London, 04 May 2018 -- Moody's Investors Service (Moody's) has today assigned (P)Baa1 junior
senior ratings to the EMTN programme of Danske Bank A/S (Danske).
This rating action follows the draft Danish creditor hierarchy legislation,
presented on 14 March 2018, which introduces the non-preferred
senior (junior senior) debt class and is expected to take effect as of
1 July 2018. However, Danish banks can already issue non-preferred
senior debt that will rank pari passu with existing senior debt until
the law takes effect on 1 July 2018. Thereafter, these notes
will automatically convert to non-preferred senior.
At the same time, Moody's affirmed Danske's long-term
deposit and senior unsecured debt ratings at A1 and changed the outlook
on the long-term senior unsecured debt and issuer ratings to stable
from negative. All long term ratings now carry a stable outlook.
This rating action follows the bank-specific Minimum Requirement
for own funds and Eligible Liabilities (MREL) that the Danish FSA published
on 28 April 2018, and Moody's assessment of how the bank's
future issuance of additional loss-absorbing debt (mainly in the
form of non-preferred senior) up to 1 January 2022 when the subordination
requirement needs to be fulfilled.
Please see the report "Banks -- Nordic countries: FAQ:
Nordic banks' new non-preferred senior debt instruments"
for additional details on the junior senior notes and the risks they pose
to creditors.
The full list of the affected ratings can be found at the end of this
press release.
RATINGS RATIONALE
ASSIGNMENT OF NON-PREFERRED SENIOR RATING INCORPORATES THE LIKELY
HIGH LOSS SEVERITY FOR THIS TYPE OF INSTRUMENT
The (P)Baa1 rating assigned to the junior senior debt programme reflects
(1) Danske's adjusted baseline credit assessment (BCA) of a3;
(2) Moody's advanced Loss Given Failure (LGF) analysis, which indicates
likely high loss severity for these instruments in the event of the bank's
failure, leading to a position one notch below the bank's adjusted
BCA; and (3) Moody's assumption of a low probability of government
support for this new instrument, resulting in no additional uplift.
This is the first instance of junior senior unsecured debt programmes
to which Moody's has assigned a rating within the Nordics.
Danske Bank is subject to the EU's Bank Recovery and Resolution Directive
(BRRD) and Moody's considers the EU to be an Operational Resolution Regime.
The non-preferred senior class of debt is being introduced in Denmark
in order to allow banks to issue a class of debt which is senior to regulatory
capital instruments and junior to other senior obligations, facilitating
loss-absorption via a debt conversion or write-down of the
junior senior notes in a resolution. For this to be effective,
banks must have eligible capital and liabilities that fulfil the MREL
requirements.
AFFIRMATION OF JUNIOR DEPOSIT AND SENIOR UNSECURED DEBT RATINGS DRIVEN
BY DEBT CUSHION AND SUPPORT ASSUMPTIONS
The affirmation of the junior deposit and senior unsecured debt ratings
reflects Moody's 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 MREL is applicable.
Moody's LGF analysis indicates that Danske's depositors and senior
creditors are likely to face low loss-given-failure,
due to the loss absorption provided by additional loss-absorbing
debt, generated by the non-preferred senior issuance.
This results in one notch of uplift for junior deposits and senior unsecured
debt.
Moody's assumption of a moderate probability of government support for
Danske Bank's junior deposits and senior unsecured debt results in a further
one-notch uplift, leading to long-term deposit and
senior unsecured ratings of A1.
STABLE OUTLOOK LONG-TERM DEPOSIT AND SENIOR UNSECURED DEBT RATINGS
DRIVEN BY STEADY FUNDAMENTALS AND LGF ANALYSIS
The stable outlook on the long-term deposit and senior unsecured
debt ratings is driven by a combination of expected steady financial performance
and projections that the additional debt cushion, generated by the
bank's issuance of non-preferred senior, will protect
these debt classes and be sufficient to maintain the current LGF uplift
applying a horizon up to 1 January 2022, when the subordination
requirement of MREL is effective.
Moody's expects the financial performance of Danske Bank to remain robust
over the outlook period due to the supporting operating environment and
the bank's strong and well-diversified position in the key markets
where it operates.
WHAT COULD CAUSE RATINGS TO GO UP / DOWN
The ratings could be upgraded following an improvement in the bank's fundamental
profile, as indicated by its BCA, for instance if: (1)
problem loans decline further; (2) capital and leverage strengthen;
and/or (3) profitability increase and earnings volatility moderate.
The ratings could be downgraded due to a deterioration in the bank's
fundamental credit profile, for instance if we observe: (1)
renewed pressure on asset quality; or (2) signs that the improvements
achieved in recent years are not sustainable.
LIST OF AFFECTED RATINGS
Issuer: Danske Bank A/S
Assignments:
....Junior Senior Unsecured MTN Program,
Assigned (P)Baa1
Affirmations:
....LT Issuer Rating, Affirmed A1,
Outlook Changed To Stable From Negative
....LT Bank Deposits, Affirmed A1,
Outlook remains Stable
....ST Bank Deposits, Affirmed P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1, Outlook Changed To Stable From Negative
....Junior Subordinate, Affirmed Baa2
(hyb)
....Pref. Stock Non-cumulative,
Affirmed Baa3 (hyb)
....Senior Unsecured MTN Program, Affirmed
(P)A1
....Other Short Term Program, Affirmed
(P)P-1
....LT Deposit Note/CD Program, Affirmed
(P)A1
....ST Deposit Note/CD Program, Affirmed
P-1
....ST Deposit Note/CD Program, Affirmed
(P)P-1
....BACKED ST Deposit Note/CD Program,
Affirmed P-1
....Commercial Paper, Affirmed P-1
....LT Counterparty Risk Assessment,
Affirmed Aa2(cr)
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
Outlook Actions:
....Outlook, Changed To Stable From
Stable(m)
Issuer: Danske Bank A/S (London Branch)
Affirmations:
....LT Deposit Note/CD Program, Affirmed
(P)A1
....ST Deposit Note/CD Program, Affirmed
(P)P-1
Outlook Actions:
....Outlook, Remains Stable
Issuer: Danske Corporation
Affirmations:
....BACKED Commercial Paper, Affirmed
P-1
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
April 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 - Senior 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
