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
