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Various Rating Actions Taken On Spanish Banks On Prospect Of Reduced Economic Risks And Potential For Government Support

Primary Credit Analyst: Elena Iparraguirre, Madrid (34) 91-389-6963; elena.iparraguirre@standardandpoors.com Secondary Contacts: Luigi Motti, Madrid (34) 91-788-7234; luigi.motti@standardandpoors.com Carlos Cobo, Madrid +34 91 788 72 32; carlos.cobo@standardandpoors.com Fabio Mostacci, Madrid +34 91 788 72 09; fabio.mostacci@standardandpoors.com Antonio Rizzo, Madrid +34 917 887 205; Antonio_Rizzo@standardandpoors.com Angela Cruz, Madrid (34) 91-389-6945; angela.cruz@standardandpoors.com

OVERVIEW In our view, Spanish banks have absorbed most of the credit losses associated with the correction in the real estate market and the double-dip recession and we expect the property market to bottom-out in 2014. We now have a positive view on the economic risk trend for the Spanish banking industry. We consider that potential extraordinary government support for European banks will likely decrease as resolution frameworks are put in place. Based on these factors, combined with recent bank-specific developments, we are affirming most of our ratings on Spanish banks. Most outlooks are unchanged. MADRID (Standard & Poor's) April 29, 2014--Standard & Poor's Ratings Services today took various rating actions on 12 Spanish banks. Specifically, it: Raised to 'B/B' from 'B-/C' its counterparty credit ratings on Banco Financiero y de Ahorros S.A. (BFA), Bankia S.A.'s parent holding company. The outlook is negative.

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Various Rating Actions Taken On Spanish Banks On Prospect Of Reduced Economic Risks And Potential For Government Support

Revised to positive from stable the outlook on Cecabank S.A. and affirmed its 'BB+/B' counterparty credit ratings on the bank. Affirmed its 'BB/B' counterparty credit ratings on Bankinter S.A., with a positive outlook. Affirmed its 'BBB-/A-3' counterparty credit ratings on CaixaBank S.A. and its 'BB/B' counterparty credit ratings on Ibercaja Banco S.A., both with a stable outlook. Affirmed its 'BBB-/A-3' counterparty credit ratings on Kutxabank S.A. (Kutxabank) and Barclays Bank S.A.U. (BBSA), its 'BB/B' counterparty credit ratings on Banco de Sabadell S.A. (Sabadell), its 'BB-/B' counterparty credit ratings on Bankia S.A., and its 'B+/B' counterparty credit ratings on Banco Popular Espaol S.A. (Popular) and NCG Banco S.A. (NBG). The outlooks on all six banks are negative. Maintained its unsolicited 'BB' long-term counterparty credit rating on Caja de Ahorros y Pensiones de Barcelona (la Caixa) on CreditWatch with negative implications, where it had been placed on April 14, 2014, and affirmed its unsolicited 'B' short-term rating on la Caixa. The rating actions follow the completion of our review of 12 rated Spanish banks. The review incorporates our view that the economic risks affecting Spanish banks are easing and that potential extraordinary government support for European banks is likely to decrease as resolution frameworks are put in place. The review also took into consideration recent bank-specific developments. In our view, Spanish banks have absorbed most of the credit losses associated with the correction in the real estate market and the double-dip recession. Over a five-year period, we calculate that Spanish banks have recognized credit losses equivalent to 13.5% of the credit outstanding at the beginning of the downturn. We believe that the real estate market correction is close to an end as prices and activity levels will likely bottom-out in 2014. Meanwhile, we are seeing a moderate resumption in economic activity, after a long, deep recession. We therefore expect banks' credit provisions to decline in 2014 and 2015 and to approach more-normalized levels by 2016. All these factors support our positive view of the trend in economic risks faced by the Spanish banking system. At the same time, we continue to see a stable trend in industry risk. The positive trend indicates that over time we could revise our assessment of economic risk for the Spanish banking system, and in turn revise to 'bbb-' from 'bb+' the anchor we apply to financial institutions operating primarily in Spain. The anchor is the starting point for assigning issuer credit ratings to banks. At present, we do not expect a change in the anchor to trigger a change in our ratings on most Spanish banks because we would not raise the ratings unless we also saw far more-significant capital strengthening than we currently incorporate into the ratings. As a result, of the 12 financial institutions that were part of this review, only two have a positive outlook--we revised the outlook on Cecabank S.A. to

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Various Rating Actions Taken On Spanish Banks On Prospect Of Reduced Economic Risks And Potential For Government Support

positive and maintained the positive outlook on Bankinter S.A. By contrast, the negative outlooks on five Spanish financial institutions--Kutxabank, BBSA, NCG, Popular, and Sabadell--indicate that we still see that their SACPs could come under pressure if they do not strengthen their capital as much as we expect or their asset quality deteriorates by more than we anticipate. BBSA's SACP could also come under pressure if it fails to successfully restructure its business model and sustainably increase its recurring profitability. Furthermore, we could lower the ratings on Sabadell and NCG if, contrary to our base-case scenario, these banks remain reliant on European Central Bank (ECB) borrowings once the long-term refinancing operations expire and prove unable to restore their liquidity to a level we regard as "adequate" under our criteria. In addition to our review of Spain's economic risk trend, we also finished our review of potential extraordinary government support for European banks and concluded that this is likely to decrease as resolution frameworks are put into place. We observe that European authorities are taking steps to increase the resolvability of banks and require creditors, rather than taxpayers, to bear the burden of the costs of failure (see "Standard & Poor's Takes Various Rating Actions On European Banks Following Government Support Review," published on April 29, 2014). In the near term, we expect that governments will remain supportive of systemically important banks' senior unsecured creditors while resolution frameworks take shape. From January 2016, however, the EU Bank Recovery and Resolution Directive (BRRD) is set to introduce the mandatory bail-in of a minimum amount of eligible liabilities, potentially including certain senior unsecured obligations, before governments could provide solvency support. Accordingly, we consider that the potential extraordinary government support currently incorporated in the ratings on five Spanish financial institutions (Bankia and its holding parent company BFA, Popular, NCG, and Sabadell) will likely diminish within our two-year rating horizon. The ratings on these five institutions currently benefit from one or two notches uplift above their SACPs. We incorporate notches for extraordinary government support into the ratings on these five institutions because we view the Kingdom of Spain as "supportive" of private-sector commercial banks, and because we consider them systemically important. We view all as being of "high" systemic importance, except NCG, which is of "moderate" systemic importance. We could remove these notches for extraordinary government support shortly before the January 2016 introduction of the BRRD's bail-in powers for senior unsecured liabilities. These rules would indicate to us that EU governments would be much less able to support senior unsecured bank creditors, even though it may take several more years to eliminate concerns about financial stability and the resolvability of systemically important banks. At the same time, but unrelated to the above, we raised the long- and short-term ratings on BFA to reflect the bank's improved financial profile--following its downsizing, BFA no longer reports double leverage (holding company debt used to finance equity capital at the subsidiary). We now rate the bank two notches below the group's credit profile; previously, it

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Various Rating Actions Taken On Spanish Banks On Prospect Of Reduced Economic Risks And Potential For Government Support

was three notches below. Two notches is the standard notching difference we apply for holding company ratings, when group credit profiles are speculative-grade. Our affirmation of the ratings on Bankinter was also primarily based on bank-specific developments. Although the bank has improved its capital to a moderate level and we expect it to maintain this degree of solvency, we now also consider the bank unlikely to reduce its relatively high reliance on short-term funding and so improve its liquidity position to an adequate level, in contrast to our previous expectation. The combination of these factors led us to revise the bank's SACP to 'bb' from 'bb-', but left the ratings unchanged because we removed the one-notch uplift incorporated in the ratings for short-term support. We did not include Banco Santander S.A., its highly strategic subsidiary Santander Consumer Finance S.A., and Banco Bilbao Vizcaya Argentaria S.A. in this review because the ratings on these banks would not be affected by a change in our view of economic risks for Spanish banks or a potential reduction in government support. Their exposure to their home market is lower than that of their domestic peers (the anchor for these banks is already 'bbb-') and the ratings are constrained by Spain's creditworthiness, rather than benefiting from government support. OUTLOOK The positive outlook on Cecabank primarily reflects the possibility that we could revise the bank's SACP upward and raise the long-term rating on it if the positive economic risk trend results in an improvement of our overall economic risk assessment for Spanish banks and the remaining rating factors remain unchanged. The positive outlook on Bankinter reflects the possibility that we could revise the bank's SACP upward and raise the long-term rating on it if Bankinter continued to successfully transform its business model. In a more-benign economy, this might be less difficult to accomplish than we initially expected. The negative outlooks on Popular, NCG, Sabadell, BBSA, and Kutxabank reflect potential downward pressure arising from specific factors. These factors vary from bank to bank, but may include a lower capital strengthening than that included in our expectations, greater asset quality deterioration than we currently expect, or failure to meet our expectation that their liquidity positions would improve to an adequate level. In the case of BBSA, pressure could stem from a failure in the restructuring of its business model or any evidence of reduced commitment from its parent, U.K.-based bank Barclays Bank PLC, because the ratings on BBSA benefit from three notches of uplift over its SACP due to parental support. Additionally, the negative outlooks on Bankia, BFA, Popular, NCG, and Sabadell indicate that we may lower their ratings by year-end 2015 if we believe there

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Various Rating Actions Taken On Spanish Banks On Prospect Of Reduced Economic Risks And Potential For Government Support

is a greater likelihood that senior unsecured liabilities may incur losses if the bank fails, and so decide to reduce or remove notches related to government support from the ratings on these banks. The stable outlook on Caixabank reflects our view that for the positive trend we see for economic risks in Spain to translate into prospects for a higher rating on Caixabank, we would need to predict a greater improvement of the bank's capital position than the improvement we currently incorporate into the ratings and to revise the outlook on our sovereign rating on Spain to positive from stable. The stable outlook on Ibercaja primarily reflects our view that if the positive economic risk trend materializes as an improvement of the economic risk for the Spanish banking system, it could benefit our assessment of Ibercaja's capital position, but probably not sufficiently to trigger an upgrade. CREDITWATCH The ratings on la Caixa remain on CreditWatch negative to indicate that a recently approved change in its legal form from a savings bank to a foundation--which could lead to changes to the regulatory and supervisory framework under which it operates--could weaken its creditworthiness. RELATED CRITERIA AND RESEARCH

Related Criteria Group Rating Methodology, Nov. 19, 2013 Revised Market Risk Charges For Banks In Our Risk-Adjusted Capital Framework, June 22, 2012 Banks: Rating Methodology And Assumptions, Nov. 9, 2011 Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011 Bank Capital Methodology And Assumptions, Dec. 6, 2010 Use Of CreditWatch And Outlooks, Sept. 14, 2009

Related Research Standard & Poor's Takes Various Rating Actions On European Banks Following Government Support Review, April 29, 2014 Credit FAQ: The Rating Impact Of Resolution Regimes For European Banks, April 29, 2014 Standard & Poor's To Review Government Support In European Bank Ratings, March 4, 2014

BICRA SCORE SNAPSHOT*

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Various Rating Actions Taken On Spanish Banks On Prospect Of Reduced Economic Risks And Potential For Government Support

Spain BICRA Group Economic risk Economic resilience Economic imbalances Credit risk in the economy Economic risk trend Industry risk Institutional framework Competitive dynamics Systemwide funding Industry risk trend To 6 7 Intermediate risk Very high risk High risk Positive 5 Intermediate risk Intermediate risk High risk Stable From 6 7 Intermediate risk Very high risk High risk Stable 5 Intermediate risk Intermediate risk High risk Stable

*Banking Industry Country Risk Assessment (BICRA) economic risk and industry risk scores are on a scale from 1 (lowest risk) to 10 (highest risk). For more details on our BICRA scores on banking industries across the globe, please see "Banking Industry Country risk Assessment Update," published monthly on RatingsDirect. RATINGS LIST Ratings Raised To Banco Financiero y de Ahorros S.A. Counterparty Credit Rating Ratings Affirmed; Outlook Revised To Cecabank S.A. Counterparty Credit Rating Ratings Affirmed CaixaBank S.A. Counterparty Credit Rating Kutxabank S.A. Counterparty Credit Rating Barclays Bank S.A.U. Counterparty Credit Rating Bankinter S.A. Counterparty Credit Rating Ibercaja Banco S.A. Counterparty Credit Rating BB+/Positive/B From BB+/Stable/B B/Negative/B From B-/Negative/C

BBB-/Stable/A-3

BBB-/Negative/A-3

BBB-/Negative/A-3

BB/Positive/B

BB/Stable/B

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Various Rating Actions Taken On Spanish Banks On Prospect Of Reduced Economic Risks And Potential For Government Support

Banco de Sabadell S.A. Counterparty Credit Rating Bankia S.A. Counterparty Credit Rating Banco Popular Espanol S.A. Counterparty Credit Rating NCG Banco S.A. Counterparty Credit Rating

BB/Negative/B

BB-/Negative/B

B+/Negative/B

B+/Negative/B

Caja de Ahorros y Pensiones de Barcelona (Unsolicited) Short-Term Counterparty Credit Rating B Rating Remaining On CreditWatch Caja de Ahorros y Pensiones de Barcelona (Unsolicited) Long-Term Counterparty Credit Rating BB/Watch Neg NB: This list does not include all the ratings affected.
Additional Contact: Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com

This unsolicited rating(s) was initiated by Standard & Poor's. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor's has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.

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