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Rating Action:

Moody's affirms all ratings of Danske Bank and changes outlook to negative from stable

21 Sep 2018

This action follows the publication of Danske Bank's investigation into its branch in Estonia

NOTE: On September 24, 2018, the press release was corrected as follows: in the debt list, under Danske Bank A/S (London Branch), the rating action taken on the Short-term Senior Unsecured Deposit Program was changed to “Affirmed at (P)P-1”. Revised release follows.

London, 21 September 2018 -- Moody's Investors Service (Moody's) has affirmed all ratings of Danske Bank A/S (Danske), including the long-term deposit and senior unsecured debt ratings at A1 and junior senior at Baa1. The rating agency has also changed the outlook of Danske's long-term deposit, senior unsecured debt and long-term issuer rating to negative from stable. The rating action follows the publication of a report by Danske Bank, which revealed a range of governance failures that allowed money laundering of significant scale at its Estonian branch between 2007-2015.

The affirmation reflects the strength and expected resilience of Danske Bank's franchise and financial profile, as asset quality, capitalization and profitability have gradually strengthened in recent years. Likewise, the action also recognizes that the money laundering findings have already led Danske to take steps to tighten internal control functions and allocate substantial resources to address its past money laundering failures.

The negative outlook reflects, nevertheless, forward-looking downside risks that may arise from further potential investigations and regulatory penalties, in addition to the process of rebuilding trust with customers, investors and counterparties.

The full list of the affected ratings can be found at the end of this press release.

RATINGS RATIONALE

RATINGS AFFIRMATION

The rating affirmation primarily reflects the strength and expected resilience of Danske Bank's franchise and financial profile. Danske Bank's a3 BCA is underpinned by strong asset quality, capitalization and profitability, which have improved noticeably in recent years following a difficult period in the aftermath of the financial crisis. Since then, Danske's credit profile gradually improved and is now broadly in line with those of its large Nordic peers.

Danske's a3 BCA further recognizes that the money laundering findings have already led Danske to take steps to address its past money laundering failures, including closing down its non-resident customer portfolio in 2015, strengthening governance and oversight in the Baltics along with nominating new Baltic management. The bank's board has also launched several initiatives, including a comprehensive AML program, and allocated substantial resources to support the investigation and improve its compliance functions, strengthen its controls and provide training to its staff.

The affirmation of the deposit and senior unsecured debt ratings reflects Moody's Advanced Loss Given Failure (LGF) analysis of the group's current balance sheet structure and its capital and funding plans up to 1 January 2022, when the subordination requirement for Minimum Requirements for own funds and Eligible Liabilities (MREL) is applicable. The analysis indicates that Danske's depositors and senior creditors are likely to face low loss-given-failure, due to the loss absorption provided by the non-preferred senior issuance. This results in one notch of uplift for deposits and senior unsecured debt ratings , which are further supported by our view of "moderate" probability of government support, which results in an additional uplift for these two rating classes, leading to long-term deposit and senior unsecured ratings of A1. Moody's does not incorporate government support in the junior senior ratings, at Baa1, as this debt class has been introduced by the authorities to absorb losses.

NEGATIVE OUTLOOK

The negative outlook reflects the balance of forward-looking risks, as the bank may face further investigations and regulatory penalties, in addition to the task of rebuilding trust of customers and investors. Besides the financial impact that could result from financial penalties, Danske faces potential reputational and operational risk, as the money laundering findings, and the bank's delayed response to previous concerns by internal and external stakeholders, have casted doubts over the corporate culture of the bank, which could dampen the confidence of some customers, investors and counterparties.

WHAT COULD CAUSE RATINGS TO GO DOWN

The ratings could be downgraded if Moody's observes relapses in terms of governance, control functions or compliance, along with any indications of a renewed aggressive strategy resulting in heightened credit or operational risks. The rating would also come under pressure if the rating agency observes: (i) a sustained loss in clients or business, exerting pressure on the bank's financial profile, (ii) heightened risks of a significant fine that would put the bank's earnings or capital under pressure, (iii) renewed pressure on the bank's asset quality; or (iv) signs that the improvements achieved in recent years are being derailed, including from above-mentioned factors.

WHAT COULD CHANGE THE OUTLOOK TO STABLE

The outlook could revert back to stable if the company demonstrates it has addressed shortcomings and risks of regulatory penalties have dissipated. Moody's would also need to establish that the issues in Estonia will not have a material negative impact on Danske's financial profile. The bank would also need to maintain its current levels of profitability without any significant deterioration in its funding profile, along with a reduction of the potential risk of material financial penalties.

LIST OF AFFECTED RATINGS

Issuer: Danske Bank A/S

..Affirmations:

.... Adjusted Baseline Credit Assessment, Affirmed a3

.... Baseline Credit Assessment, Affirmed a3

.... Long-term Counterparty Risk Assessment, Affirmed Aa2(cr)

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Long-term Counterparty Risk Rating, Affirmed Aa2

.... Short-term Counterparty Risk Rating, Affirmed P-1

.... Long-term Issuer Rating , Affirmed A1 outlook changed to Negative from Stable

.... Long-term Bank Deposit Ratings, Affirmed A1 outlook changed to Negative from Stable

.... Short-term Bank Deposit Ratings, Affirmed P-1

.... Senior Unsecured Regular Bond/Debenture, Affirmed A1 outlook changed to Negative from Stable

.... Junior Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

.... Junior Subordinated Regular Bond/Debenture, Affirmed Baa2 (hyb)

.... Pref. Stock Non-cumulative, Affirmed Baa3 (hyb)

.... Senior Unsecured Medium-Term Note Program, Affirmed (P)A1

.... Junior Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

.... Long-term Senior Unsecured Deposit Program, Affirmed (P)A1

.... Short-term Senior Unsecured Deposit Program, Affirmed P-1/(P)P-1

.... Backed Short-term Senior Unsecured Deposit Program, Affirmed P-1

.... Other Short-term, Affirmed (P)P-1

.... Commercial Paper, Affirmed P-1

..Outlook Actions:

....Outlook, Changed To Negative From Stable

Issuer: Danske Bank A/S (London Branch)

..Affirmations:

.... Long-term Senior Unsecured Deposit Program, Affirmed (P)A1

.... Short-term Senior Unsecured Deposit Program, Affirmed (P)P-1

..Outlook Actions:

....Outlook, Changed To Negative From Stable

Issuer: Danske Corporation

..Affirmation:

.... Backed Commercial Paper, Affirmed P-1

No Outlook assigned

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Louise Lundberg
VP - Sr Credit Officer
Financial Institutions Group
Moody's Investors Service Limited, Stockholm Branch
Krejaren 2
Ostermalmstorg 1
Stockholm 114 42
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
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