DBRS Confirms Espírito Santo Financial Group at BBB (high) After Downgrade of Portugal to BBB (high)

DBRS Inc. (DBRS) today has confirmed the ratings of Espírito Santo Financial Group, S.A. (ESFG) following DBRS’s downgrade of the Republic of Portugal. DBRS has confirmed the Senior Long-Term Debt rating of BBB (high) and the Short-Term Instruments rating of R-2 (high). The trend on all ratings remains Negative. These rating actions follow DBRS’s downgrade of the Republic of Portugal to BBB (high) from A (low), with the trend remaining Negative. For a full list of rating actions, please see table below.

ESFG’s intrinsic assessment (IA) of BBB (high) remains unchanged. The IA reflects the Group’s controlling interest in Banco Espírito Santo (BES) and ESFG’s ownership positions in other subsidiaries that are active in insurance, other financial services and healthcare, as well as the parent company’s financial position. BES is the principal operating subsidiary of ESFG.

Due to the downgrade of the Portuguese sovereign, DBRS has downgraded BES’s Senior Long-Term Debt & Deposit rating to BBB (high) from A (low). Concurrently, DBRS downgraded BES’s Short-Term Debt & Deposit rating to R-2 (high) from R-1 (low). The trend on all ratings is Negative. BES’s intrinsic assessment remains unchanged at “A.” While ESFG’s ratings are now the same as those of BES and the ratings of the Republic of Portugal, ESFG’s IA remains two notches below the IA of BES. DBRS views this relationship as appropriate as the ratings downgrade was primarily driven by the weakening of the Portuguese sovereign, rather than the intrinsic strength of BES. BES’s intrinsic strength, which is incorporated into the IA, is the principal driver for continued dividend payments to the parent company, which translates into the predominant share of ESFG’s net income. The two-notch differential incorporates the risk that this dividend flow could be subject to a sustained interruption at a time of stress. At the same time, there could be calls on ESFG to provide capital to support BES or other subsidiaries.

DBRS maintains its SA-3 support assessment for ESFG, which indicates no expectation of timely systemic support.

Notes:
All figures in Euros (EUR) unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other methodologies used include the Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments. Both can be found on the DBRS website under Methodologies.

The sources of information used for this rating include the issuer and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Roger Lister
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 20 April 2011
Most Recent Rating Update: 9 May 2011

For additional information on this rating, please refer to the linking document below.