Two banks in ratings cut row with agency.jpg

Two banks in ratings cut row with agency

By CHRIS GRAEME [email protected]

Portuguese banks have slammed a ratings cut by United States ratings agency Fitch as “unjustified”.

Banco Espírito Santo (BES) has decided to cut its relations with the agency and criticised its decision as being “incorrect from a technical point of view”.

Millennium bcp, which also suffered a two-point rating cut, said that there were “no facts which justified the downgrade”.

The decision to downgrade four Portuguese banks, BES, BPI, BCP and Banif, sent banking shares plummeting, with BES shares losing 1.19 per cent to 3.31 Euros, BCP falling 1.58 per cent to 0.623 Euros and BPI seeing 1.55 per cent shaved off its value to 1.52 Euros.

Fitch cut its risk classification for BES and BCP by two points to BBB+, while it also cut its rating for BPI and Banif by one point.

In all cases the ratings agency held a “negative outlook” for the banks, which means that there is the possibility of further ratings cuts from it and other agencies such as Moody’s and Standard & Poors.

The agency has cut the ratings because it believes that Portuguese banks will find it increasingly difficult to get loans on the international money markets due to Portugal’s current financial perception on the international financial arena.

It also questions the security of some of the assets of some of these banks.

The long-term rating for both Caixa Geral de Depósitos (CGD) and Santander Totta remain unchanged at A+.

BES announced that it would cancel its contract with Fitch on the grounds that there was “no valid justification” for the three point cut in four months.

In a communiqué sent to the Portuguese Securities Market Commission (CMVM), BES stated that the “Board of Directors has decided not to renew its contract with Fitch Ratings as a result of these revisions”.

The bank, headed by Ricardo Salgado, explained that it had a “solid capital base” and “always demonstrated the sustainability of its results, proving that its international expansion strategy plan had been effectively compensated for shrinking domestic activities”.

In addition, he stressed that “in the first nine months of 2010, profit results had grown by 12 per cent or 405 million Euros” and with regards to assets “we have perused a solid and prudent policy of risk management, maintaining a credit ratio significantly below the rest of the (Portuguese) banking sector” while in 2009 the bank had “put in place safety provisions (recapitalisation programmes) which had exceeded the necessary levels”.

Banco Comercial Português (BCP) issued a statement questioning the “fundamental grounds and rationality” of the moment chosen by Fitch to downgrade the credit rating of Portuguese national banks.

The bank, headed by Carlos Santos Ferreira, has decided to retain its commercial relationship with Fitch, which awarded BCP the same rating as BES – “BBB+”.

Less than four months ago, Fitch attributed both banks the healthier classification of “A”.

BCP too, in a communiqué sent to the CMVM, stated that it was “surprised at the Fitch move” which “did not reflect the solidity of the bank”.

It reminded Fitch that since its last rating attribution in July 2010, “not a single negative change had been registered at the bank in terms of its financing, liquidity, solvency or profitability”.

Instead it blamed overall market investor concerns at the negative development of international perceptions over the Portuguese Republic’s ability to balance its public accounts and pay its sovereign debts which had resulted in Portugal’s difficulty in auctioning its treasury bonds in sufficient numbers to raise foreign capital.

Fitch stated that it had cut the ratings of some Portuguese national banks because it considered the “existence of financing and liquidity risks at four Portuguese institutions and that BCP, BES, BPI (BBB-) and Banif were “suffering from the impact of the overall deterioration in the Portuguese domestic market and the quality of its assets”.

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