SAO PAULO & NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded the National Ratings of Banco Panamericano S.A. (BP), as follows:
--Long-Term National Rating to 'AA-(bra)', from 'A-(bra)'; Outlook Stable;
--Short-Term National Rating to 'F1+(bra)' from 'F2(bra)'.
In addition, Fitch has affirmed the Support Rating at '3'.
The upgrade of BP's National Ratings reflects Banco BTG Pactual S.A.'s (BTG; rated with an IDR of 'BBB-', Outlook Stable by Fitch) support, as well as the benefit of having Caixa Economica Federal (Caixa; rated 'AAA(bra)', Outlook Stable) as shareholder and main funder, after final approval of BP's current shareholding composition by the Brazilian authorities.
Fitch believes that BP would look for support from BTG, if necessary. However, recognizing Caixa's strong liquidity support and the fact that BP represents a new and important business line to BTG, Fitch considers the probability of such support to be moderate. Any changes in BTG's propensity or capacity to provide support to BP may lead the bank's ratings to be moved by multiple notches. BP's credit profile, without considering the benefits of financial and operational support from its shareholders, reflects high vulnerability to stress scenarios.
In November 2010, accounting inconsistencies amounting to BRL2.5 billion were identified in BP, which led the former controller, the Silvio Santos Group (GSS), to provide a capital injection with funds from FGC (Credit Guarantor Fund), guaranteed by assets of the former shareholder. However, additional accounting inconsistencies were found and an adjustment of BRL1.8 billion had to be made in January 2011, resulting in a new injection of BRL1.3 billion and in the sale of 51% of the common shares held by GSS to BTG, concluded May 27, 2011, after approval of local authorities.
Since the identification of accounting inconsistencies at BP, new officers and members of the board were appointed to manage the bank; these were partly changed, again, with the sale to BTG. With the support of two international audit firms and the Central Bank of Brazil, the bank has concluded an extensive review on its books, which has identified no new irregularities. At the same time, several initiatives for cost reduction, strategic alignment and IT operational improvements have been implemented by the new team. The objective is to correct structures, policies, procedures and teams, achieve a higher growth rate from the second half of 2011, and search for the necessary scale to achieve operational profitability over time.
Fitch notes that only BP's December 2010 and March 2011 financial statements are reliable for analysis, given that previous balance sheets offered accounting inconsistencies, mainly involving credit portfolio sales, overestimating the bank's credit portfolio and revenues. After two capital injections for a total of BRL3.8 billion, the reversal of BRL0.7 billion in tax credits and the sale of BRL3.5 billion of credits without recourse to FGC, BP managed to restore its equity to BRL1.4 billion, in March 2011. However, Fitch notes that the capital quality is jeopardized by the substantial volume of intangibles and subordinated debt, demonstrated by Fitch eligible capital ratio of low 1.6% in March 2011. Nevertheless, Fitch believes the bank's performance and capitalization should improve over the years, albeit strongly dependent upon credit portfolio sales.
Controlled by Caixa (49%) and by BTG (51%) through a shareholders' agreement, BP operates in the vehicle financing sector, payroll deductible loans, credit cards and small and medium companies (SMEs).
Additional information available at 'www.fitchratings.com' or 'www.fitchratings.com.br'.
Applicable Criteria and Related Research:
-- 'National Ratings Criteria' (Jan. 19, 2011);
-- 'Short-Term Ratings Criteria for Corporate Finance' (Nov. 02, 2010);
-- 'Global Financial Institutions Rating Criteria' (Aug. 16, 2010).
-- 'Parent and Subsidiary Rating Linkage Criteria' (July 14, 2010)
-- 'Banco BTG Pactual' (Jan. 21, 2011)
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Short-Term Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
Parent and Subsidiary Rating Linkage Criteria Report
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826
Banco BTG Pactual S.A.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=596825
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