London, 27 September 2018 -- Moody's Investors Service has today affirmed the long-term deposit
and senior unsecured debt ratings, and maintained stable outlooks
on Svenska Handelsbanken AB (Handelsbanken), SEB and Swedbank AB
(Swedbank). At the same time, Moody's downgraded the
foreign currency high-trigger Additional Tier 1 ratings of Handelsbanken
to Baa3(hyb) from Baa2(hyb), and those of SEB and Swedbank to Ba1(hyb)
from Baa3(hyb).
The affirmation of the banks' long-term deposit and senior
unsecured debt ratings is based on Moody's view that the banks will
continue to report resilient financial performance in the context of a
modest slowdown in economic domestic growth (from 2.6% in
2018 to 2.0% in 2019), the ongoing risks related to
high household leverage and the housing market. In Moody's opinion,
the banks maintain robust capital and profitability buffers against those
risks.
The downgrade of the high-trigger AT1 securities follows the Swedish
FSA's (SFSA) decision to move the 25% risk-weight
floor for Swedish mortgages to pillar I from pillar II. Although
nominal capital requirements will remain unchanged, this will lower
capital metrics, including CET1, thereby reducing the distance
between the banks' future CET1 ratios and the 8% threshold,
a breach of which would trigger a full or partial write-down or
equity conversion.
The full list of the affected ratings can be found at the end of this
press release.
RATINGS RATIONALE
AFFIRMATION OF SVENSKA HANDELSBANKEN AB'S, SEB'S AND
SWEDBANK AB'S LONG-TERM DEPOSIT AND SENIOR UNSECURED DEBT RATINGS
The affirmation of the banks' long-term deposit and senior
unsecured debt ratings is based on Moody's view that the banks will
remain resilient to the moderate slowdown in economic growth, the
continued elevated risks related to high household leverage and the housing
market. In Moody's opinion, the banks' generally have strong
buffers against those risks, in terms of robust capital and profitability,
and will continue to generate consistent, stable financial performance.
SVENSKA HANDELSBANKEN AB
The affirmation of Handelsbanken's a2 BCA reflects the bank's strong credit
quality, solid capitalisation (Tangible Common Equity / Risk Weighted
Assets 24.9% at end-June 2018) and improved recurring
earnings (Net Income / Tangible Assets 0.55% in the first
half of 2018), which we expect to remain as such while the bank
expands its operations outside Sweden. However, similarly
to many Nordic peers, the BCA is constrained by the bank's
high reliance on market funding (Market Funds / Tangible Banking Assets
44.8% at end-June 2018). Handelsbanken's
BCA continues to benefit from a rare positive corporate behaviour notch
due to its track-record of exemplary long-term stewardship
in running the bank.
The bank's long-term deposit and senior unsecured debt ratings
of Aa2 incorporate Moody's expectations of the bank's issuance
of additional loss-absorbing debt in response to bank-specific
MREL (Minimum Requirements for own funds and Eligible Liabilities).
They include a two-notch uplift from our advanced Loss Given Failure
(LGF) analysis, reflecting our view that the bank's junior
depositors and senior creditors face a very low loss given failure.
Our moderate assessment of government support translates into a further
notch uplift included in these ratings.
SEB
The affirmation of SEB's a3 BCA reflects the bank's strong credit
quality , solid capitalisation (Tangible Common Equity / Risk Weighted
Assets 23.0% at end-June 2018) and improved recurring
earnings (Net Income / Tangible Assets 0.73% in the first
half of 2018). However, similarly to many Nordic peers,
the BCA is constrained by the bank's high reliance on market funding
(Market Funds / Tangible Banking Assets 34.6% at end-June
2018).
SEB's long-term deposit and senior unsecured debt ratings
of Aa2 incorporates Moody's expectations of the bank's issuance
of additional loss-absorbing debt in response to its MREL.
They include a three-notch uplift in our advanced Loss Given Failure
(LGF) analysis, reflecting our view that the bank's junior
depositors and senior creditors face an extremely low loss given failure.
Our moderate assessment of government support translates into a further
notch uplift included in these ratings.
SWEDBANK AB
The affirmation of Swedbank's a3 BCA captures the bank's strong credit
quality, with a focus on Swedish mortgages, which Moody's
considers low-risk, solid capitalisation (Tangible Common
Equity / Risk Weighted Assets 28.1% at end-June 2018),
and strong and recurring earnings (Net Income / Tangible Assets 0.83%
in the first half of 2018). However, similar to many Nordic
peers, the BCA is counterbalanced by the bank's high reliance on
market funding (Market Funds / Tangible Banking Assets 38.5%
at end-June 2018).
Swedbank's long-term deposit and senior unsecured debt ratings
of Aa2 incorporates Moody's expectations of the bank's issuance
of additional loss-absorbing debt in response to its MREL.
They include a three-notch uplift in our advanced Loss Given Failure
analysis, reflecting our view that the bank's junior depositors
and senior creditors face an extremely low loss given failure.
Our moderate assessment of government support translates into a further
notch uplift included in these ratings.
AT1 DOWNGRADES REFLECT THE REDUCED DISTANCE TO 8% TRIGGER
The rationale for downgrading Handelsbanken's, SEB's
and Swedbank's high trigger AT1 ratings reflects Moody's assessment
that, following the SFSA's decision to move the mortgage risk-weight
floor to pillar I, the banks' CET1 ratios will decline,
and thereby reduce their respective distance to the regulatory trigger
of 8%. Moody's has taken into account the expected capital
ratios in the context of the banks' capital and funding plans.
WHAT COULD CHANGE THE RATINGS OF THESE BANKS UP
Moody's does not expect any immediate upward pressure on the ratings of
Svenska Handelsbanken AB, SEB or Swedbank AB, as implied by
the stable outlook on these banks' ratings.
However, bank outlooks could be revised to positive if the affected
banks were to significantly improve their leverage ratios, and/or
funding and liquidity profiles in a sustainable way going forward .
If banks' future CET1 ratios strengthens significantly compared
to Moody's current expectations, there could be upward pressure
on the AT1 ratings.
WHAT COULD CHANGE THE RATINGS OF THESE BANKS DOWN
Moody's does not expect any immediate downward pressure on the deposit
and senior unsecured debt ratings of Svenska Handelsbanken AB, SEB
and Swedbank AB, as implied by the stable outlook on these instruments.
However, the BCAs and the ratings could be lowered downgraded if
the current moderate correction in the housing market were to become significant,
resulting in a longer period of adverse economic developments in Sweden,
for instance a long period of slow or stagnant growth.
The BCAs of the banks could also come under pressure for other reasons
unrelated to housing, such as a severe decline in profitability
or, given the banks' material dependence on wholesale funding,
if there were indications that refinancing could become more difficult
and significantly more costly.
The long-term deposit and senior unsecured debt ratings could be
downgraded, in particular of Swedbank AB and SEB (which currently
get an uplift of 3 notches in our LGF framework), if the Swedish
subordination requirements under the Minimum Requirements for own funds
and Eligible Liabilities (MREL) would decline, for instance,
due to EU harmonisation. Handelsbanken only benefits from 2 notches
in our LGF framework, and is solidly within that range.
LIST OF AFFECTED RATINGS
Issuer: Svenska Handelsbanken AB
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa1
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa2 Stable
....Short-term Bank Deposits,
affirmed P-1
....Short-term Deposit Note/CD Program,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Issuer Rating,
affirmed Aa2 Stable
....Baseline Credit Assessment, affirmed
a2
....Adjusted Baseline Credit Assessment,
affirmed a2
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa2 Stable
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Aa2 Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa2
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)Aa2
....Subordinate Regular Bond/Debenture,
affirmed A3
....Subordinate Medium-Term Note Program,
affirmed (P)A3
....Backed Subordinate Medium-Term
Note Program, affirmed (P)A3
....Backed Junior Subordinate Medium-Term
Note Program, affirmed (P)Baa1
....Other Short Term, affirmed (P)P-1
....Backed Other Short Term, Affirmed
(P)P-1
....Commercial Paper, affirmed P-1
..Downgrades:
....Preferred Stock Non-cumulative
(Foreign Currency), downgraded to Baa3(hyb) from Baa2(hyb)
....Preferred Stock Non-cumulative
Medium-Term Note Program, downgraded to (P)Baa3 from (P)Baa2
..Confirmation:
....Preferred Stock Non-cumulative
(Local Currency), confirmed Baa2(hyb)
..Outlook Action:
....Outlook remains Stable
Issuer: Svenska Handelsbanken, New York Branch
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa1
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa2 Stable
....Long-term Deposit Note/CD Program,
affirmed Aa2 Stable
....Long-term Counterparty Risk Assessment,
affirmed Aa1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
..Outlook Action:
....Outlook remains Stable
Issuer: Svenska Handelsbanken, Inc.
..Affirmation:
....Backed Commercial Paper, affirmed
P-1
..No Outlook assigned
Issuer: Stadshypotek AB
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa1
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Commercial Paper, affirmed P-1
..No Outlook assigned
Issuer: SEB
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa2 Stable
....Short-term Bank Deposits,
affirmed P-1
....Short-term Deposit Note/CD Programme,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Issuer Rating,
affirmed Aa2 Stable
....Baseline Credit Assessment, affirmed
a3
....Adjusted Baseline Credit Assessment,
affirmed a3
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa2 Stable
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Aa2 Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa2
....Subordinate Regular Bond/Debenture,
affirmed Baa1
....Subordinate Medium-Term Note Program,
affirmed (P)Baa1
....Junior Subordinate Medium-Term
Note Program, affirmed (P)Baa2
....Commercial Paper, affirmed P-1
....Backed Commercial Paper, affirmed
P-1
..Downgrades:
....Preferred Stock Non-cumulative,
downgraded to Ba1(hyb) from Baa3(hyb)
..Outlook Action:
....Outlook remains Stable
Issuer: SEB AG
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa2 Stable
....Short-term Bank Deposits,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Baseline Credit Assessment, affirmed
a3
....Adjusted Baseline Credit Assessment,
affirmed a3
..Outlook Action:
....Outlook remains Stable
Issuer: Swedbank AB
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa2 Stable
....Short-term Bank Deposits,
affirmed P-1
....Long-term Deposit Note/CD Program,
affirmed (P)Aa2
....Short-Term Deposit Note/CD Program,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Issuer Rating,
affirmed Aa2 Stable
....Baseline Credit Assessment, affirmed
a3
....Adjusted Baseline Credit Assessment,
affirmed a3
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa2 Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa2
....Subordinate Regular Bond/Debenture,
affirmed Baa1
....Subordinate Medium-Term Note Program,
affirmed (P)Baa1
....Backed Preferred Stock Non-cumulative,
affirmed Baa3(hyb)
....Commercial Paper, affirmed P-1
....Other Short Term, affirmed (P)P-1
..Downgrades:
....Preferred Stock Non-cumulative,
downgraded to Ba1(hyb) from Baa3(hyb)
..Outlook Action:
....Outlook remains Stable
Issuer: Swedbank AB, New York Branch
..Affirmations:
....Long-term Deposit Note/CD Program,
affirmed Aa2 Stable
..Outlook Action:
....Outlook remains Stable
Issuer: Swedbank Mortgage AB
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Issuer Rating,
affirmed Aa2 Stable
....Baseline Credit Assessment, affirmed
a3
....Adjusted Baseline Credit Assessment,
affirmed a3
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa2
....Other Short Term, affirmed (P)P-1
..Outlook Action:
....Outlook remains Stable
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
