DBRS Initiates Ratings Coverage of Santander Totta at A (low), Ratings Under Review Negative

DBRS, Inc. (DBRS) has today initiated coverage of Banco Santander Totta S.A. (Totta or the Bank). Totta is a Portuguese bank and a core operating subsidiary of Banco Santander S.A. (Santander or the Parent). DBRS has assigned to Totta a Senior Unsecured Debt & Deposit rating of A (low) and a Short-Term Debt and Deposit rating of R-1 (low). All ratings are currently Under Review with Negative Implications.

DBRS rates Santander’s Senior Unsecured Debt & Deposit at A (high) and Short-term Debt and Deposit at R-1 (middle). All ratings remain Under Review with Negative Implications, where they were placed on 24 May 2012 following a similar rating action on the Kingdom of Spain. Santander views Totta as a core component of its international franchise and, therefore, DBRS has assigned a support assessment of SA1 to Totta. The SA1 designation implies strong and predictable support from the Parent. As a supported rating with an SA1 designation, Totta’s rating will generally move in tandem with Santander’s long-term debt ratings.

The Bank’s ratings reflect Totta’s well-positioned, primarily retail-banking focused franchise in Portugal, which has largely generated positive quarterly earnings throughout the global financial crisis. The ratings also reflect its position as a direct subsidiary of Santander. As the 5th largest bank in Portugal, with approximately EUR 40 billion in total assets, Totta is well-positioned with market shares of around 10% when measured by total assets, loans or deposits. DBRS views the Bank as having a well-established franchise, underlying earnings resiliency, and strengthened capitalisation. However, DBRS also recognises the challenges the Bank faces given its wholesale funding reliance, the weakness in Portugal’s economy and the stress in Portuguese financial markets.

The ratings of Totta reflect its important role as a core component of Santander’s international franchise and DBRS’s expectation that Santander has the resources and motivation to support Totta, if needed. The two notch differential between Totta’s long-term debt rating of A (low) and Santander’s long-term debt rating of A (high) reflects the risks associated with rating a bank subsidiary in a foreign country, particularly one that is lower-rated. DBRS rates the Republic of Portugal at BBB (low); this rating is currently Under Review with Negative Implications. DBRS views the increased risks associated with the lower rating of the Republic of Portugal as appropriately reflected in the two notch ratings differential between the Parent and Totta. Without parental support, Totta’s ratings would be significantly lower.

Notes:
All figures are 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 company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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

Lead Analyst: Lisa Kwasnowski
Rating Committee Chair: Roger Lister
Initial Rating Date: 18 July 2012
Most Recent Rating Update: 18 July 2012

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