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Rating Action:

Moody's affirms ratings on Nordea Bank AB, Svenska Handelsbanken AB, SEB, Swedbank AB and Länsförsäkringar Bank AB (publ); places SEB AG on review for upgrade

01 Sep 2017

London, 01 September 2017 -- Moody's Investors Service has today affirmed the long-term deposit ratings, long-term senior unsecured debt ratings and Baseline Credit Assessments (BCAs) of Nordea Bank AB (Aa3/Aa3 stable, a3), Svenska Handelsbanken AB (Aa2/Aa2 stable, a2), SEB (Aa3/Aa3 stable, a3), Swedbank AB (Aa3/Aa3 stable, a3) and Länsförsäkringar Bank AB (publ) (A1/A1 stable, a3), as we expect the banks to be broadly resilient to the elevated risks in the residential housing market and household sector in Sweden (LT issuer rating Aaa). Moody's has captured these elevated risks by lowering its Banking System Macro Profile score for Swedish banks to "Strong+" from "Very Strong-". The rating outlooks of all these five banks remain stable. The ratings of other rated Swedish banks remain unaffected.

Concurrently, Moody's placed the A2 (stable) long-term deposit ratings, the baa3 BCA and the Aa3(cr) Counterparty Risk Assessment (CRA) of SEB AG, SEB's German subsidiary, on review for upgrade. SEB has communicated its plan to integrate most of its operations in Germany into a single branch as of 1 January 2018. The review for upgrade reflects the rating agency's assessment of a high likelihood that this streamlining of the bank's German operations will lead to greater integration with SEB over time, and to some degree of convergence in credit quality between the German and Swedish entities.

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

RATINGS RATIONALE

MACRO PROFILE CHANGE

A primary driver for today's rating affirmations is the expected resilience of the banks to a potential deterioration in credit conditions in Sweden due to the growing embedded risks in the housing market. Should house prices correct, confidence, household spending, and economic growth would weaken, thereby dampening repayment capacity. These growing risks have led the rating agency to lower its score for the Swedish Banking System Macro Profile, a rating input to determine the banks' credit assessments, to "Strong+" from "Very Strong-".

Moody's assessment is based on our view that the rapid pace and extent of house price appreciation (increasing by more than 30% over the last three years), and household indebtedness (reaching 183% of disposable income by the end of 2016) have now attained untested levels in Sweden. This could pose material challenges in the event of unexpected economic developments or when the interest rate cycle turns. While Moody's recognizes that the pace of house price appreciation has moderated in recent months and that initiatives have been taken by the regulatory authorities and the banks, the extent to which household indebtedness is stretched creates latent risks to the economy and the banks.

Sweden's Macro Profile of "Strong+" also takes into consideration other factors, such as the funding conditions of the banking industry, where Moody's captures the risks posed by the banks' high dependence on market funding, which expose them to shifts in investor sentiment and refinancing risks. Conversely, the Macro Profile also captures the benefits of the concentrated structure of the system, as it protects the banks' pricing power and allows them to generate more robust earnings than peers. Please refer to our "Sector In-Depth; Sweden Macro Profile: Strong+; https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1087299) for further detail.

Under Moody's bank rating methodology, the Macro Profile captures the relative risks of the banks' operating environment and reflects Moody's view that bank failures are very often associated with systemic crises, and driven by macroeconomic and system-wide, rather than idiosyncratic factors. Moody's country and banking industry analysis focuses on economic strength, institutional strength, susceptibility to event risk, credit conditions, funding conditions and industry structure.

RATIONALE BEHIND THE AFFIRMATION OF RATINGS OF THE FIVE SWEDISH BANKS

Despite the elevated risks in the Swedish economy and the sensitivity to potential adverse economic conditions, Moody's has affirmed the four large Swedish banks' and Länsförsäkringar Bank's ratings. The main reason is protective features in the banks' underwriting standards, the households' high wealth levels despite rising leverage and a very strong payment culture. In addition, in Moody's opinion, the banks' generally have sufficient buffers against those risks, in terms of robust capital and profitability to ensure that the key financial indicators remain in line with Moody's expectations for the respective rating levels.

Additional bank-specific reasons for the affirmation of ratings are outlined below (all key financial indicators are as of Q2 2017).

Nordea Bank AB

The rating affirmation of Nordea Bank AB (Nordea Bank) (a3 baseline credit assessment (BCA), Aa3 stable long-term (LT) deposit and senior unsecured debt ratings, Aa2(cr) LT Counterparty Risk Assessment (CRA)) reflects the bank's diversified regional footprint in the Nordic region (with 31% of its lending excluding reverse repos in Sweden), its stable and resilient earnings stream, solid operational efficiency and credit quality, counterbalanced by the bank's high reliance on market funding.

We assess that Nordea's solid credit quality, adequate capitalisation (22.7% Tangible Common Equity (TCE) to Risk-Weighted Assets (RWAs)), and stable and resilient earnings stream (0.6% Net Income (NI) to Tangible Banking Assets (TBAs)) provide sufficient buffers against risks embedded in the Swedish operating environment.

Nordea Bank's Aa3 LT deposits and senior unsecured debt ratings include a two-notch uplift resulting from our advanced Loss Given Failure (LGF) analysis, and one notch from our moderate assessment of government support.

Svenska Handelsbanken AB

The rating affirmation of Svenska Handelsbanken AB (Handelsbanken) (a2 BCA, Aa2 stable LT deposit and senior unsecured debt ratings, Aa1(cr) LT CRA) reflects the bank's very strong credit quality, which we expect to remain as it expands outside Sweden, as well as its resilient earnings and a solid capital position. However, similarly to many Nordic peers, these inherent strengths are counterbalanced by the bank's high reliance on market funding.

Moody's expects that Handelsbanken's very strong credit quality, solid capital position (26.3% TCE/RWAs) and stable earnings (0.6% NI/TBAs), which are supported by a significant contribution from the bank's international operations, provide resilience against the elevated risks in Sweden.

Handelsbanken's Aa2 LT deposit and senior unsecured debt ratings include a two-notch uplift resulting from our advanced LGF analysis, as well as an additional notch resulting from our moderate assessment of government support.

SEB

The rating affirmation of SEB (a3 BCA, Aa3 stable LT deposit and senior unsecured debt ratings, Aa2(cr) LT CRA) reflects the bank's strong credit quality, solid capitalisation and improved recurring earnings, in addition to which the bank's focus on corporate banking add limited earnings cyclicality. These positive credit attributes are balanced against the bank's high reliance on market funding.

Moody's expects SEB's strong credit quality, solid capitalisation (21.6% TCE/RWAs) and improved recurring earnings (0.7% NI/TBAs) to provide a sufficient buffer against the uptick in risk in Sweden.

SEB's Aa3 LT deposits and senior unsecured debt ratings include a two notch uplift resulting from our advanced LGF analysis and an additional notch due to our moderate assessment of government support.

Swedbank AB

The rating affirmation of Swedbank AB (Swedbank) (a3 BCA, Aa3 stable LT deposit and senior unsecured debt ratings, Aa2(cr) LT CRA) captures the bank's strong credit quality and stable earnings, underpinned by its established franchise in Sweden and the Baltic countries. However, similarly to many Nordic peers, the BCA is counterbalanced by the bank's high reliance on market funding.

Moody's is of the opinion that the bank's strong credit quality, with mortgages accounting for more than 60% of lending, and solid regulatory capitalisation (29.6% TCE/RWAs), along with its stable and recurring earnings (0.8% NI/TBAs) will provide sufficient buffers against the increased risks in the Swedish operating environment. Swedbank has also reduced its reliance on market funding compared to previous years.

Swedbank's Aa3 LT deposit and senior unsecured debt ratings include a two-notch uplift resulting from our advanced LGF analysis and one notch from our moderate assessment of government support.

Länsförsäkringar Bank AB (publ) (LF Bank)

The rating affirmation of LF Bank (a3 BCA, A1 stable LT deposit and senior unsecured ratings, Aa3(cr) LT CRA) is driven by an increasingly diversified franchise in terms of revenues and profitability. The lender benefits from a very high degree of cross selling with the regional insurance companies of the Länsförsäkringar Alliance, and a funding profile that is dominated by sticky deposits and covered bonds, which Moody's considers to be very stable in Sweden.

Moody's is of the opinion that the bank's consistent financial performance, with strong asset quality (mortgages are 75% of lending), high capitalization (20.7% TCE/RWAs), and modest but stable profitability (0.4% NI/TBAs) will provide resilience against the moderately higher risks in Sweden.

The long-term ratings reflect the large cushion of senior debt providing loss absorption to creditors, which results in a two-notch uplift of the long-term senior ratings over the adjusted BCA of the bank, in accordance with our advanced LGF analysis. LF Bank, which is not considered a systemically important bank in Sweden, does not benefit from any government support uplift.

WHAT COULD MOVE THE RATINGS OF THE FIVE SWEDISH BANKS UP

Moody's does not expect any immediate upward pressure on the ratings of the affected institutions, as implied by the stable outlook on the 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.

WHAT COULD CHANGE THE RATINGS OF THE FIVE SWEDISH BANKS DOWN

The ratings could be lowered if trends in house prices and household indebtedness were to continue unabated, or if there were any development that would increase the risk of triggering a house price correction and broader economic implications.

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.

RATIONALE BEHIND THE REVIEW FOR UPGRADE ON SEB AG

SEB has communicated its plan to integrate most of its operations in Germany in a single branch as of 1 January 2018. The review for upgrade reflects the rating agency's assessment of a high likelihood that the streamlining of the bank's German operations with the SEB group will lead to greater integration as well as some degree of convergence in credit quality between the German and Sweden entities. We also see a potential for the capitalisation of SEB AG to strengthen after the transaction. Moody's aims to conclude the review for upgrade on SEB AG around the time of the transaction.

The review process will focus on the degree to which the operations of the German entity will be integrated with its parent and the importance that the parent bank is likely to attach to the German entity, which will inform our assessment of affiliate support probability.

Nordea Bank AB is headquartered in Stockholm, Sweden, with total assets of EUR 616 billion (USD 649 billion) as at 31 December 2016.

Svenska Handelsbanken AB is headquartered in Stockholm, Sweden, with total assets of SEK 2,628 billion (USD 289 billion) as at 31 December 2016.

SEB is headquartered in Stockholm, Sweden, with total assets of SEK 2,621 billion (USD 288 billion) as at 31 December 2016.

Swedbank AB is headquartered in Stockholm, Sweden, with total assets of SEK 2,154 billion (USD 237 billion) as at 31 December 2016.

Länsförsäkringar Bank is headquartered in Stockholm, Sweden, with total assets of SEK 276 billion (USD 30 billion) as at 31 December 2016.

SEB AG (a subsidiary to SEB) is headquartered in Frankfurt, Germany, with total assets of EUR 20 billion (USD 21 billion) as at 31 December 2016.

LIST OF AFFECTED RATINGS

Issuer: Svenska Handelsbanken AB

Affirmations:

....LT Issuer Rating, Affirmed Aa2 Stable

....LT Bank Deposits, Affirmed Aa2 Stable

....ST Bank Deposits, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed Aa2 Stable

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Aa2 Stable

....Subordinate, Affirmed A3

....Senior Unsecured MTN Program, Affirmed (P)Aa2

....BACKED Senior Unsecured MTN Program, Affirmed (P)Aa2

....Subordinate MTN Program, Affirmed (P)A3

....BACKED Subordinate MTN Program, Affirmed (P)A3

....BACKED Junior Subordinate MTN Program, Affirmed (P)Baa1

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

....Pref. Stock Non-cumulative MTN Program, Affirmed (P)Baa2

....Pref. Stock Non-cumulative, Affirmed Baa2 (hyb)

....ST Deposit Note/CD Program, Affirmed P-1

....Commercial Paper, Affirmed P-1

....Adjusted Baseline Credit Assessment, Affirmed a2

....Baseline Credit Assessment, Affirmed a2

....LT Counterparty Risk Assessment, Affirmed Aa1(cr)

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

Outlook Actions:

....Outlook, Remains Stable

Issuer: Svenska Handelsbanken, Inc.

Affirmations:

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

Issuer: Svenska Handelsbanken, New York Branch

Affirmations:

....LT Bank Deposits, Affirmed Aa2 Stable

....LT Deposit Note/CD Program, Affirmed Aa2 Stable

....LT Counterparty Risk Assessment, Affirmed Aa1(cr)

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

Outlook Actions:

....Outlook, Remains Stable

Issuer: Stadshypotek AB

Affirmations:

....Commercial Paper, Affirmed P-1

....LT Counterparty Risk Assessment, Affirmed Aa1(cr)

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

Issuer: SEB

Affirmations:

....LT Issuer Rating, Affirmed Aa3 Stable

....LT Bank Deposits, Affirmed Aa3 Stable

....ST Bank Deposits, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed Aa3 Stable

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Aa3 Stable

....Subordinate, Affirmed Baa1

....Senior Unsecured MTN Program, Affirmed (P)Aa3

....Subordinate MTN Program, Affirmed (P)Baa1

....Junior Subordinate MTN Program, Affirmed (P)Baa2

....ST Deposit Note/CD Program, Affirmed P-1

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

....Commercial Paper, Affirmed P-1

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

....Adjusted Baseline Credit Assessment, Affirmed a3

....Baseline Credit Assessment, Affirmed a3

....LT Counterparty Risk Assessment, Affirmed Aa2(cr)

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

Outlook Actions:

....Outlook, Remains Stable

Issuer: SEB AG

On Review for Upgrade:

....LT Bank Deposits, currently A2, Outlook Changed To Rating Under Review From Stable

....Baseline Credit Assessment, currently baa3

....LT Counterparty Risk Assessment, currently Aa3(cr)

Affirmations:

....ST Bank Deposits, Affirmed P-1

....Adjusted Baseline Credit Assessment, Affirmed a3

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

Outlook Actions:

....Outlook, Changed To Rating Under Review From Stable

Issuer: Swedbank AB

Affirmations:

....LT Issuer Rating, Affirmed Aa3 Stable

....LT Bank Deposits, Affirmed Aa3 Stable

....ST Bank Deposits, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed Aa3 Stable

....Subordinate, Affirmed Baa1

....Senior Unsecured MTN Program, Affirmed (P)Aa3

....Subordinate MTN Program, Affirmed (P)Baa1

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

....Pref. Stock, Affirmed Baa3 (hyb)

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

....LT Deposit Note/CD Program, Affirmed (P)Aa3

....ST Deposit Note/CD Program, Affirmed P-1

....Commercial Paper, Affirmed P-1

....Adjusted Baseline Credit Assessment, Affirmed a3

....Baseline Credit Assessment, Affirmed a3

....LT Counterparty Risk Assessment, Affirmed Aa2(cr)

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

Outlook Actions:

....Outlook, Remains Stable

Issuer: Swedbank AB, New York Branch

Affirmations:

....LT Deposit Note/CD Program, Affirmed Aa3 Stable

Outlook Actions:

....Outlook, Remains Stable

Issuer: Swedbank Mortgage AB

Affirmations:

....LT Issuer Rating, Affirmed Aa3 Stable

....BACKED Senior Unsecured MTN Program, Affirmed (P)Aa3

....BACKED Other Short Term, Affirmed (P)P-1

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

....LT Counterparty Risk Assessment, Affirmed Aa2(cr)

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

Outlook Actions:

....Outlook, Remains Stable

Issuer: Nordea Bank AB

Affirmations:

....LT Bank Deposits, Affirmed Aa3 Stable

....ST Bank Deposits, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed Aa3 Stable

....Subordinate, Affirmed Baa1

....Senior Unsecured MTN Program, Affirmed (P)Aa3

....Junior Subordinate MTN Program, Affirmed (P)Baa2

....Subordinate MTN Program, Affirmed (P)Baa1

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

....Pref. Stock Non-cumulative, Affirmed Ba1 (hyb)

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

....Commercial Paper, Affirmed P-1

....Adjusted Baseline Credit Assessment, Affirmed a3

....Baseline Credit Assessment, Affirmed a3

....LT Counterparty Risk Assessment, Affirmed Aa2(cr)

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

Outlook Actions:

....Outlook, Remains Stable

Issuer: Nordea Bank AB (publ), NY Branch

Affirmations:

....LT Deposit Note/CD Program, Affirmed Aa3 Stable

Issuer: Nordea Bank Finland Plc

Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Aa3 Stable

Issuer: Nordea Bank Norge ASA

Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Aa3 Stable

Issuer: Lansforsakringar Bank AB (publ)

Affirmations:

....LT Bank Deposits, Affirmed A1 Stable

....ST Bank Deposits, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed A1 Stable

....Senior Unsecured MTN Program, Affirmed (P)A1

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

....Commercial Paper, Affirmed P-1

....Adjusted Baseline Credit Assessment, Affirmed a3

....Baseline Credit Assessment, Affirmed a3

....LT Counterparty Risk Assessment, Affirmed Aa3(cr)

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

Outlook Actions:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. 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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

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.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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