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Rating Action:

Moody's has assigned a (P)A3 rating to Swedbank AB's junior senior unsecured note programme

29 Aug 2019

Stockholm, August 29, 2019 -- Moody's Investors Service (Moody's) has today assigned a local currency and foreign currency (P)A3 rating to the senior non-preferred (referred to as junior senior unsecured by Moody's) MTN programme of Swedbank AB (Swedbank). At the same time the agency assigned a local currency (P)Aa2 long-term senior unsecured MTN rating, a local currency (P)P-1 Other Short Term rating and local currency (P)Baa1 subordinate MTN rating.

Moody's also affirmed Swedbank's local and foreign currency long-term deposit and senior unsecured debt ratings at Aa2, subordinated ratings at Baa1, Counterparty Risk Assessment (CRA) at Aa2(cr) and Counterparty Risk Rating (CRR) at Aa2. The long term deposit and senior unsecured debt ratings maintain a negative outlook, which reflects the reputational and financial risks that may arise from money laundering investigations and potential regulatory penalties.

Moody's assessment is based on Sweden's current Minimum Requirements for own funds and Eligible Liabilities (MREL) framework, as well as the Swedish National Debt Office's bank-specific MREL decision for Swedbank, and is forward looking.

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

RATINGS RATIONALE

ASSIGNMENT OF JUNIOR SENIOR NOTE PROGRAMME RATING INCORPORATES THE LIKELY MODERATE LOSS SEVERITY FOR THIS TYPE OF INSTRUMENT

The (P)A3 rating assigned to the junior senior MTN programme reflects (1) Swedbank's adjusted baseline credit assessment (BCA) of a3; (2) Moody's advanced Loss Given Failure (LGF) analysis, which indicates likely moderate loss severity for these instruments in the event of the bank's failure, leading to a position at the level of 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.

Swedbank is subject to the EU's Bank Recovery and Resolution Directive (BRRD) and Moody's considers Sweden to be an Operational Resolution Regime. The senior non-preferred class of debt has been introduced in Sweden 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 and recapitalisation via a debt conversion or write-down of the junior senior notes in resolution. For this to be effective, banks must have eligible capital and liabilities that fulfil the MREL requirements.

Please see the report "Banks - Nordic Countries: FAQ: Nordic banks' new non-preferred senior debt instruments" (https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1122335) for additional details on the junior senior notes and the risks they pose to creditors.

ASSIGNMENT OF LOCAL CURRENCY SENIOR UNSECURED AND SUBORDINATED PROGRAMME RATINGS REFLECT MAINTAINED DEBT CUSHION AND SUPPORT ASSUMPTIONS

The assignment of (P)Aa2 local currency long-term senior unsecured MTN programme rating, a local currency (P)P-1 Other Short Term rating and local currency (P)Baa1 subordinate MTN programme rating, alongside the affirmation of the issuer's existing local and foreign currency 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. This LGF analysis excludes the assets and liabilities of Swedbank's Baltic subsidiaries as Moody's believes that these would be resolved separately.

The LGF notchings for deposit and senior unsecured bank debt are positioned one and two notches, respectively, higher than the correspondent LGF notching guidance. This reflects our expectation that Swedbank will issue senior non-preferred debt in order to comply with the Swedish MREL decision. Moody's expects that Swedbank will fulfil the requirement, add a buffer, and that the bank will continue to have good access to the capital markets. This results in three notches of LGF uplift for deposits and senior unsecured debt, which corresponds to Moody's view that Swedbank's depositors and senior creditors are likely to face extremely low loss-given-failure under the current Swedish MREL framework.

However, there is uncertainty around the impact of the EU's revised Bank Recovery and Resolution Directive, i.e. BRRD2, and how it will affect the Swedish subordination requirements, and Swedbank's need for senior non-preferred issuance.

Moody's assumption of a moderate probability of government support Swedbank's deposits and senior unsecured notes results in a further one-notch uplift, leading to long-term deposit and senior unsecured ratings of Aa2.

NEGATIVE OUTLOOK ON LONG-TERM DEPOSIT AND SENIOR UNSECURED DEBT RATINGS DRIVEN BY POTENTIAL REGULATORY PENALTIES

The outlook on Swedbank's senior unsecured debt and long-term deposit ratings remains negative, and reflects the balance of risks from potential further money laundering investigations and regulatory penalties, in addition to the task of repairing trust of customers and investors. Besides the financial impact that could result from any monetary penalties, Swedbank faces heightened reputational risks, given its response to previous concerns by external stakeholders, which have cast doubts over the corporate culture of the bank, and could in turn reduce the confidence of some customers, investors and counterparties.

WHAT COULD CAUSE RATINGS TO GO UP / DOWN

An upward or downward movement in the BCA and adjusted BCA would have an impact on Swedbank's long-term deposit and debt ratings, CRA and CRR, as well as any significant change in the liability structure if it were to impact Moody's LGF assessment.

The bank's outlook could return to stable if the company demonstrated it had addressed shortcomings and associated risks have dissipated without a material negative impact on Swedbank's financial profile.

Conversely, the BCA and the ratings could be downgraded if further concerns come to light regarding governance, control functions or compliance, along with any indications of a renewed strategy resulting in heightened credit or operational risks.

The ratings could be downgraded were there: (i) a sustained loss in clients, business or investor confidence, exerting pressure on the bank's financial profile, (ii) heightened risks of a significant fine or operational constraints that would reduce the bank's earnings or capital, or (iii) signs that funding becomes significantly more costly or access to certain markets becomes more limited.

The long-term deposit, senior unsecured debt and junior senior programme ratings could also be downgraded if the subordination requirements under the Swedish MREL framework were lowered following the implementation of BRRD2 in Sweden.

LIST OF AFFECTED RATINGS

Issuer: Swedbank AB

..Assignments:

....Senior Unsecured Medium-Term Note Program (Local Currency), assigned (P)Aa2

....Junior Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), assigned (P)A3

....Subordinate Medium-Term Note Program (Local Currency), assigned (P)Baa1

....Other Short Term (Local Currency), assigned (P)P-1

..Affirmations:

....Long-term Counterparty Risk Ratings (Local and Foreign Currency), affirmed Aa2

....Short-term Counterparty Risk Rating (Local and Foreign Currency), affirmed P-1

....Long-term Bank Deposits (Local and Foreign Currency), affirmed Aa2, outlook remains Negative

....Short-term Bank Deposits (Local and Foreign Currency), affirmed P-1

....Long-term Deposit Note/CD Program (Foreign Currency), affirmed (P)Aa2

....Short-term Deposit Note/CD Program (Foreign Currency), affirmed (P)P-1

....Short-term Deposit Note/CD Program (Foreign Currency), 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, outlook remains Negative

....Senior Unsecured Regular Bond/Debenture (Local and Foreign Currency), affirmed Aa2, outlook remains Negative

....Senior Unsecured Medium-Term Note Program (Foreign Currency), affirmed (P)Aa2

....Subordinate Regular Bond/Debenture (Local and Foreign Currency), affirmed Baa1

....Subordinate Medium-Term Note Program (Foreign Currency), affirmed (P)Baa1

....Commercial Paper (Foreign Currency), affirmed P-1

....Other Short Term (Foreign Currency), affirmed (P)P-1

..Outlook Action:

....Outlook remains Negative

Issuer: Swedbank AB, New York Branch

..Affirmations:

....Long-term Deposit Note/CD Program (Local Currency), affirmed Aa2, outlook remains Negative

..Outlook Action:

....Outlook remains Negative

Issuer: Swedbank Mortgage AB

..Affirmations:

....Long-term Counterparty Risk Ratings (Local and Foreign Currency), affirmed Aa2

....Short-term Counterparty Risk Ratings (Local and Foreign Currency), 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, outlook remains Negative

....Senior Unsecured Medium-Term Note Program (Local and Foreign Currency), affirmed (P)Aa2

....Other Short Term (Local and Foreign Currency), affirmed (P)P-1

..Outlook Action:

....Outlook remains Negative

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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
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 (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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