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
