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S&P downgrades five Portuguese banks

Monday 28 March 2011 - by Andrew Hickley

Standard & Poor's has warned that Portugal could face a further sovereign downgrade this week as it downgraded five of the country's banks.

Blaming the increasingly difficult "economic, financial, and operating environment" in the country, it adds that the country's status on negative CreditWatch reflects the possibility of another sovereign downgrade, "which we expect could take place as early as this week".  

"Increasing policy uncertainty, in turn, will, in our opinion, further undermine the already very weak level of investor confidence, increasing Portuguese banks' funding difficulties," it states.  

"In our view, the wholesale markets will remain closed for the issuance of medium and long-term debt, and temporary strains in the short-term markets cannot be disregarded."
 
Under the ratings changes, Banco Santander Trotta has fallen to BBB from A. 100 per cent state-owned Caixa Geral de Depósitos has dropped to BBB from A-, while Banco Espirito Santo and its core subsidiary Banco Espirito Santo de Investimento are now BBB, downgraded from A-.



Banco BPI and its core subsidiary Banco Português de Investimento S.A. have been downgraded to BBB from A-, with Banco Comercial Português falling to BBB- from BBB+.

It notes that banks are rarely rated above the long-term sovereign rating of their home country, which was downgraded on Friday amid fears that an EU bailout was necessary.

The news comes after a member of the European Central Bank's Governing Council yesterday recommended the country take an EU-funded bailout.

Speaking in a television interview Ewald Nowotny also voiced concerns that political troubles could make a bailout unviable in the short-term.

Prime Minister Jose Socrates resigned last week after a fourth round of austerity measures failed to win approval from the minority government.   


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