S&P cut Banco Espírito Santo from B+ to B- yesterday (Wednesday), its second downgrade of the Portuguese bank in less than a week, with uncertainty about the financial position of Espírito Santo Financial Group, the direct parent of BES, behind the latest rating action.

The rating of BES remains on CreditWatch negative, where it was placed when Standard & Poor’s downgraded BES from BB- to B+ on 11 July.

“The rating action reflects our assessment that BES’s capital position has weakened as a result of the higher losses that, according to our expectations, it is likely to face given its direct exposure to the Espírito Santo Financial Group, to its subsidiaries, and to Rio Forte Investments,” said S&P of yesterday’s downgrade

ESFG is BES’s largest single shareholder, although it reduced its direct stake in BES from 25% to 20% on Monday.

“The lowering of the ratings also reflects our view of higher risks to BES’s financial position, resulting mainly from its exposure to and links with Grupo Espírito Santo (GES) – the holding and operating companies group that includes ESFG and Rio Forte.”

The latest downgrade of BES comes after Portugal Telecom yesterday stated that Rio Forte, a subsidiary of Espírito Santo International (ESI), had failed to repay Eu850m of matured debt instruments. S&P also noted that ESI, together with some of the other entities in the Grupo Espírito Santo, has been reported – since ESFG on 10 July announced it was assessing the financial impact of its exposure to ESI – as potentially considering filing for bankruptcy protection.