DBRS Downgrades Banco Popular Portugal to BBB After Downgrade of BPE, Trend Now Neg.

DBRS, Inc. (DBRS) has today downgraded the ratings of Banco Popular Portugal S.A. (BP Portugal) following the downgrade of its parent, Banco Popular Español S.A. (Popular or the Parent). DBRS has downgraded BP Portugal’s Senior Long-Term Debt & Deposit rating to BBB from A (low) and Short-Term Debt & Deposit rating to R-2 (high) from R-1 (low). The trend on all ratings is now Negative. The aforementioned ratings have been removed from Under Review with Negative Implications, where they were placed on 24 May 2012 following DBRS’s similar action on the Parent.

These rating actions follow DBRS’s downgrade of Popular to A (low) from A (high). Popular’s ratings have been removed from Under Review with Negative Implications; the trend is now Negative. DBRS has assigned a support assessment of SA1 to BP Portugal. The SA1 designation implies strong and predictable support from the Parent. As a supported rating with an SA1 designation, BP Portugal’s rating will generally move in tandem with Popular’s long-term debt ratings.

The ratings of BP Portugal, a wholly-owned direct subsidiary of Popular, reflect its important role in Popular’s overall strategy as well as DBRS’s expectation that Popular has both the resources and the willingness to support BP Portugal, if needed. The two notch differential between BP Portugal’s long-term debt rating of BBB and Popular’s long-term debt rating of A (low) reflects the risks associated with rating a bank subsidiary in a foreign country, particularly a lower-rated one. DBRS rates the Republic of Portugal at BBB (low). The Republic of Portugal’s long-term foreign and local currency ratings remain Under Review with Negative Implications, where they were placed on 22 May 2012. DBRS has recently announced the extension of its review on Portugal’s ratings given the unusually high degree of uncertainty regarding Portugal’s growth outlook, which is essential for debt stabilization. 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 BP Portugal. Without parental support, BP Portugal’s ratings would be significantly lower.

Notes:
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 publicly available 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: Roger Lister
Rating Committee Chair: Peter Burbank
Initial Rating Date: 1 March 2012
Most Recent Rating Update: 24 May 2012

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