DBRS Places A (high) Ratings of Banco Popular Under Review Negative After Sovereign Rating Action

DBRS, Inc. (DBRS) has today placed the ratings of Banco Popular Español S.A. (Popular or the Group) Under Review with Negative Implications following a similar rating action on the Kingdom of Spain. Currently, the Group’s Senior Unsecured Long-Term Debt & Deposit rating is A (high) and its Short-Term Debt & Deposit rating is R-1 (middle). These rating actions follow DBRS’s placement of the Kingdom of Spain’s long-term foreign and local currency debt ratings of A (high) Under Review with Negative Implications.

Popular’s intrinsic assessment (IA) of “A” remains unchanged at this time. DBRS maintains its SA-2 support assessment for Popular, which indicates an expectation of timely systemic support in case of need. This currently provides a one notch uplift to the Group’s ratings.

DBRS’s review will focus on the impact on Popular’s ratings of the higher systemic risks that are pressuring the Spanish sovereign rating. DBRS views the continued challenging environment for Spanish banks as still pressuring the ratings of Popular, as the economy remains weak and the real estate sector has not recovered. Adding to the headwinds, access to market funding remains pressured by heightened market concerns regarding the adequacy of liquidity and capitalisation of financial institutions in Spain, as well as the position of the Spanish sovereign. DBRS notes that further negative rating action on the Spanish sovereign would likely impact the ratings of Popular.

Popular, whose franchise is predominantly focused in Spain, has been impacted by the still challenging environment in its home market. Popular has managed to cope with the prolonged crisis, but remains exposed to the elevated liquidity pressure in the Spanish financial system and the Euro zone generally, the sustained weakness in the economy, and increasing stress on Spain’s sovereign position. Importantly from a ratings perspective, however, Popular continues to bolster its funding mix, liquidity and capitalisation.

DBRS has also discontinued the rating of the Senior Notes, Guaranteed by the Kingdom of Spain (the Notes) issued by Popular. The Notes were paid in full on 24 April 2012.

Note:
All figures are in Euros unless otherwise noted.

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

The sources of information used for this rating include the DBRS rating of the Kingdom of Spain. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This credit rating has been issued outside the European Union (EU) and may be used for regulatory purposes by financial institutions in the EU.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Roger Lister
Rating Committee Chair: Steven Picarillo
Initial Rating Date: 21 September 2006
Most Recent Rating Update: 4 May 2012

For additional information on this rating, please refer to the linking document under Related Research.