Fitch Downgrade

Fitch Downgrades 4 Portuguese Banks' Viability Ratings, IDRs Unaffected Ratings

Endorsement Policy

18 Jun 2012 10:21 AM (EDT)

Fitch Ratings-Barcelona/London-18 June 2012: Fitch Ratings has downgraded Banco Comercial

Portugues' (Millennium bcp) and Banco BPI's Viability Ratings (VR) to 'cc' from 'b' and Banif - Banco Internacional do

Funchal, S.A.'s (Banif) VR to 'cc' from 'b-'. Fitch has also downgraded Caixa Geral de Depositos' (CGD) VR to 'b' from

'b+'.

The downgrades reflect Fitch's assessment of Portuguese banks' recapitalisation needs to comply with stricter

regulatory capital requirements and absorb one-off negative capital impacts. The banks' support-driven Long-term

Issuer Default Ratings ('BB+'/Negative for Millennium bcp, CGD and Banco BPI; 'BB'/Negative for Banif) are

unaffected by the VR downgrades. A full list of rating actions is at the end of this comment.

The downgrades of Millennium bcp, Banco BPI and Banif to 'cc' reflect their sizeable capital needs (EUR3bn at

Millennium bcp and EUR1.5bn at Banco BPI, in each case accounting for about 65% of their core capital at end-2011),

and the banks' inability to raise most of this capital by private means in a difficult operating environment, resulting in

them requiring external assistance from the Portuguese government and/or international authorities through the

EUR12bn Bank Solvency Support Facility (BSSF) under the IMF/EU programme.

Capital needs at CGD, Banco BPI and Millennium bcp are largely related to regulatory capital buffers required by the

European Banking Authority (EBA) to address market concerns over sovereign risks. The capital requirements also

reflect regulatory core capital deductions, largely relating to investments in insurance subsidiaries. Banco BPI and

Millennium bcp also have to absorb losses from the partial transfer of their pension funds to the social security system,

and Millennium bcp also needs to absorb other one-off losses. In addition, Millennium bcp has significant exposure to

developments in Greece as a result of the operations of its Greek subsidiary.