Standard & Poor’s has downgraded five Portuguese covered bond issuers as part of a downgrade of seven Portuguese financial institutions, which are on negative outlook.

The rating actions were announced on Tuesday and follow a downgrade of the sovereign to BB on 13 January, and a lowering of the banking industry country risk assessment (BICRA) for Portugal from group 5 to group 7.

S&P lowered by two notches Banco Santander Totta, Banco BPI, Caixa Geral de Depósitos, and Banco Comercial Português (Millennium bcp). The rating agency cut Banco Espírito Santo by one notch.

The cut of Santander Totta solely reflects the sovereign downgrade, said S&P.

“Although we believe that Santander Totta is a highly strategically important subsidiary for its parent, Banco Stantander,” said S&P, “we limit the rating on Santander Totta at the level of the foreign currency long term rating on Portugal.”

The downgrades of the remaining banks mainly reflect the lowering of the banks’ standalone credit profiles (SACPs) by either one or two notches following a revision of the BICRA, and the change of the anchor S&P applies to banks operating primarily in Portugal from bbb- to bb.

The anchor is based on the rating agency’s calculation of the weighted average of the economic risks of the countries where the bank operates and the industry risk score of the bank’s country of domicile.

S&P downgraded Caixa Geral de Depósitos by two notches, after cutting its SACP by only one notch as opposed to a two notch revision of the anchor.

The rating agency said this is because once the anchor for a bank is lowered to the speculative grade category the adjustment it makes for a weak capital and earnings assessment on a bank is only one notch rather the previous two when determining the bank’s SACP.

The rating agency has also reduced the uplift it factors into the long term rating on Caixa Geral de Depósitos above the SACP for government support from two notches to one.

Banco Espírito Santo was downgraded by one notch owing to the SACP revision of one notch as opposed to the two notch revision on the anchor applied to Portuguese banks.

S&P noted this was because once the anchor for a bank falls to the speculative grade category, a “moderate” assessment of its capital and earnings becomes a neutral factor for its SACP.

The downgrades affecting covered bond issuers were:

• Banco Stantander Totta, from BBB- to BB
• Caixa Geral de Depósitos, from BB+ to BB-
• Banco Comercial Português, from BB to B+
• Banco BPI, from BB+ to BB-
• Banco Espírito Santo, from BB to BB-

RBS analysts noted that while the issuer downgrades do not further constrain the prevailing covered bond ratings (beyond the sovereign caps and apart from the negative outlook), S&P is also assessing cover pools as it incorporates changed recovery assumptions for the Portuguese sovereign in BPI’s public sector cover pool and changes to the cover pool backing BPI’s mortgage covered bonds and the issuer’s recent tender offer. The rating agency is also reconsidering the composition of Santander Totta’s mortgage cover pool, said the analysts.