NOTE: On December 10, 2013, the press release was revised as follows: In the RATINGS RATIONALE section, fourth paragraph, second sentence, corrected BCA to “baa1” from “baa2”. Revised released follows:
London, 10 December 2013 -- Moody's Investors Service has today affirmed Danske Bank A/S'
Baa1 long-term debt and deposit ratings,Ba1 (hyb) junior
subordinated debt, Ba2 (hyb) preferred stock rating, P-2
short-term debt and deposit rating and C- bank financial
strength rating (BFSR) which is equivalent to a standalone baseline credit
assessment (BCA) of baa2. The rating outlook on all long-term
debt and deposit ratings have been changed to positive from stable.
The ratings on Danske Bank A/S (London branch) were affirmed at (P)Baa1/(P)P-2,
with the outlook on the LT rating revised to positive from stable.
The short-term backed commercial paper rating of P-2 on
Danske Corporation was also affirmed.
The ratings on Danske Bank's Finnish subsidiary, Danske Bank
Plc, have also been affirmed at A2 long-term debt and deposit
rating, C- BFSR (equivalent to a baa1 BCA), (P) Baa2
subordinated debt rating, and Ba1 (hyb) preferred stock non-cumulative
rating, with a stable outlook. The P-1 short-term
deposit rating was also affirmed. The rating on Leonia Corporate
Bank plc's A2 long-term backed senior unsecured debt rating
was also affirmed with a stable outlook.
The affirmation of Danske Bank's ratings reflects the group's
market leading position in Denmark and Northern Ireland and good foothold
in Finland, Sweden and Norway. Moody's has changed
the outlook on long-term debt / deposit ratings to positive from
stable based on the expectation that Danske Bank will show a continued
improvement in profitability, substantially closing the gap in this
area compared with peers, while at the same time maintaining a high
level of capital and a prudent risk profile.
Moody's notes that Danske Bank has experienced high credit costs
in the Republic of Ireland and the continued challenging operating environment
in its' main Danish market has resulted in comparatively low profitability
for the group in recent years.
However, Moody's expectation of a positive trend in profitability
going forward reflects a combination of expected lower levels of new provisions
against non-core exposures, combined with a stabilisation
of the operating environment in Denmark. In addition, strategic
initiatives, including optimisation of price structures and improved
cost efficiency, are also expected to support a positive profitability
trend.
The rating agency notes, however, that in its drive to improve
profitability, maintaining franchise strength will be a key challenge
for the group, and this will be an important aspect of the conclusion
of the positive outlook
RATINGS RATIONALE
Danske Bank has been harder hit by the financial crisis than for example
its Swedish peers. This has been due to a combination of very high
impairment levels in the group's operations in the Republic of Ireland,
but also an elevated provisioning level in the main Danish operations.
Moody's notes that both countries were characterised by overheated
property markets going into the crisis and have seen large corrections
in property prices during the crisis. However, both markets
have recently seen stabilising property prices.
Due to the higher provisioning levels, Danske Bank's profitability
has been significantly below the largest Nordic peers at mid single-digit
ROE levels in recent years, hence restricting the group's
ability to internally generate capital and to absorb any potential earnings
shocks through profits. Due to the weak operating environment in
the domestic Danish market, Danske Bank has had more headwinds in
dealing with the problems in its Irish operations than many of its Nordic
peers had in dealing with their losses in the Baltic countries.
However, due to the large provisions taken against the non-core
exposures in recent years and signs that underlying collateral prices
are now stabilising, Moody's assesses that the remaining risks
are materially reduced. Danske Bank estimates that an additional
up to around DKK 2bn provisions will be needed in the Republic of Ireland
until end 2014 out of the gross exposure of DKK 44.4bn.
In addition the headwinds from the main Danish operations are likely to
reduce as the Danish economy and property market shows signs of stabilising.
The affirmed rating and continued stable outlook for the Finnish operations,
Danske Bank Plc, reflect Moody's assessment of a high probability
of both parental support from Danske Bank A/S and systemic support.
The C- bank financial strength rating (BFSR) equivalent to a standalone
baseline credit assessment (BCA) of baa1 incorporates a good domestic
franchise as the third largest bank in Finland, but also reflects
intense competition in the market and a relatively weak, albeit
slowly improving, operating environment. Moody's notes
the current negative trend in lending market share in Finland and the
attempts to reposition the Finnish operations in terms of customer segments
and product offering. At the current time the rating agency did
not find that the changes to the Finnish franchise warranted a rating
impact, but will continue to look for indications of changes in
the long term franchise value.
WHAT COULD CHANGE THE RATING -- UP
In line with the rationale for the positive outlook on Danske Bank A/S'
ratings, upward pressure on the rating is most likely to result
from a sustained and material improvement in profitability from the current
level, which again is likely to result from amongst others lower
provisioning levels and increased cost efficiency.
WHAT COULD CHANGE THE RATING - DOWN
While the current positive outlook on Danske Bank A/S' ratings indicates
that a downgrade is currently unlikely, any renewed pressure on
asset quality in Denmark will likely lead to a revision of the positive
outlook to stable. Other indications that Danske Bank will not
deliver the anticipated improvement in profitability or that the group's
long term franchise strength has been impaired as a result of the problems
faced by the group during the crisis, will likely result in a revision
of the positive outlook. We will also continue to evaluate the
treatment of Danish covered bonds as eligible assets for Basel III liquidity
ratios, and any transitional costs that may be incurred for Danske
Bank as a result of such assets not being ultimately eligible.
The principal methodology used in these ratings was Global Banks published
in May 2013. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Kim Bergoe
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Simon Harris
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's: Danske Bank A/S' Baa1 rating affirmed, outlook changed to positive