Moody's Investors Service and Standard & Poor's Ratings Services on Friday downgraded Banco Espírito Santo's (BES.LB) ratings amid a financial upheaval involving its holding company.

Shares in both BES, as the Portuguese lender is known, and its holding company Espírito Santo Financial Group SA, have been suspended from trading since Thursday, following steep losses on reports of accounting irregularities throughout the conglomerate, as well as delayed coupon payments to some short-term securities.

On Friday, S&P cut its rating to B-plus, one notch further into junk territory, with a negative watch citing increased risks owing to its current management instability and the precarious financial position of several entities within the conglomerate.

Moody's, meanwhile, cut the long-term debt ratings three notches to B3, indicating high credit risk citing concerns over BES's creditworthiness.

"The downgrade of BES's BFSR reflects Moody's concerns regarding BES's creditworthiness that are heightened by the lack of transparency on the ring-fencing of BES against any troubles emerging from its holding company Espirito Santo Financial Group (ESFG) or any other group entity."

The rating agency noted it may further downgrade the bank's long-term debt and deposit ratings and affirmed its not-prime designation on short-term ratings.

The bank has said it doesn't have direct exposure to Espírito Santo International's debt, but it has lent 823 million euros ($1.1 billion) to Espírito Santo Financial Group SA, which is part-owned by ESI, and has a 200 million euro exposure to another ESI unit.

On Friday, BES said it is committed not to increase its total exposure to the parnent group ESFG and that it believes any losses related to its exposure to its parent group are covered by financial buffers, which it said is above the minimum regulatory level for European banks.

BES said its exposure to the conglomerate, which it said tallies €1.18 billion ($1.61 billion) through loans and securities, on which it has guarantees of just €56.9 million.

In addition to BES's direct exposure, the bank said its retail clients hold €853 million in commercial paper issued by four companies that are part of the conglomerate. BES also said it had under custody just over 2 billion euros worth of Espirito Santo Group debt on behalf of institutional investors.

Espírito Santo International owns 49% of the Lisbon-listed Espírito Santo Financial Group SA, which in turn owns 25% of Banco Espírito Santo.

The Espírito Santo empire traces its roots back to 1869, with the set-up of a foreign exchange business, which eventually became Banco Espírito Santo. Along the way, the lender became a shareholder in many businesses, from insurance to industrial firms.

--David Roman, Carla Canivete and Christopher Bjork contributed to this story.

Write to Maria Armental at maria.armental@wsj.com

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