The actions on the banks' debt and deposit ratings were prompted by Moody's downgrades of their standalone credit assessments (Baseline Credit Assessments, BCA). Moody's has downgraded by three notches each the standalone credit assessments of BCP, Banif and CGD to reflect the expected further deterioration of the banks' risk absorption capacity given the more negative outlook for the Portuguese economy, with GDP forecasts having been revised downwards by Moody's to -3.3% expected for FY2012 and a further contraction of -1.2% for 2013, as opposed to the August forecasts which expected -3.6% for 2012 and -0.3% for 2013.
RATING ACTIONS OVERVIEW
-- Banco Comercial Portugues (BCP): The standalone credit assessment was downgraded to E/caa2 from E+/b2 and the debt and deposit ratings were downgraded to B1/Not Prime from at Ba3/Not Prime. The bank's subordinated debt and preference share ratings were downgraded to Caa3 and C(hyb) respectively. All ratings have a negative outlook.
-- Banco Internacional do Funchal (Banif): The standalone credit assessment was downgraded to E/caa2 from E+/b2 and the debt and deposit ratings were downgraded to B2/Not Prime from B1/Not Prime. The bank's subordinated, junior subordinated debt and preference share ratings were downgraded to Caa3, Ca(hyb) and C(hyb), from B3, Caa1(hyb) and Caa2(hyb) respectively. All ratings except the junior instruments are on review with direction uncertain.
-- Caixa Geral de Depositos (CGD): The standalone credit assessment was downgraded to E/caa1 from E+/b1 and the debt and deposit ratings were affirmed at Ba3/Not Prime. The bank's subordinated, junior subordinated debt and preference share ratings were downgraded to Caa2, Caa3(hyb) and Ca(hyb), from B2, B3(hyb) and Caa1(hyb) respectively. All ratings have a negative outlook.
A full list of affected ratings can be found at this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_147923
RATIONALE FOR DOWNGRADES OF STANDALONE CREDIT ASSESSMENTS
Throughout 2012 BCP, Banif and CGD have seen an increased portion of its pre-provision income absorbed by asset impairments. At the same time, the capacity of these banks to generate recurring earnings to offset these rising impairments has been significantly impacted by (i) higher funding costs (particularly of retail deposits), (ii) ongoing balance sheet deleveraging and (iii) increase in non-earning assets. Moody's is concerned that Portugal's prolonged economic recession will exacerbate the intense pressure on the already very weak risk absorption capacity of these three banks.
Moody's acknowledges the improved solvency levels for BCP and CGD following the recapitalization effort made by the Portuguese government in June 2012. Moody's also notes that Banif's current capital shortfall to comply with a regulatory core Tier 1 capital threshold of 10% will be compensated after the targeted public recapitalization materializes, which is expected to take place before year-end 2012. However, the rating agency is concerned that the very negative economic conditions for the Portuguese economy may challenge the achievement of the deleveraging goals contemplated in the recapitalization and funding plans approved by Bank of Portugal and the Troika for the three banks. Furthermore, the expected broader deterioration in profitability and asset quality will pressure the banks' capital base, which increases the likelihood that additional public support may be required to offset for the losses embedded in their balance sheets.
Funding profiles have improved throughout 2012 thanks to deleveraging efforts and resilient deposit bases. However, Moody's considers that additional risks pressuring the three banks' standalone credit assessment is the ongoing lack of access to long-term wholesale funding sources, which have led them to display high reliance on European Central Bank (ECB) funding. Heightened uncertainties on the health of the Portuguese economy as well as on the creditworthiness of the banking system will prevent banks to regain normalized access to private markets in the foreseeable future. In this regard, Moody's expects that BCP, Banif and CGD will remain reliant on ECB support for some time.
Consistent with Moody's definitions, the lower standalone credit assessment reflects the rating agency's view that BCP, Banif and CGD have speculative intrinsic, or standalone, financial strength and are subject to very high credit risk absent any possibility of extraordinary support from a third party or the government.
RATIONALE FOR STANDALONE CREDIT ASSESSMENTS BY BANK
BANCO COMERCIAL PORTUGUES (BCP)
BCP's E/caa2 standalone credit assessment, is a reflection of its very weak risk absorption capacity despite the recent public recapitalization, evidenced by 1) rapidly deteriorating profitability ratios, with a sharp decline in net interest income of 35.6% and a EUR796.3 million net loss reported at end-September 2012; 2) very high reported NPL ratio (credit at risk ratio as per Bank of Portugal's definition) of 13.4% (compared to the system's average of 10%) and 3) Moody's concerns in relation to BCP's exposure to Greece through its 100%-owned subsidiary Millennium Bank S.A (unrated).
BCP was required by the European Banking Authority (EBA) to reach a 9% core tier 1 ratio before end-June 2012. To comply with this regulatory capital threshold, the Portuguese government provided EUR3 billion of capital to BCP in the form of hybrid instruments and the bank made a EUR500 million capital increase subscribed by private investors. At end-September 2012 BCP reported core Tier I ratios of 11.9% (according to Bank of Portugal's definition) and 9.4% (as per EBA definition).
Despite the enhanced capital ratios, Moody's downgrade captures the significant downside risks of BCP's credit fundamentals to the country's very difficult operating environment. Moody's expects the bank's activity in Portugal to remain loss-making during 2013, due to the ongoing increase in non-earning assets and subdued business volumes. In addition, the rating agency cautions that BCP's risk absorption capacity could be further challenged in the event of a more negative scenario for its Greek operations.
BCP's standalone credit assessment has a negative outlook to reflect the bank's vulnerability to a further weakening of its credit profile in light of the very negative outlook for the Portuguese economy.
The downgrade of Banif's standalone credit assessment to E/caa2 reflects 1) the bank's rapidly deteriorating financial fundamentals, namely in terms of profitability and asset quality (the bank reported a net loss of EUR61 million and a NPL ratio of 13% at end-June 2012); 2) very modest internal capital generation capacity that has forced them to require public support from the Bank Solvency Support Facility to recapitalize.
Banif has recently undertaken an organizational restructuring as part of the required recapitalization plan, entailing the merger of Banif SGPS -- its former parent -- into Banif, with the latter now acting as head of the group. Moody's notes, however, that the merger is still subject to final registration, which is a prerequisite for Banif to receive public support. In addition, the bank expects to fulfil a drastic deleveraging of its balance sheet over the next five years, which is expected to ease funding requirements and reduce risk weighted assets.
Moody's notes that the review with direction uncertain of Banif's standalone ratings reflects the need of further clarity about the recapitalization plan, which will enable to assess the credit profile of Banif post public capital infusion as well as the impact of other initiatives that may be included in such plan. In addition, during the review period Moody's expects to analyze the impact of the organizational restructuring and also whether targeted improvements in corporate governance can have a material - and tangible - impact on the bank's credit profile. Downward pressure persists on Banif's standalone ratings as the bank will continue to operate under very challenging operating conditions, which will make it very difficult for management to achieve the goals set up in the recapitalization plan.
CAIXA GERAL DE DEPOSITOS (CGD)
The downgrade of CGD's standalone credit assessment to E/caa1 has been prompted by Moody's concerns that the bank's weak credit fundamentals are likely to be further challenged in 2013 in light of our expectations of a prolonged economic recession in Portugal. CGD displays a weak risk absorption capacity principally due to (i) its very modest profitability indicators (the bank reported a net loss of EUR102 million and a decline in net interest income of 15% as of end-September 2012), (ii) deteriorating asset quality (reported credit at risk ratio of 9.2% at end September 2012) and (iii) high direct exposure to Portuguese sovereign risk (almost 2.5x Tier 1 capital).
In downgrading the bank's standalone credit assessment, Moody's has taken into account CGD's recent capital reinforcement in order to comply with EBA's 9% core Tier I capital requirement by end-June 2012. The recapitalization was completed with a EUR900 million issue of hybrid financial instruments and a EUR750 million capital increase, both of which were fully subscribed by the Portuguese State. Despite the benefits of the capital improvement, Moody's notes that CGD displays significant downside risks to the country's negative macroeconomic scenario that are likely to put additional pressure on its capital.
In addition the bank has embarked on a deleveraging plan that encompasses significant divestments in the domestic market that could improve its capital position but may have a negative impact on its already very limited earnings generation capacity.
The outlook on CGD's standalone credit assessment is negative to reflect the above mentioned risks.
RATIONALE FOR DOWNGRADE OF DEBT RATINGS AND SUPPORT ASSUMPTIONS
The one-notch downgrade of BCP's and Banif's senior debt and deposit ratings reflect (i) the further deterioration of their standalone credit profile, as discussed above; and (ii) Moody's assessment of a very high probability of support by the Portuguese government for the banks in case of need.
The debt ratings of CGD were affirmed at Ba3, resulting in four notches of uplift from its standalone credit assessment of caa1, and based on Moody's assessment of a very high probability of support from the Portuguese government as CGD's unique shareholder.
The negative outlook on BCP's and CGD's debt and deposit ratings reflect both the currently negative outlook on the Portuguese government's Ba3 bond rating and the negative outlook on the bank's standalone credit assessment.
The review with direction uncertain of Banif's senior debt and deposit ratings is commensurate with the review status of the bank's standalone credit assessment.
SUBORDINATED DEBT AND HYBRID RATINGS
Moody's has downgraded the senior subordinated debt and hybrid ratings of BCP, Banif and CGD in line with the lowering of their standalone credit assessments. Moody's had previously removed government support assumptions from its ratings of subordinated debt and hybrid instruments of Portuguese banks on 28 March 2012, see "Moody's takes actions on seven Portuguese banks; Outlook negative".
Moody's review for downgrade on the junior instruments of Banif reflects the issuer's very weak credit profile and the increased risk of losses being imposed on these instruments in case of a broader deterioration of the bank's creditworthiness.
WHAT COULD MOVE THE RATING UP/DOWN
Downwards pressure on the banks' ratings might develop if operating conditions worsen beyond Moody's current expectations, i.e. a broader economic recession beyond our current GDP decline forecasts of -3.3% for 2012 and -1.2% for 2013; especially given that this is likely to result in asset-quality and profitability deterioration exceeding Moody's current expectations; and/or if pressures on market-funding intensify.
Upwards pressure on the banks' ratings may arise in case of an improved credit profile resulting from the work-out of asset quality challenges, a recovery of profitability indicators and sustained capitalization levels, as well as normalized access to wholesale funding markets.
The principal methodology used in these ratings was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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Nachrichten zu Banco Comercial Portugues S.A. (BCP)
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Analysen zu Banco Comercial Portugues S.A. (BCP)
|04.12.2012||Banco Comercial Portugues reduce||Nomura|
|21.04.2005||Banco Comercial Portugues: Neutral||JP Morgan|
|20.04.2005||Banco Comercial Portugues: Neutral||JP Morgan|
|01.02.2005||Banco Comercial Portugues: Neutral||Credit Suisse First Boston|
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|21.04.2005||Banco Comercial Portugues: Neutral||JP Morgan|
|20.04.2005||Banco Comercial Portugues: Neutral||JP Morgan|
|01.02.2005||Banco Comercial Portugues: Neutral||Credit Suisse First Boston|
|04.12.2012||Banco Comercial Portugues reduce||Nomura|
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