TEXT-Fitch cuts Santander Totta's IDR to 'BBB-'; outlook negative

(The following statement was released by the rating agency)

June 15 - Fitch Ratings has downgraded Santander Totta SGPS's (Santander Totta) and its bank subsidiary, Banco Santander Totta SA's Long-term Issuer Default Ratings (IDR) to 'BBB-' from 'BBB'. The Long-term IDRs have a Negative Outlook. The agency has also affirmed the two institutions' Short-term IDR at 'F3' and Support Ratings at '2'. A full list of rating actions is at the end of this commentary.

The rating action reflects a weakening of potential parent bank support following the downgrade of Spain's Banco Santander ('BBB+'/Negative; see "Fitch Downgrades Santander & BBVA to 'BBB+'/Negative Outlook on Sovereign Action" dated June 11, 2012 on www.fitchratings.com).

Fitch believes there still to be a high probability that Santander Totta and Banco Santander Totta would be supported by Banco Santander, if needed, and this drives their Long-term IDRs which are one notch higher than the Portuguese sovereign Long-term IDR ('BB+'/Negative).

However, Banco Santander's propensity and ultimate ability to provide full and timely support to Santander Totta and Banco Santander Totta is likely to be linked to banking sector and sovereign risks in Portugal, which are closely correlated. The ratings of the two banks are therefore sensitive to a further downgrade of the sovereign downgrade and/or of the parent bank.

In accordance with Fitch's criteria on 'Rating Bank Regulatory Capital and Similar Securities' (dated 15 December 2011 at www.fitchratings.com), Banco Santander Totta SA's preference shares have been downgraded to 'BB-' from 'BB+', being capped at the level assigned to equivalent securities issued by the parent.

Santander Totta's Viability Rating (VR) of 'bb-' is unaffected by this rating action. However, the rating could come under downward pressure in case of further deterioration in the operating environment and/or more rapid deterioration of asset quality.

Santander Totta is a Portuguese holding company ultimately owned by Banco Santander. Banco Santander Totta SA is its main subsidiary and is Portugal's fourth largest bank.

The ratings actions are as follows:

Santander Totta:

Long-term IDR downgraded to 'BBB-' from 'BBB', Outlook Negative

Short-term IDR affirmed at 'F3'

Viability Rating unaffected at 'bb-'

Support Rating affirmed at '2'

Banco Santander Totta S.A.:

Long-term IDR downgraded to 'BBB-' from 'BBB', Outlook Negative

Short-term IDR affirmed at 'F3'

Viability Rating unaffected at 'bb-'

Support Rating affirmed at '2'

Senior debt downgraded to 'BBB-' from 'BBB'

Commercial paper and short-term debt affirmed at 'F3'

Preference shares downgraded to 'BB-' from 'BB+'

The rating impact, if any, from the above rating actions on Santander Totta's securitisation transactions and covered bonds will be detailed in separate comments.