DBRS Places BBB (low) Ratings of ESFG Under Review Negative After Sovereign Rating Action

DBRS, Inc. (DBRS) has today placed the ratings of Espírito Santo Financial Group, S.A. (ESFG or the Group) Under Review with Negative Implications following a similar rating action on the Republic of Portugal. Currently, the Group’s Senior Long-Term Debt rating is BBB (low) and its Short-Term Instruments rating is R-2 (middle). These rating actions follow DBRS’s placement of the Republic of Portugal’s long-term foreign and local currency debt ratings of BBB (low) Under Review with Negative Implications.

ESFG’s intrinsic assessment (IA) of BBB (low) remains unchanged. DBRS maintains its SA-3 support assessment for ESFG, reflecting no expectation of any form of timely external support.

The rating action reflects the Group’s controlling interest in Banco Espírito Santo (BES), which is based in Lisbon, Portugal. BES is the principal operating subsidiary of ESFG. BES’s intrinsic strength is the principal driver for continued dividend payments to the parent company, which translates into the predominant share of ESFG’s net income.

DBRS’s review will focus on the impact on ESFG’s ratings of the higher systemic risks that are pressuring the Portuguese sovereign rating. In DBRS’s view, the still challenging environment for Portuguese banks continues to pressure the ratings of the Group. DBRS notes that further negative rating action on the Portuguese sovereign would likely impact the ratings of ESFG.

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 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 DBRS's rating action on the Republic of Portugal, company documents and SNL Financial. 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: 20 April 2011
Most Recent Rating Update: 31 January 2012

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