Fitch Places Banco BPI's 'BB+' IDR on Rating Watch Evolving
KEY RATING DRIVERS - IDRS, SENIOR DEBT, SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF)
The RWE on Banco BPI's Long-term IDR reflects Fitch's view that there are two possible scenarios.
There is rating upside potential as a result of a change in support dynamics from sovereign to institutional support in case the offer results in Caixabank taking control of Banco BPI. Under this scenario, Fitch believes Banco BPI's IDRs would be notched down from CaixaBank's based on parent support.
However, the RWE also reflects rating downside potential if the offer is not successful. Under this scenario, Banco BPI's Long-term IDR, senior debt, SR and SRF would be under pressure as previously highlighted by the Negative Outlook. In Fitch's view, following the implementation of the EU's Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM), it is likely that sovereign support, while possible, can no longer be relied upon.
The RWP on the 'B' Short-term IDR reflects rating upside potential in the event of CaixaBank obtaining a controlling majority stake. If the tender offer is not successful, the Short-term IDR will be unchanged.
RATING SENSITIVITIES - IDRS, SENIOR DEBT, SR AND SRF
Fitch expects to resolve the RWE on the Long-term IDR and senior debt ratings and the RWP on the Short-term IDR once sufficient information on the transaction is available, most likely during 2Q15. Fitch views the removal of the voting cap, currently set at 20%, as a key milestone for the success of the acquisition. The agency expects Banco BPI's next shareholders meeting, which is expected to decide on the removal of the voting cap, to be convened by April.
Under a successful tender offer scenario, Fitch expects to incorporate potential support from CaixaBank into Banco BPI's ratings. The extent of the support will depend on CaixaBank's ability, as reflected by its Long-term IDR, and propensity to support its subsidiary. The analysis of the strategic importance of Banco BPI for CaixaBank will define the degree to which Fitch will notch Banco BPI's ratings down from CaixaBank's. In case CaixaBank manages to obtain an ample majority stake in Banco BPI, Fitch would likely regard Banco BPI of strategic importance for the parent, thus reflecting a high probability of support. Banco BPI's Long-term IDR would then likely be notched down once from CaixaBank. Looser control scenarios could lead to a notching down of two notches of Banco BPI's rating from that of CaixaBank. Fitch expects to withdraw Banco BPI's SRF if CaixaBank ends up controlling Banco BPI, as institutional support will become the more likely source of external support for the bank. Fitch does not assign SRFs to banks whose IDRs are driven by institutional support.
If the offer is unsuccessful, Banco BPI's Long-term IDR is sensitive to further progress made in the implementation of BRRD and SRM, which is likely to result in a revision of the SR and SRF to '5' and 'No Floor' by end-1H15. This would result in a downgrade of Banco BPI's Long-term IDR and senior debt ratings by one notch to the level of its VR, currently 'bb', unless mitigating factors arise.
KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND PREFERENCE SHARES
The bank's subordinated debt and preference shares have been placed on RWP to reflect a potential upgrade if Fitch believes parent support would be used to neutralise non-performance risk of these instruments, preventing it from hitting loss-absorption features. Under these circumstances, Fitch would notch these securities from the subsidiary's IDR.
KEY RATING DRIVERS AND SENSITIVITIES - SUSBIDIARY AND AFFILIATED COMPANY
The ratings of Banco Portugues de Investimento (BPI) are equalised with those of its 100% parent, Banco BPI. The equalisation is driven by its integration within its parent bank and the benefits derived from parent support. Fitch does not assign a VR to this institution as the agency does not view it as an independent entity. The ratings of BPI remain sensitive to rating action on Banco BPI's IDRs.