DBRS Takes Rating Actions Following Resolution of Popular; Sale to Santander

DBRS, Inc. (DBRS) has today taken certain rating actions on Banco Popular Español, S.A.’s (BPE or the Bank) following the European Single Resolution Board (SRB) and the Spanish Resolution Authority’s (Fondo de Reestructuración Ordenada Bancaria, or FROB) resolution of the Bank. On June 7, 2017 the SRB and FROB announced the exercise of write-down power and conversion of capital instruments prior to the transfer of BPE to Banco Santander S.A. (Santander or the Parent). As a result of this exercise, shareholders and investors in BPE’s Additional Tier 1 instruments, subordinated debt, and preference shares have absorbed losses prior to the transfer to Santander.

Following these measures, DBRS has downgraded the Issuer Ratings of BPE and its subsidiary Banco Pastor, S.A. (Pastor) to Selective Default (SD) from BB (low), Under Review with Negative Implications (URN). The downgrade reflects the bail-in of the capital instruments but that the Bank, following the acquisition by Santander, is expected to continue to meet its obligations in a timely manner on other securities and/or classes of securities such as senior debt. Subsequently, DBRS has withdrawn these Issuer Ratings. Considering the acquisition by Santander, DBRS plans to reinstate these Issuer Ratings in the coming days. DBRS has also downgraded the Dated Subordinated Notes and Preferred Shares issued by BPE and its subsidiaries to D from B (low) to reflect that these instruments have been used to absorb losses as a result of applying resolution measures to BPE. Subsequently, DBRS has withdrawn these subordinated and preference shares ratings.

With the acquisition by Santander, DBRS now applies a SA1 support designation to BPE implying strong and predictable support from the Parent. As supported rating with a SA1 designation, BPE’s rating will generally move in tandem with Santander’s long-term debt ratings. As BPE is now a supported subsidiary, DBRS has also withdrawn its Intrinsic Assessment (IA) for BPE. At the same time, DBRS has upgraded BPE’s remaining debt obligations, including its Senior Unsecured Long-Term Debt & Deposit rating to A from BB (low), its Short-Term Debt & Deposit rating to R-1 (low) from R-4, its Long Term Critical Obligations Rating (COR) to A (high) from BBB (low), and its Short Term COR to R-1 (middle) from R-2 (middle). The Trend on these ratings is Stable, in line with the Trend on Santander’s ratings. These ratings actions conclude the review of BPE’s ratings that was initiated on June 6, 2017.

The resolution of BPE by the SRB and the FROB was carried out to safeguard the depositors and critical functions of the Bank, while also ensuring financial stability both in Spain and Portugal. This action follows the decision by the European Central Bank that BPE was failing or likely to fail as a result of the rapid deterioration of its liquidity position. Additionaly, the SRB and FROB determined that there was no reasonable prospect that any alternative private sector measures or supervisory action would prevent the failure of the Bank within a reasonable timeframe.

RATING DRIVERS

Positive rating pressure would likely be linked to improvement in Santander’s long-term debt ratings. Alternatively, a downgrade of Santander’s ratings would also likely negatively impact BPE’s ratings.

Any indication of a reduction of support from the Parent could impact DBRS’s support assessment, and potentially have a negative impact on BPE’s ratings.

Notes:
All figures are in EUR unless otherwise noted.

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (May 2017) and DBRS Criteria: Guarantees and Other Forms of Support (February 2017) which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents, Bank of Spain, Fondo de Restructuracion Ordenada Bancaria (FROB), Single Resolution Board (SRB), European Central Bank (ECB) 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, Senior Vice President - Global FIG
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer, Global Financial Institutions Group and Sovereign Ratings
Initial Rating Date: September 21, 2006
Most Recent Rating Update: June 6, 2017

The rated entity or its related entities did participate in the rating process. DBRS did have access to the accounts and other relevant internal documents of the rated entity or its related entities.

For more information on this credit or on this industry, visit www.dbrs.com.

The rating table below was amended on December 20, 2017, to ensure the rating reflected the rating action of Disc.-Withdrawn which took place on June 8, 2017.