KBRA Downgrades Banco Espirito Santo SA (BES)’s FSR from “D” to “E”

Business Wire


Kroll Bond Rating Agency (KBRA) downgraded the Financial Strength Rating (FSR) of Banco Espirito Santo SA (BES) from “D” to “E” last week. BES is a Portuguese bank with $114.1 billion in assets and $9.7 billion in capital as of March 31, 2014. Shares of BES and its holding company, Espirito Santo Financial Group SA (ESFG), have been suspended from trading since Thursday July 10, 2014, due to delayed coupon payments on some commercial papers by Espirito Santo International SA, the Bank’s Luxembourg-based holding company, which sought protection from creditors on Friday.

As of June 30, 2014, BES’ exposures to the Espirito Group companies was estimated at €1.2 billion ($1.6 billion) of loans, securities, and other items. BES stated that its retail clients hold approximately €853 million of commercial paper and bonds issued by Espirito Santo International, Rioforte and its subsidiaries, and Espirito Santo Financial and its subsidiaries. Additionally, the Bank’s institutional clients held €511 million of debt securities issued by Espirito Santo International and €1.5 billion of debt securities issued by Rioforte and its subsidiaries. The government of Portugal made it clear that there would be no state support for BES.

The downgrade of BES’ financial strength rating to “E” from “D” reflects the increased risks for the Bank’s stakeholders, given the troubles at the Espirito Santo Group and its affiliates. ESFG owns 25% of BES. According to a June 2014 presentation by BES, other shareholders of the bank include French banking group Credit Agricole (14.6%) the Brazilian banking group Bradesco (3.9%), BlackRock (5.1%), Capital Research and Management (4.2%), and UK investment fund Silchester (4.7%).

About Kroll Bond Ratings’ Financial Strength Ratings:

A financial strength rating (FSR) is an issuer-level assessment intended to represent the stand-alone, intrinsic risk of a commercial bank. KBRA's FSRs are expressed via 11 rating categories, with the symbol “A+” issued to institutions with the strongest financial health and “E” reserved for those with the weakest financial health. It captures the financial and operating risk of a bank and, ultimately, is an indication of the likelihood that the bank will either fail or need to be rescued. In many ways, it is similar to the CAMELS rating used by U.S. bank regulators to assess the viability of a bank. The FSR does not reflect the likelihood that a bank will be rescued, nor does it reflect currency-transfer risk. KBRA's Subscription Rating Service (SRS) provides FSRs for nearly all U.S.-based deposit taking institutions, including commercial banks, savings and loans, and credit unions. KBRA also provides FSR coverage for several hundred non-U.S. banks. The FSRs for U.S.-based banks are updated quarterly and rely on federal regulatory filings as data inputs. The ratings are generated from an algorithmically based approach, using factors found to be highly predictive of bank failures. KBRA's FSRs for non-U.S. banks are derived from an analysis of published financial data, which may vary depending on the jurisdiction.

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

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Marjan Riggi, 646-731-2354
Managing Director
Christopher Whalen, 646-731-2366
Senior Managing Director
Isabelle Nana, 240-394-4153
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