescope" and sees an Aircraft Carrier Battlegroup flying an American flag: "It does not appear to be one ours. Can you confirm?"

Financial Advisor while peering through same said spyglass: "WHAT THE F...

LeBreizhou's picture

"Helaba, this week refused the EBA permission to publish all of its data after the EBA disqualified some of its capital."

Sambo's picture

(from the Irish Examiner)

The Lehman Brothers collapse marked the moment when the financial axis of the global economy began to shift in earnest away from New York and towards Shanghai.

It was the event that set in train the inexorable transformation of what we still rather patronisingly refer to as the Far East into the hot centre of global finance — a process that will also mark the time when we are condemned to decline into the still relatively prosperous, but highly marginal, Far West of the future economy.

But then that is only really a return to the status quo-ante of world affairs, as before Britain began the great Western industrialisation of the late 18th century, China and India accounted for 40% of the global economy.

As the West wanes, Ireland has had a chilling foretaste of what life will be like when the economic sun also rises in the East as the country has already ceded all fiscal control to our overlords in the EU/IMF troika.

Dublin cannot move a comma on a spread sheet without the explicit approval of the Troika, so the Government is left a hollow shell, tinkering at the margins of economic control.

So the one big idea of the new administration in this area was the jobs initiative which is strangely short of actual jobs.

Thus we had the "JobsBridge" to create 5,000 internships, with participants getting an extra 50 quid a week on top of their dole.

But the trouble with being a bridge is that people walk all over you, and as some of these "internships" include working at petrol pumps and being a kitchen porter, it seems unlikely careers will ensue once employers have had their six months of slave labour under the scheme.

Though he gets a much more generous €3,846 a week, Enda Kenny has been on a sort of work experience since being elevated to Taoiseach, and despite a severe wobble over hospital cutbacks, he has generally been learning fast on his feet — he was nice to the Queen, and more importantly, refreshingly firm with the Vatican in the wake of the appalling Cloyne report, so there seems no need to cut his internship short just yet.

Indeed, as EU leaders can’t even agree to meet and discuss the default crisis, let alone try to solve it, Mr Kenny may be around long after the euro has died of shame — unless the collapse of the unloved and deeply unstable currency is so spectacular it takes us down with it.

Then we will all be nothing but eurotrash.


Read more:

jack stephan's picture

Buddy 'Aces' Israel: Will you tell me what that is?
Hugo Croop: About what?
Buddy 'Aces' Israel: Look at the coller on that coat... whats that look like, that stain?
Hugo Croop: I dunno... Cinnamon roll?
Buddy 'Aces' Israel: Cinnamon roll? the cinnamon, the roll of the cinnamon. That looks like jizz... ya Eastern European jizz, that looks like some fuckhead shot his load on a 12000 dollar calf's skin jacket. The twist? Its my 12000 dollar calf's skin jacket. So ya got the semon, ok you got the human ejaculate
[checks watch]
Buddy 'Aces' Israel: thats been allowed to soak in for like seven hours alright. Work its way into the fabric fuckin fibers...
Hugo Croop: If you like I send out?
Buddy 'Aces' Israel: ...To what? Incinerate? Hugo there isn't a fuckin laundry detergent or dry cleaning product known to man that will get that clean. Some shit, suffice it to say, just don't wash out.
Hugo Croop: Do you want an apology?
Buddy 'Aces' Israel: Only if you really truly mean it.
Hugo Croop: Im very sorry,
Buddy 'Aces' Israel: Are you a Collasal fuckin idiot?
Hugo Croop: I am idiot.
Buddy 'Aces' Israel: Get the phone, it's probably Mecklin. Get Fatolli up here and start cleaning all right? and please for me will you do one thing?
Buddy 'Aces' Israel: [Card trick putting a card on Hugo's forehead]
Buddy 'Aces' Israel: Get out of my fucking sight.