OREANDA-NEWS. Fitch Ratings has downgraded Banco Pan S.A.'s (Pan) Issuer Default Ratings (IDRs) to 'BB' from 'BB+' and maintained the Rating Watch Negative. The agency also downgraded the ratings on Pan's subsidiaries (Brazilian Finance & Real Estate S.A. [BFRE], Brazilian Mortgages Cia Hipotecaria [BM] and Brazilian Securities Cia de Securitizacao [BS]), maintaining the Rating Watch Negative. A full list of rating actions follows the end of this release.

KEY RATING DRIVERS
The downgrade of Pan's support-driven IDRs reflects the increasing difficulties of one of its co-controlling shareholders - Banco BTG Pactual S.A. (BTG, Long-term IDR 'BB-'/Negative Watch) to provide support to Pan in case of need. The downgrade of Pan was of lesser magnitude than BTG Pactual's and its ratings are now above those of the latter, reflecting the extraordinary support it could receive from the other co-controlling shareholder, Caixa Economica Federal (Caixa, Long-term IDR 'BBB-/Negative Watch; National Rating 'AAA(bra)'/Stable Outlook). Extraordinary support could be provided in the form of credit lines and long-term funding agreements, as well as a new strategic orientation, including management proximity, especially after the difficulties faced by BTG.

As per Fitch's evaluation, Pan is currently rated two notches below Caixa's IDR. The agency believes that, given the difficulties that BTG currently faces, Caixa is the most likely source of potential support for Pan, if needed, as is stated by Caixa's management. However, BTG continues to share control of Pan (controlling shares of 51%) meaning that further reviews of BTG's ratings can impact Pan's ratings, too.

The Negative Watch reflects possible implications for Pan's financial flexibility derived from potential contagion from reputational risk arising from its relationship with BTG. It also reflects Pan's very complex shareholder structure and the uncertainties as to how it will be controlled in the future.

Pan's Viability Rating (VR) of 'b' is limited by the still volatile operating performance of the bank, its operating losses, improving but still above-average asset quality ratios, and relatively weak capitalization. The unfavorable market scenario has not allowed the bank to grow as fast as it would like to and this has delayed some profitability improvements. Some cost control measures, such as the reduction of the number of executives on its executive board, had a positive effect on the bank's results. The rating has also been placed on Negative Watch because of the potential for material negative effects on its intrinsic profile due to the scenario at BTG.

Fitch believes that Pan's subsidiaries (BFRE, BM and BS) will also have the same support from Caixa in case of need. This is justified by the subsidiaries' active role, synergies and integration with Pan. BFRE, BM and BS are fully owned subsidiaries of Pan, fully consolidated in the bank even as far as regulatory aspects.

RATING SENSITIVITIES
Pan's IDRs could be downgraded if Fitch sees that Caixa reduces its willingness or capacity to provide support for Pan. Changes in credit limits and asset sales agreements' limits provided from Caixa, or even in Pan's shareholder structure are triggers also to be monitored. Also, new negative events involving wrongdoing derived from investigations affecting BTG may undermine Pan's capacity to generate new business and can trigger additional downgrades. A downgrade to Pan's VR could be triggered by a longer than expected breakeven point in operations against a backdrop of capital ratios falling to low levels.

The ratings could be removed from Rating Watch Negative and returned to the previous Negative Outlook once Fitch is comfortable about the stability of the aforementioned financial aspects of the company and its franchise.

Fitch has taken the following rating actions:

Banco Pan S.A.
--Long-term foreign and local currency IDRs downgraded to 'BB' from 'BB+', Rating Watch Negative Maintained;
--Short-term foreign and local currency IDRs at 'B', Rating Watch Negative Maintained;
--Support Rating at '3', Rating Watch Negative Maintained;
--Long-term National Rating downgraded to 'A+(bra)' from 'AA-(bra)', Rating Watch Negative Maintained;
--Short-term National Rating downgraded to 'F1(bra)' from 'F1+(bra)', Rating Watch Negative Maintained.
--Viability Rating of 'b' placed on Rating Watch Negative.

Brazilian Finance & Real Estate S.A.
--Long-term foreign and local currency IDRs downgraded to 'BB' from 'BB+', Rating Watch Negative Maintained;
--Short-term foreign and local currency IDRs at 'B', Rating Watch Negative Maintained;
--Long-term National Rating downgraded to 'A+(bra)' from 'AA-(bra)', Rating Watch Negative Maintained;
--Short-term National Rating downgraded to 'F1(bra)' from 'F1+(bra)', Rating Watch Negative Maintained.

Brazilian Mortgages Cia Hipotecaria
--Long-term foreign and local currency IDRs downgraded to 'BB' from 'BB+', Rating Watch Negative Maintained;
--Short-term foreign and local currency IDRs at 'B', Rating Watch Negative Maintained;
--Long-term National Rating downgraded to 'A+(bra)' from 'AA-(bra)', Rating Watch Negative Maintained;
--Short-term National Rating downgraded to 'F1(bra)' from 'F1+(bra)', Rating Watch Negative Maintained.

Brazilian Securities Cia de Securitizacao
--Long-term foreign and local currency IDRs downgraded to 'BB' from 'BB+', Rating Watch Negative Maintained;
--Short-term foreign and local currency IDRs at 'B', Rating Watch Negative Maintained;
--Long-term National Rating downgraded to 'A+(bra)' from 'AA-(bra)', Rating Watch Negative Maintained;
--Short-term National Rating downgraded to 'F1(bra)' from 'F1+(bra)', Rating Watch Negative Maintained.