DBRS threatens to drop Caixa Geral's credit rating to 'junk'

Portugal’s favourite ratings agency, DBRS, has put the Caixa Geral de Depósitos rating "under surveillance with negative implications," signalling the likelihood of dropping the State-owned bank’s rating to 'junk' status.

The problems is one of corporate governance following the resignation of most of the Caixa Geral's directors alongside the bank’s president which has put at risk the bank's recapitalisation timetable. Without a ‘recapitalisation’- a polite word for ‘bailout,’ the bank inevitably will remain unprofitable.

DBRS currently has Caixa pegged at BBB(low), one level above the feared ‘junk’ category.

If this surveillance period, which may last up to three months, ends in a downgrading, Caixa Geral de Depósitos' debt will be reduced to the level of ‘highly speculative.’

The Canadian agency, the only one that rates Portugal’s debt as anything other than peculative,* said that it will pay particular attention to "how the resignation of the majority of the bank's directors on November 27th will affect the restructuring of the group."

Maria Rivas, the Canadian agency's analyst responsible for the latest report on Caixa Geral, is concerned about the delay in the recapitalisation process.

"Although the group is in a recapitalisation process that would strengthen its balance sheet, delays and the risk of execution for this process have been taken into account for this review period," the DBRS note states.

"As a result, DBRS expects the group to be weakly capitalised for a longer period than originally planned."
 
In addition, the resignation of Caixa Geral of António Domingues and much of his board puts "additional challenges on the group to return to profitability, to improve asset quality and to improve investor confidence," according to DRBS.

The agency recognises that the government will continue to support the bank if necessary, but that this is "less likely if the bank needs to strengthen its capital position in the medium term."

Thus, a rise in the rating is something the DBRS sees as "unlikely in the short to medium term given the review period."

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