News Column

Moody's assigns B3 senior debt and B2 deposit ratings to Novo Banco

August 13, 2014



Moody's Investors Service has today assigned

debt, deposit ratings and a standalone bank financial strength rating

(BFSR) to the newly established Portuguese entity Novo Banco, S.A., in

response to the transfer of the majority of assets, liabilities and

off-balance sheet items from Banco Espirito Santo, S.A. (BES), together

with the banking activities of this bank. The following ratings have been

assigned: (1) long- and short-term deposit ratings of B2/Not-Prime; (2) a

standalone BFSR of E (equivalent to a ca baseline credit assessment

[BCA]).

Additionally, Moody's rates the debt issues which have been transferred

from BES and assumed by Novo Banco as follows: (1) the long-term and

short-term senior unsecured debt at B3/Not-Prime, and (2) the government

guaranteed debt at Ba1. The bank's long-term senior debt and deposit

ratings are on review for downgrade, while the BFSR is on review for

upgrade. The outlook on the government guaranteed debt is stable.

At the same time, Moody's has taken the following rating actions on BES:

(i) the B2/Not-Prime deposit ratings were withdrawn, and (ii) the E BFSR

(equivalent to a ca BCA) and the C subordinated debt ratings were

affirmed.

Please refer to the end of this press release for a list of affected

ratings.

RATINGS RATIONALE

ASSIGNMENT OF RATINGS TO NOVO BANCO

The E standalone BFSR(equivalent to a ca BCA) assigned to Novo Banco

reflects the fact that this bank is the successor to BES which -- as a

result of significant losses and governance issues -- had failed to meet

regulatory capital requirements and consequently got intervened by the

Portuguese regulator. Such a scenario is consistent with the BFSR/BCA of

E/ca, a positioning which also reflects a higher than normal degree of

uncertainty associated with our assessment of the financial strength of

this new bank. Nevertheless, Moody's acknowledges that upward rating

pressure exists on Novo Banco's BFSR, given that it has new shareholders

and new management, and that the most problematic assets which caused the

resolution of BES have not been transferred to Novo Banco. Further, Novo

Banco received a capital injection from the Portuguese Resolution Fund --

which results in a CET 1 ratio of 8.5% - and will have a high level of

loan loss reserves following large provisions constituted by BES in H1

2014. Moody's expects to conclude the review for upgrade of Novo Banco's

BFSR in the coming weeks, as we anticipate greater visibility around the

bank's credit and business profile, including more detail and clarity on

key financial metrics.

The B3/Not-Prime senior debt and B2/Not-Prime deposit ratings assigned to

Novo Banco, which are four and five notches, respectively, above the BCA,

reflect the fact that the holders of these instruments have been

protected by the Portuguese authorities from the resolution of BES. The

review for downgrade of the senior debt and deposit ratings will focus on

(1) the standalone credit profile of Novo Banco, given the review for

upgrade of the bank's BFSR, and (2) an assessment of the likelihood of

systemic support going forward, and particularly whether the potential

for support would be lower in the future if there were a subsequent event

requiring government intervention. The one notch differential between

Novo Banco's deposit and debt ratings reflects the rating agency's

assessment of higher risk for senior debt holders versus the bank's

depositors.


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Source: EMBIN (Emerging Markets Business Information News)


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