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TEXT-S&P cuts Bankia S.A. mortgage covered bonds to 'A-'

(The following statement was released by the rating agency)

OVERVIEW

-- Today's rating actions on Bankia S.A.'s

mortgage covered bonds follow our analysis on Bankia's December 2011 mortgage loan book data and current outstanding covered bonds.

-- Under our covered bonds criteria, we continue to view Bankia's mortgage covered bonds' asset-liability mismatch (ALMM) as "low."

-- However, we are lowering the notching differential between Bankia's mortgage covered bond ratings and long-term rating to four notches from our maximum of seven, because we believe Bankia's overcollateralization level is no longer commensurate with the maximum number of notches allowed under our criteria.

-- We are therefore lowering our ratings on these mortgage covered bonds to 'A-' from 'AA-' and keeping them on CreditWatch negative.

-- The negative CreditWatch mirrors that on Bankia and reflects our view that any decrease in overcollateralization could limit the number of notches of uplift below the current four notches.

MADRID (Standard & Poor's) Oct. 4, 2012--Standard & Poor's Ratings Services today lowered its credit ratings to 'A-' from 'AA-' on Bankia S.A.'s (BB+/Watch Neg/B) mortgage covered bonds ("cedulas hipotecarias"). The ratings remain on CreditWatch with negative implications, where we placed them on June 1, 2012.

Today's rating actions follow our analysis of Bankia's December 2011 mortgage loan book data and current outstanding covered bonds.

Under our criteria for rating covered bonds, we evaluated the maximum potential rating on a covered bond program as the bank's issuer credit rating (ICR) increased by the maximum number of notches of ratings uplift (see "Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds," published on Dec. 16, 2009). The maximum number of notches of uplift results from our assessment and classification of the program's asset-liability mismatch (ALMM) risk and the program categorization.

When determining the program categorization under these criteria, we consider primarily our view of the jurisdiction of a program and its ability to access external financing or to monetize the cover pool. Finally, we assign the covered bonds to one of three distinct categories. Under our covered bond criteria, to achieve the maximum potential number of notches of uplift, the available credit enhancement needs to be commensurate with the target credit enhancement.

Following our analysis, and given our view of the Spanish legal framework, we have placed Bankia's mortgage covered bond program in category '1' and determined a "low" ALMM risk. Under our criteria, these combinations would enable us to assign to the covered bonds the maximum potential ratings uplift of seven notches above our long-term rating on Bankia.

However, based on these criteria and the application of our credit and cash flow stresses to the December 2011 mortgage loan book and the current outstanding covered bond information we received from the issuer, we have assessed that the overcollateralization available to support Bankia's mortgage covered bonds can sustain a four-notch uplift above our 'BB+' long-term ICR on Bankia.

We have kept our ratings on Bankia's mortgage covered bonds on CreditWatch negative as, all else being equal, any negative rating action on the issuer would automatically lead to a corresponding rating change on these covered bonds. The CreditWatch negative also reflects our view that the available overcollateralization level is commensurate with a maximum four notches of uplift. As a result, any decrease in overcollateralization could limit the number of notches of uplift below the current four notches.

In the coming days we will receive and analyze Bankia's mortgage loan book data as of June 2012.

RELATED CRITERIA AND RESEARCH

-- Spanish RMBS Index Report Q2 2012: High Mortgage Arrears Persist As The Economy Worsens, Aug. 20, 2012

-- Covered Bond Ratings Framework: Methodology And Assumptions, June 26, 2012

-- Counterparty Risk Framework Methodology And Assumptions, May 31, 2012

-- Covered Bonds Counterparty And Supporting Obligations Methodology And Assumptions, May 31, 2012

-- Assessing Asset-Liability Mismatch Risk In Covered Bonds: Revised Methodology And Assumptions For Target Asset Spreads, April 24, 2012

-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Methodology: Credit Stability Criteria, May 3, 2010

-- Revised Methodology And Assumptions For Assessing Asset-Liability Mismatch Risk In Covered Bonds, Dec. 16, 2009

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- Update to The Criteria For Rating Spanish Residential Mortgage Backed Securities, Jan. 6, 2009

-- Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 6, 2009

-- European Legal Criteria For Structured Finance Transactions, Aug. 28, 2008

-- A Listing Of S&P's New Actions Aimed At Strengthening The Ratings Process, Feb. 7, 2008

-- Expanding European Covered Bond Universe Puts Spotlight on Key Analytics, July 16, 2004

-- Cash Flow Criteria For European RMBS Transactions, Nov. 20, 2003

-- Criteria For Rating Spanish Residential Mortgage-Backed Securities, March 1, 2002 RATINGS LIST Rating Program/ To From Country: Covered bond type

Ratings Placed On CreditWatch Negative

Bankia S.A. A-/Watch Neg AA-/ Watch Neg

Spain: Cedulas Hipotecarias (Mortgage Covered Bonds)

(Caryn Trokie, New York Ratings Unit)

((Caryn.Trokie@thomsonreuters.com; 646-223-6318; Reuters Messaging: rm://caryn.trokie.reuters.com@reuters.net))

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