Standard & Poor’s placed covered bonds issued by Portugal’s Banco BPI and Banco Santander Totta on CreditWatch negative yesterday (Tuesday) following the same action on the sovereign and then the issuers last week.

S&P rates Portugal BB and placed the rating on negative review last Wednesday (18 September) because of perceived increasing risks to the country’s ability to meet fiscal consolidation objectives. It followed this up with rating actions on some of the country’s banks, placing Banco BPI (BB-) and Banco Santander Totta (BB) on CreditWatch negative on Friday.

Yesterday S&P placed BPI mortgage (A-) and public sector covered bonds (BB-) on negative review, as well as Totta mortgage covered bonds (BB+), because a downgrade of the banks would, all else being equal, lead to a cut of the covered bonds, it said.

The obrigações hipotecarias are rated at the highest possible level above the issuers under S&P’s covered bond criteria, meaning there is no buffer against an issuer downgrade.

BPI’s public sector covered bonds could be rated up to one notch above the sovereign but because the credit enhancement in the programme does not cover asset default risk S&P has not granted any uplift from the issuer rating.