Moody's rates Novo Banco, puts it on review

Moody's Investors Service said it assigned a B3 senior bond rating and a Ba1 government-backed senior bond rating to the newly established Portuguese entity Novo Banco, SA and affirmed Banco Espirito Santo, SA’s C subordinated bond rating. The majority of Banco Espirito Santo’s assets, liabilities and off-balance sheet items, together with its banking activities, were transferred to Novo Banco.

Novo Banco’s senior debt rating is on review for downgrade, the outlook on its government guaranteed debt is stable, and Banco Espirito Santo’s outlook was changed to stable from under review.

The agency said the E standalone bank financial strength rating assigned to Novo Banco reflects the fact that this bank is the successor to Banco Espirito Santo, which – as a result of significant losses and governance issues – had failed to meet regulatory capital requirements and consequently was subject to intervention by the Portuguese regulator.

Nevertheless, Moody's acknowledges that upward rating pressure exists on Novo Banco given that it has new shareholders and new management and that the most problematic assets that caused the resolution of Banco Espirito Santo have not been transferred to Novo Banco.

The review for downgrade of the senior debt rating will focus on the standalone credit profile of Novo Banco and an assessment of the likelihood of systemic support going forward.

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