Portugal Bank CEO Slams S&P Rating Downgrade

Standard & Poor’s downgrade of Portugal’s five largest banks is wrong and mistakenly lumps Portugal with Greece, Ireland and Spain, the CEO of one of the banks told CNBC Tuesday.

“Our economy is completely different. We cannot compare it with Greece or Ireland. We have a sound financial system,” Jose Maria Ricciardi, President and CEO of Banco Espirito Santo told CNBC Tuesday.

S&P downgraded Banco BPI, Millennium BCP, Banco Espirito Santo, Caixa Geral de Depósitos and Banco Santander Totta because of what it said was an increasingly difficult economic, financial and operating environment in Portugal.

The downgrade came as Portuguese bond yields - already sharply higher amid concerns over the country’s high level of public debt and fears it will need to follow Ireland and Greece in seeking a bailout - hovered around euro era highs on Tuesday as political uncertainty plagued the country.

Ricciardi said he did not agree with S&P decision to cut Espirito Santo’s rating, saying the bank had been very profitable and adding almost 50 percent of its business was outside Portugal. For its investment banking arm, that figure was as much as 80 percent, he said.

“Our situation is completely different,” Ricciardi said. “Our banks are sound, they don’t have any problems, we didn’t have a real estate problem like in Spain. Banks are profitable, they don’t have problems with their assets and they are doing very well,” he said.

Portugal’s problems were primarily political, Ricciardi said. He conceded the need to resolve the current instability and said the Portuguese economy “was not in very good shape”.

Financial markets had nevertheless overreacted in relation to Portugal, he said.

“The interest rates that we are seeing for the sovereign risk, in my opinion they are too high as there had been no particular deterioration in the Portuguese economy in the past twelve months,” Ricciardi went on to say.

He added that Protugal had already made significant progress and was aiming for a 2011 budget deficit of 4.6 percent of gross domestic product. That compares with 7.3 percent in 2010.