MOODY'S ASSIGNS A2 AND PRIME-1 RATINGS, RESPECTIVELY, TO THE EURO MEDIUM TERM NOTES AND EURO-COMMERCIAL PAPER OF STADSHYPOTHEK AB (SWEDEN)
London, 04-11-96 -- Moody's Investors Service assigned A2 and Prime-1 ratings to Stadshypotek AB's Euro Medium Term Notes and Euro-Commercial paper, respectively. According to Moody's, these ratings are based on Stadshypotek's significant franchise in the Swedish housing-finance market -- of which it holds a 30% share -- as well as on the institution's good profitability and improved capitalization. At the same time, the ratings also reflect Stadshypotek's relatively high -- although declining -- loan losses, as well as the ongoing business uncertainties created by low loan demand and increased competitiveness in the Swedish mortgage market.
Stadshypotek is 34% owned by the Urban Mortgage Bank of Sweden (UMB), whose existing long-term rating is A2. UMB, initially set up as a funding vehicle for Stadshypotek and scheduled to be phased out by 2003, has the benefit of a government-sponsored guarantee fund supporting its debts up to a certain limit. Moody's added that Stadshypotek does not have the benefit of this guarantee fund.
Although loan losses are declining, Stadshypotek continues to experience asset quality problems, primarily in its multi-family portfolio. According to Moody's, a positive rating factor was Stadshypotek's markedly improved capitalization: Tier 1 capital rose from 6.3% in 1993 to 11% in 1995. Stadshypotek's goal is to maintain Tier 1 capital over 9%.
Nevertheless, Moody's believes that successfully adjusting to an increasingly competitive market in a low loan-demand environment will remain an ongoing challenge for Stadshypotek. In this context, net lending margins are likely to come under further pressure, thus stressing the mortgage bank's future preprovision profitability.
Stadshypotek, in its current form, was established in 1993, although its origins go back to the turn of the century. It is headquartered in Stockholm, Sweden. As of 31 December, 1995, Stadshypotek had consolidated assets of SEK 312 billion (US$ 46 billion).
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