Downgrades of LT senior debt and deposit ratings limited to one notch; BFSRs to a maximum of two notches
London, 08 September 2009 -- Moody's Investors Service today downgraded the ratings of four Swedish
banks and financial institutions: Nordea Bank AB, Svenska
Handelsbanken AB, Swedbank AB and Landshypotek AB.
Moody's downgraded the long-term senior debt and deposit
ratings of all these financial entities by one notch, the bank financial
strength ratings (BFSRs) of Nordea Bank and Svenska Handelsbanken by two
notches and the BFSRs of Swedbank and Landshypotek by one notch.
In addition the short-term deposit rating of Landshypotek was downgraded
to Prime-2 from Prime-1 while the short-term ratings
of all the remaining entities remained unchanged.
The rating actions conclude the review for possible downgrade initiated
on 22 July 2009, with the exception of that on Volvofinans Bank
AB, which will be concluded separately given the entity's
specific profile as a car consumer finance company.
The full list of rating actions and their specific rationale can be found
below under the name of each reviewed bank.
Moody's adds that details of the rating actions on Nordea's
banking subsidiaries in Denmark, Norway and Finland, which
are not included in the above summary, are provided below.
The same applies to Swedbank's subsidiaries, Swedbank Mortgage
and its Baltic subsidiary Swedbank AS (Estonia).
The rating actions do not affect the government-backed ratings
that Moody's assigns to the debt instruments benefiting from the
Swedish government guarantee, which remain at Aaa with a stable
outlook in line with the ratings of the Swedish government.
Please note that this press release does not deal with the possible implications
for the covered bond ratings of Swedish issuers.
Moody's review, during which it carried out a scenario analysis
of how expected losses would affect asset quality, earnings and
capitalisation, showed that BFSRs would be weakened by further deterioration
in the banks' financial performance as a result of the economic
downturn (please refer to Moody's Special Comments: "Moody's
Approach to Estimating Nordic Banks' Credit Losses",
published in July 2009; "Calibrating Bank Ratings in the Context
of the Global Financial Crisis", published in February 2009;
and "Moody's Approach to Estimating Bank Credit Losses and
their Impact on Bank Financial Strength Ratings", published
in May 2009). The rating agency's anticipation of deteriorating
asset quality primarily reflects the weakening of Sweden's highly
export-driven economy. The negative outlook on all the BFSRs
reflects the potential for additional macroeconomic deterioration beyond
Moody's current expectations.
Moody's says that the smaller size of the downgrades of the long-term
debt and deposit ratings than those of the BFSRs were related to its assessment
of the probability of systemic support from the Swedish government,
given the systemic importance of some of these banks to the domestic banking
system.
Further explanation regarding Moody's recalibration framework is
provided in Moody's Press Release dated 22 July 2009 where the above
mentioned Swedish banks were placed on review.
RATING OF HYBRIDS
For those banks with downgraded hybrids, the magnitude of the downgrade
was in line with the magnitude of the downgrade of the senior debt rating
and in line with Moody's current methodology. The only exception
to this approach was the hybrid ratings of Swedbank AB, which were
more closely linked to the bank's baseline credit assessment (BCA,
which maps from the BFSR) due to Swedbank's weaker financial profile,
as reflected by its BFSR being in the D range, as explained in more
detail below.
Moody's published a Request for Comment in July 2009 on its proposed
changes to banks' subordinated capital ratings. If implemented
in their proposed form, the changes could lead to multi-notch
downgrades of hybrids. Please refer to the Request for Comment
"Moody's Proposed Changes to Bank Subordinated Capital Ratings"
for further details.
RATING ACTIONS IN DETAIL
Moody's has taken the following rating actions:
NORDEA
Moody's downgraded Nordea Bank AB's BFSR to C+ (mapping
to an A2 BCA) from B. The outlook on the BFSR is negative.
At the same time, the BFSRs of Nordea Bank Danmark and Nordea Bank
Norge were downgraded to C (mapping to A3 BCAs) from B-.
The outlook on Nordea Bank Danmark's BFSR is negative, while
the outlook on Nordea Bank Norge's rating is stable. Nordea
Bank Finland's BFSR was downgraded to B- (mapping to an A1
BCA) from B. The outlook on the Finnish subsidiary's BFSR
is stable.
The downgrade of Nordea Bank's BFSR reflects the bank's capital
position in relation to anticipated losses in the credit portfolio and
weakening recurring earnings (pre-provision income in relation
to total assets).
Nordea Bank AB's commercial loan portfolio displays some concentration
towards commercial real estate and large corporates. Exposure to
more risky segments such as shipping and lending to the Baltic area constitutes
less than 5%. In addition to these exposures, the
bank exhibits concentrated single-name exposure and exposure to
private equity. The combination of these factors exerts downward
pressure on the bank's Tier 1 capital level, which stood at
9.9% at the end of June 2009 (under transitional rules towards
Basel II and excluding interim profits). Earnings are on a downward
trend despite solid net interest income. These factors may lead
to a BFSR towards the lower end of the C+ range, which is reflected
in the negative outlook.
Moody's downgrade of Nordea Bank Danmark's BFSR mainly reflects
the anticipated losses on its loan portfolio, notably in relation
to Danish agriculture, SME's and larger corporates.
Although the anticipated losses are not that high, its low capital
level would be pressurised under this scenario and the entity's
strength is more in line with that of the lower range of C rated entities,
which explains the negative outlook.
Nordea Bank Norge's high exposure to shipping and commercial real
estate exerts more pressure on its capital than its earnings can mitigate,
leading to the C BFSR. However, its capital level is still
better than that of the Danish subsidiary and the rating therefore carries
a stable outlook.
Nordea Bank Finland's B- BFSR is one of the highest in the
Nordic area, reflecting the high capital ratio that enables the
bank to absorb losses under Moody's anticipated scenario.
The main risks are the commercial property portfolio, large corporates
and the group's Baltic exposure, which are booked in Nordea
Bank Finland.
Nordea Bank's debt and deposit ratings were downgraded to Aa2 from
Aa1. The ratings of the three subsidiaries, Nordea Bank Danmark,
Nordea Bank Finland and Nordea Bank Norge were also downgraded to Aa2
from Aa1, reflecting the high integration of operations, coupled
with name and reputation risk and the ability of the group to transfer
capital to the subsidiaries if needed. The outlook on all the debt
and deposit ratings is stable.
The uplift for Nordea Bank's long-term ratings from its BCA
reflects a very high probability of systemic support as a result of its
importance to the Swedish financial sector. The uplifts for Nordea
Bank Danmark, Nordea Bank Finland and Nordea Bank Norge reflect
very high probabilities of parental support combined with very high probabilities
of systemic support, given that they are leading banks in their
respective countries.
SVENSKA HANDELSBANKEN (SH)
Moody's downgraded SH's BFSR to C+ (mapping to an A2
BCA) from B, with a negative outlook, reflecting the potential
of rising credit costs embedded within its loans, in particular
its exposure to property management companies. Property management,
which includes commercial real estate, comprised a significant 24%
of SH's loans at the end of June 2009 and, in Moody's
view, the quality of that portfolio could be challenged by the difficult
economic conditions. Moody's also remains cautious about
the bank's exposure to the overheated property and real estate market
in the UK, although it recognises the relatively small size of this
exposure compared with the size of its total lending book.
On the positive side, Moody's notes that around one-quarter
of SH's total property management portfolio is related to residential
developments, which carry a lower risk than pure commercial real
estate lenders and that SH's exposure to higher-risk property
development projects is minimal.
Moody's review reflected these positive elements as well as the
bank's traditionally prudent culture, solid underwriting criteria
and relatively stable operating profitability. However, the
high likelihood of asset quality deterioration, derived from Moody's
scenario analysis, exerts pressure on the bank's credit profile,
in particular on its capitalisation, positioning the bank in line
with the upper end of the C range. Moody's says that SH's
credit profile showed a strong resilience to its base scenario,
which is the key ratings determinant, but that there is significant
pressure on asset quality and capital adequacy under the more stressed
scenario. While such a scenario is less likely than Moody's
baseline assumptions, the negative outlook on the BFSR reflects
the rating's vulnerability to further deterioration of the operating
environment.
Moody's says that SH's debt and deposit ratings were only
downgraded by one notch because of the bank's leading position in
the Swedish market. As a result of the rating agency's assessment
of a very high probability of systemic support for SH on the one hand
and the downgrade of the BFSR on the other, the long-term
deposit and senior debt ratings were downgraded to Aa2 from Aa1.
The outlook on these ratings is stable, reflecting the bank's
very high systemic importance and Moody's view that its valuable
franchise will remain intact throughout the crisis.
SWEDBANK AB
Moody's downgraded Swedbank's BFSR to D+ (mapping to
a Baa3 BCA) from C-, with a negative outlook, reflecting
pressure exerted by potential further deterioration in all of Swedbank
group's markets, in particular the Baltic States and Ukraine.
The credit costs of Swedbank's international exposure have climbed
materially over the past year and, in Moody's assessment,
will remain high in the near term, continuing to severely weaken
the bank's profitability and capitalisation.
Moody's previous rating actions already incorporated expected credit
losses from the bank's loan portfolio in Swedbank's ratings.
However, given a more severe weakening of macro-economic
conditions in the Baltic countries and Ukraine, coupled with worsened
economic conditions in Sweden, the rating agency reviewed and further
increased its loss expectations (please refer to Moody's Special
Comment: "Moody's Approach to Estimating Baltic Bank's
Credit Losses", published in August 2009) from its initial
expectations and incorporated those revised assumptions into its scenario
analysis.
The rating agency says that Swedbank's recent decision to raise
a sizeable amount of common equity improves the ability of its capital
base to absorb expected losses. However, even taking this
into account, Moody's scenario analysis shows that Swedbank's
BFSR is better positioned in the D range, given the upward revision
of the rating agency's loss assumptions for the bank's Baltic
countries credit exposure and the extent of its potential financial deterioration,
particularly under Moody's more severe scenario.
The negative outlook on the BFSR reflects the possibility that a more
pronounced economic downturn than Moody's currently expects in the
bank's main operating markets could have a direct and severe impact
on Swedbank's credit quality, further weakening its earnings
and capitalisation. Despite the negative rating actions,
Moody's notes that the bank, under new senior management,
is taking more effective and decisive actions to contain and manage the
asset quality downturn and improve the group's organisational and
operational efficiency, and that this could, over time,
improve the bank's risk profile.
Swedbank's deposit and debt ratings were downgraded to A2 from A1
and continue to receive a sizeable uplift from the weak BCA. This
reflects the bank's key systemic importance to the Swedish banking
sector and therefore Moody's assessment of a very high probability
of systemic support. The ratings also incorporate the challenges
that the bank faces in maintaining its leading franchise during the crisis.
Swedbank's hybrid debt was downgraded to Baa2 for the cumulative
junior subordinated debt and Ba1 for the non-cumulative Tier 1
securities. The wider notching than under Moody's current
methodology reflects the rating agency's observation that Swedbank's
weak earnings prospects have increased the risk of coupon deferral,
although it believes this risk still remains low. The Tier 1 instrument
is rated two notches lower than the cumulative subordinated debt because
of its lower ranking in liquidation and the greater loss severity of skipped
coupons due to its non-cumulative nature.
The outlook on Swedbank's long-term deposit and debt ratings
is negative, in line with the negative outlook on the BFSR.
The ratings of Swedbank AB's two Ukrainian subsidiaries Public Joint
Stock Company "Swedbank" (rated B3/B1/NP/E) and its subsidiary
Private Joint Stock Company "Swedbank Invest" (rated B3/B1/NP/E)
were not changed as a result of the rating action on their parent bank.
SWEDBANK MORTGAGE
As a result of the downgrade of Swedbank's ratings, the senior
and dated subordinated ratings of Swedbank Mortgage were downgraded by
one notch to A2 and A3.
At the same time, Moody's placed all ratings of Swedbank Mortgage,
including its short-term rating of Prime-1, on review
for possible downgrade. The review of this entity will now focus
on assessing the potential implications for the entity's ratings
of the application of Moody's methodology, entitled "Moody's
Approach to Rating Financial Entities Specialised in Issuing Covered Bonds",
published in August 2009.
Moody's notes that the government-backed short-term
P-1 rating that Moody's assigns to the instruments benefiting
from the Swedish government guarantee remains unchanged and unaffected
by this rating action.
SWEDBANK AS
Moody's downgraded Swedbank AS's BFSR to D- (mapping
to a Ba3 BCA) from D, with a negative outlook, reflecting
Moody's view that the deterioration in the Baltic operating environment
is putting pressure on the bank's financial fundamentals.
Similar to its parent bank, Swedbank AB, Moody's previous
rating actions on Swedbank AS already incorporated expected credit losses
from the bank's loan portfolio in its ratings. However,
the operating environment in the three Baltic countries has deteriorated
faster than Moody's previously expected. Therefore,
as explained above, the rating agency reviewed its scenario analysis
assumptions and further increased its loss expectations (please refer
to Moody's Special Comment: "Moody's Approach
to Estimating Baltic Bank's Credit Losses", published
in August 2009).
The results of Moody's scenario analysis showed that Swedbank AS's
key credit drivers, in particular its capital adequacy, became
significantly weaker in their respective BFSR categories as a result of
the anticipated deterioration in asset quality. Moody's key
concerns relate to the bank's exposure to the real estate management
and construction sectors, which together accounted for around 17%
of the loan portfolio at the end of June 2009. That said,
given the weakening operating environment, the rating agency expects
all industry sectors to be adversely affected.
The downgrade of Swedbank AS's long-term bank deposit and senior
debt ratings to Baa3 reflects the weaker intrinsic financial strength
of the bank, as indicated by the D- BFSR as well as the downgrade
of its parent. However, Moody's assesses a very high probability
of support from its parent and a moderate probability of systemic support,
which leads to a three-notch uplift for the deposit and debt ratings
from the Ba3 BCA.
Moody's negative outlook on Swedbank AS's ratings reflects the difficult
operating environment in the Baltic region.
LANDSHYPOTEK (LH)
Moody's downgraded LH's BFSR to C (mapping to an A3 BCA) from
C+. As LH's deposit ratings do not benefit from any
uplift as a result of Moody's assessment of the probability of systemic
support, the one-notch lowering of the BFSR resulted in a
one-notch downgrade of the deposit ratings, to A3/Prime-2
from A2/Prime-1.
The BFSR downgrade reflects Moody's expectation of deterioration
in LH's asset quality, driven by the weakening of the Swedish
economy. Moody's scenario analysis showed that LH's
satisfactory capitalisation and exposure to low-risk agriculture
lending to private individuals partly offsets its modest pre-provision
profitability (which results in low capital generation ability),
and therefore limited the downgrade to one notch.
The rating agency notes that LH's BFSR showed good resilience to
the base scenario and considerably higher losses would be needed for the
rating to come under further downward pressure. However,
Moody's considers that the negative outlook on the BFSR and long-term
deposit rating appropriately reflects potential pressure on LH under a
worsened macro-economic scenario.
RATING ACTIONS IN SUMMARY
Nordea Bank AB
- BFSR downgraded to C+ from B, with negative outlook;
- Long-term deposit rating downgraded to Aa2 from Aa1,
with stable outlook;
- Subordinate ratings downgraded to Aa3 from Aa2, with stable
outlook;
- Junior subordinate ratings downgraded to A1 from Aa3, with
stable outlook;
- Prime-1 short-term ratings were not affected.
Moody's last rating action on Nordea Bank AB was on 22 July 2009 when
the BFSR and long-term ratings were placed on review for possible
downgrade.
Nordea Bank Danmark A/S
- BFSR downgraded to C from B-, with negative outlook;
- Long-term deposit rating downgraded to Aa2 from Aa1,
with stable outlook;
- Prime-1 short-term ratings were not affected.
Moody's last rating action on Nordea Bank Danmark A/S was on 22 July 2009
when the BFSR and long-term ratings were placed on review for possible
downgrade.
Nordea Bank Norge ASA
- BFSR downgraded to C from B-, with stable outlook;
- Long-term deposit rating downgraded to Aa2 from Aa1,
with stable outlook;
- Subordinate ratings downgraded to Aa3 from Aa2, with stable
outlook;
- Prime-1 short-term ratings were not affected.
Moody's last rating action on Nordea Bank Norge ASA was on 22 July 2009
when the BFSR and long-term ratings were placed on review for possible
downgrade.
Nordea Bank Finland Plc
- BFSR downgraded to B- from B, with stable outlook;
- Long-term deposit rating downgraded to Aa2 from Aa1,
with stable outlook;
- Subordinate ratings downgraded to Aa3 from Aa2, with stable
outlook;
- Prime-1 short-term ratings were not affected.
Moody's last rating action on Nordea Bank Finland Plc was on 22 July 2009
when the BFSR and long-term ratings were placed on review for possible
downgrade.
Svenska Handelsbanken
- BFSR downgraded to C+ from B, with negative outlook;
- Long-term deposit and senior unsecured ratings downgraded
to Aa2 from Aa1, with stable outlook;
- Subordinated debt rating downgraded to Aa3 from Aa2, with
stable outlook;
- Hybrid debt rating downgraded to A1 from Aa3, with stable
outlook;
Moody's last rating action on Svenska Handelsbanken AB was on 22 July
2009 when the bank financial strength rating (BFSR) and long-term
debt and deposit ratings were placed on review for possible downgrade.
Swedbank AB
- BFSR downgraded to D+ (mapping to a BCA of Baa3) from C-,
with negative outlook;
- Long-term deposit and senior unsecured ratings downgraded
to A2 from A1, with negative outlook;
- Subordinated debt (Lower Tier 2) downgraded to A3 from A2,
with negative outlook;
- Undated junior subordinated debt (Upper Tier 2) downgraded to
Baa2 from A2 with negative outlook;
- Non-cumulative perpetual capital securities (Tier 1) downgraded
to Ba1 from A3, with negative outlook;
Moody's last rating action on Swedbank AB was on 27 April 2009 when BFSR
and long-term debt and deposit ratings were placed on review for
possible downgrade.
Swedbank Mortgage AB
- Long-term deposit and senior unsecured ratings downgraded
to A2 on review for possible downgrade from A1;
- Dated subordinated debt rating downgraded to A3, on review
for possible downgrade, from A2;
- Short-term deposit and other short-term debt ratings
Prime-1 on review for possible downgrade.
Moody's last rating action on Swedbank Mortgage AB was on 27 April 2009
when the senior and unsubordinated debt ratings were placed on review
for possible downgrade.
Swedbank AS
- BFSR downgraded to D- from D, with negative outlook;
- Long-term deposit and senior unsecured ratings downgraded
to Baa3 from Baa2, with negative outlook;
- Subordinated debt rating downgraded to Ba1 from Baa3, with
negative outlook;
- Short-term deposit and other short-term debt ratings
downgraded to P-3 from P-2.
Moody's last rating action on Swedbank AS was on 27 April 2009 when all
the ratings were placed on review for possible downgrade.
Landshypotek AB
- BFSR downgraded to C from C+, with negative outlook;
- Long-term deposit and senior unsecured ratings downgraded
to A3 from A2, with negative outlook;
- Short-term deposit rating downgraded to P-2 from
P-1.
Moody's last rating action on Landshypotek AB was on 22 July 2009 when
all the ratings were placed on review for possible downgrade.
RATING METHODOLOGIES
The principal methodologies used in the above rating actions are "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" published in March 2007 and "Bank Financial Strength Ratings:
Global Methodology" published in February 2007, which can be found
at www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered can also be found in the Rating Methodologies
sub-directory on Moody's website.
Headquartered in Stockholm, Sweden, Nordea Bank AB reported
total assets of EUR 476 billion at the end of June 2009.
Headquartered in Copenhagen, Denmark, Nordea Bank Danmark
A/S reported total assets of DKK1,014 billion (EUR136 billion) at
the end of June 2009.
Headquartered in Oslo, Norway, Nordea Bank Norge ASA reported
total assets of NOK 536 billion (EUR59 billion) at the end of June 2009.
Headquartered in Helsinki, Finland, Nordea Bank Finland Plc
reported total assets of EUR207 billion at the end of June 2009
Headquartered in Stockholm, Sweden, Svenska Handelsbanken
AB reported total consolidated assets of SEK2,155 billion (EUR198
billion) as of 30 June 2009.
Headquartered in Stockholm, Sweden, Swedbank AB reported total
consolidated assets of SEK1,796 billion (EUR165 billion) as of 30
June 2009.
Headquartered in Stockholm, Sweden, Swedbank Mortgage AB reported
total consolidated assets of SEK802 billion (EUR74 billion) as of 30 June
2009.
Headquartered in Tallinn, Estonia, Swedbank AS reported total
assets of EEK366 billion (EUR23 billion) as of 30 June 2009.
Headquartered in Stockholm, Sweden, Landshypotek AB reported
total consolidated assets of SEK54 billion (EUR4.9 billion) as
of 31 March 2009.
London
Reynold R. Leegerstee
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Antonella Pisani
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's concludes review of four Swedish banks
