TEXT-Fitch cuts Banco Popular Portugal, Banco Santander Totta covered bonds

June 20 - Fitch Ratings has downgraded Banco Popular Portugal's (BPP;
'BB+'/Negative/'B') Obrigacoes Hipotecarias (OH; mortgage covered bonds) to
'BBB-'/Rating Watch Negative (RWN) from 'BBB'/RWN and has maintained them on
RWN. At the same time, Fitch has downgraded Banco Santander Totta's (Totta;
'BBB-'/Negative/'F3') EUR5.63bn outstanding OH to 'BBB' from 'BBB+' and placed
them on RWN.

The rating action is a result of the downgrade of Banco Popular Portugal and
Banco Santander Totta's Issuer Default Rating (IDR) to 'BB+' from 'BBB-' and to
'BBB-' from 'BBB', respectively (see "Fitch Downgrades Banco Popular Portugal's
IDR to 'BB+'; Outlook Negative" published on 14 June 2012 and "Fitch Downgrades
Santander Totta's IDR to 'BBB-'; Outlook Negative" published on 15 June 2012 on
www.fitchratings.com).

In both cases the covered bonds' rating on a Probability-of-Default (PD) basis
is equalised with the bank's IDR due to the 100% Discontinuity Factor (see
"Fitch Downgrades Three Portuguese Banks' Covered Bonds" publishes on 1 December
2011 on www.fitchratings.com).

As per Fitch's methodology, covered bonds may benefit from up to two or three
notches uplift for recoveries depending on whether the rating on a PD basis is
in the investment or sub-investment grade category, and provided
overcollateralisation (OC) is sufficient to maintain the rating. In the case of
issuers rated below 'F2' and in line with the agency's covered bonds rating
criteria Fitch will give credit to level of OC the issuers commits to or in the
absence of a commitment the legal minimum.

BPP's OH currently benefit from a one notch uplift for recoveries based on the
committed overcollateralisation level of 47%. The RWN reflects the addition of
commercial assets to the cover pool in December 2011 (see "Fitch Comments on
Banco Popular Portugal Covered Bonds New Cover Pool Composition" published on 30
December 2011 at www.fitchratings.com) and the subsequent possible deterioration
of the credit quality of the cover pool. Fitch is awaiting receipt of
information from the issuer which will help form a more complete opinion on the
credit quality of the cover pool. Should a complete information package not be
delivered by the end of June, BPP covered bonds will likely be downgraded and
the rating equalised to the issuer's IDR.

In the case of Totta, as the bank's Short-term IDR is below 'F2' and lacking any
contractual or public commitment on the part of the issuer, Fitch only gives
credit to the minimum level of OC required by the Portuguese covered bond
legislation, namely 5.26% for the OH. When assuming the aforementioned minimum
legal OC, stressed recoveries from the cover pool in a 'BBB' scenario are not
sufficient to ensure 100% recoveries for all covered bonds. Nonetheless, they
may sustain recoveries in excess of 51% on the longer dated covered bonds,
leading to a one notch uplift above the covered bonds rating on a PD basis. The
RWN reflects, however, the recalculation of the OC levels pending the
redetermination of refinancing costs and expected loss levels.

The level of OC supporting a given rating will be affected, amongst other
factors, by the profile of cover assets versus covered bonds, which is subject
to change even in the absence of new issuances. It can therefore not be assumed
that a given OC supporting the rating will remain stable over time.

All else equal, a downgrade of BPP's or Totta's IDR will lead to an equivalent
downgrade of their respective OH.

Fitch has published an exposure draft outlining a number of enhancements to its
criteria for rating covered bonds (see 'Fitch: Exposure Draft: Global Covered
Bonds Rating Criteria' dated 30 May 2012 at www.fitchratings.com). If
implemented as proposed, the criteria changes would not impact the rating of
BPP's nor Totta's covered bonds.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Covered Bonds Rating Criteria', dated 30 May 2012;
'Covered Bonds Counterparty Criteria', dated 13 March 2012; 'EMEA Residential
Mortgage Loss Criteria', dated 16 August 2011; 'EMEA Criteria Addendum -
Portugal - Mortgage Loss and Cash Flow Assumptions', dated 11 August 2011, are
available at www.fitchratings.com.

Applicable Criteria and Related Research:
Covered Bonds Rating Criteria
Exposure Draft: Covered Bonds Counterparty Criteria
EMEA Residential Mortgage Loss Criteria
EMEA Criteria Addendum - Portugal - Mortgage Loss and Cash Flow Assumptions -
Amended