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04 Nov 2008
Moody's downgrades Amagerbanken to A3/P-2/C- from A1/P-1/C
London, 04 November 2008 -- Moody's Investors Service today downgraded the bank financial strength
rating (BFSR) of Amagerbanken A/S to C- from C. At the same
time, the bank's long-term debt and deposit ratings
were downgraded to A3 from A1 and the short-term rating to Prime-2
from Prime-1. The outlook on the BFSR and long-term
ratings remains negative.
"Today's downgrades were prompted by Amagerbanken's
Q3 results, which showed a net loss of DKK104 million (EUR14 million)
for the first nine months of 2008 in contrast to a net profit of DKK310
million reported for the same period in 2007," explains Eeva
Antila, Analyst in Moody's Financial Institutions Group.
Moody's had first expressed its concern about the potential deterioration
in the bank's asset quality when it changed the outlook on the previous
ratings to negative on 19 September 2008. However, the pace
and scale of deterioration, which resulted in additional provisions
of DKK480 million being taken in Q3, has been more pronounced than
the rating agency anticipated at the time. On a positive side,
the rating agency recognises that core operating income has continued
to be strong, particularly in terms of net interest income.
"The downgrades take account of the strong decline in Amagerbanken's
profitability as a result of weakening credit quality," says
Eeva Antila. Amagerbanken continues to display a high exposure
to property sector, which accounts for around 37% of its
total lending and also a significant proportion of its large exposures.
In addition, about 9% of loans are investment credits to
finance investment activities of clients in the form of loan packages
or individual investment credits. As a result of the increased
credit risk, total accumulated provisions increased to 3%
of loans at the end of September 2008 from 1.2% at the end
of 2007.
Moody's notes that the Danish guarantee scheme that was put in place
in early October has been helpful in terms of restoring Amagerbanken's
liquidity position which became stretched as a result of deposit outflows
in late September.
The negative outlook on Amagerbanken's BFSR and debt and deposit ratings
reflects Moody's concern that the bank's credit quality may continue
to deteriorate further and require further provisions and result in losses,
especially given the weak prospects for the property sector in Denmark
and the challenges in the securities market that could exert further pressure
on investment credits. "Moody's therefore believes that Amagerbanken's
overall profitability is likely to remain under pressure, which
could weigh on its capital ratios," Ms Antila added.
Under Moody's methodology, the C- BFSR maps to a Baseline
Credit Assessment (BCA) of Baa2, reflecting the bank's weak
positioning within the C- category. The A3 debt and deposit
ratings continue to enjoy a two-notch uplift from the BCA,
reflecting Moody's assessment of a high probability of systemic support
for the bank in case of need.
A further downgrade of Amagerbanken's BFSR and deposit ratings could be
prompted by a further significant weakening in the bank's credit
quality, which would exert additional pressure on the bank's
financial flexibility.
The following ratings were affected:
- Bank Financial Strength: to C- from C, outlook
remains negative
- Long Term Deposits: to A3 from A1, outlook remains
negative
- Short Term Deposits: to P-2 from P-1
Headquartered in Amager, Denmark, Amagerbanken reported total
assets of DKK31.4 billion (EUR4.2 billion) at the end of
September 2008.
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
Eeva Antila
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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