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Announcement:

Moody's places Nykredit Realkredit and Nykredit Bank ratings on review for downgrade (Denmark)

14 Apr 2011

London, 14 April 2011 -- Moody's Investors Service has today placed on review for possible downgrade the A1 issuer rating and Baa1 Tier 1 hybrid rating of Nykredit Realkredit A/S (parent of Nykredit Bank). Consequently, the A1 long-term and P-1 short term debt and deposit ratings and A3 junior subordinated ratings of Nykredit Bank are also placed on review for possible downgrade. Today's rating actions do not affect either (i) the standalone bank financial strength rating (BFSR) of Nykredit Bank (C-/Baa1), which remains on negative outlook; or (ii) the short-term P-1 ratings of Nykredit Realkredit A/S.

RATINGS RATIONALE

Today's rating actions primarily reflect Moody's ongoing concerns about Nykredit Realkredit's ability to sustain an adequate level of recurring earnings given deterioration in its asset quality and the volatility of its securities portfolio. In terms of pre-provision income and net income, the mortgage lender's profitability has continued to rank amongst the lower profit-generating institutions in our rated universe of Nordic financial institutions. At year-end 2010, pre-provision income as a share of risk-weighted assets amounted to 0.7% compared with 1.5% in 2009. Moody's also notes that Nykredit Realkredit has also faced challenges in maintaining adequate pricing - in December 2010 the Competition Appeals Committee upheld the decision of the Danish Competition Council, which had earlier prohibited the mortgage lender from raising its mortgage administration margins. In addition, returns on Nykredit Realkredit's securities portfolio have been volatile in recent years, albeit they have recently contributed a significant share of income, in 2010 amounting to DKK2 billion out of DKK3.1 billion pre-tax profit. At the same time, problem loans for the group increased in recent years to 1.3% of gross loans in 2010 from 0.4% in 2008. In Moody's opinion, the potential drag on the group's future income, paired with continued price declines in Danish real estate, leads to downward pressure on the rating. The affirmation of Nykredit Realkredit's short-term P-1 rating however reflects the institution's matched funding principle, which substantially reduces liquidity and refinance risk for the mortgage lender.

With respect to Nykredit Bank, Moody's A1 senior debt rating takes into account a three-notch uplift from the bank's baseline credit assessment of Baa1 as a result of support from the parent, Nykredit Realkredit. Consequently, the review of Nykredit Bank's debt and deposit ratings follows that of its parent's ratings. The bank's C- BFSR continues to have a negative outlook. We expect to conclude on the negative outlook around the same time as concluding the review on the debt and deposit ratings. As a result, the bank's deposit and debt ratings may suffer a multiple-notch downgrade, reflecting both the outcome of the review on Nykredit Realkredit's ratings as inputs to the bank's support metrics, as well as potentially weakened intrinsic financial strength at Nykredit Bank. As Nykredit Bank does not benefit from the same matched funding principle as at Nykredit Realkredit, Moody's has also placed the bank's P-1 rating on review for possible downgrade.

During the review, Moody's will perform an analysis of Nykredit Realkredit's ability to generate adequate stable income going forward. As part of this, Moody's will re-assess the ability of the mortgage lender to raise mortgage administration margins without prior approval from the Danish Competition Council. In addition, Moody's will assess the parental support metrics with regards to Nykredit Bank's ratings.

Please note that this press release does not deal with the possible implications for Nykredit Realkredit's mortgage and covered bond ratings.

Moody's most recent rating action on Nykredit Realkredit A/S was implemented on 26 February 2010 when the institution's rating for its junior subordinated debt and Tier 1 hybrid securities were downgraded to A3 from A2 and to Baa1 from A3, respectively, in line with Moody's revised "Guidelines for Rating Bank Hybrids and Subordinated Debt", as published in November 2009.

Moody's most recent rating action on Nykredit Bank A/S was implemented on 26 February 2010 when the bank's rating for its junior subordinated debt was downgraded to A3 from A2, in line with Moody's revised "Guidelines for Rating Bank Hybrids and Subordinated Debt", as published in November 2009.

The principal methodologies used in rating Nykredit Realkredit A/S and Nykredit Bank A/S are "Bank Financial Strength Ratings: Global Methodology", "Analysing the Credit Risks of Finance Companies" and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology".

Both institutions are headquartered in Copenhagen, Denmark. At the end of December 2010, Nykredit Realkredit A/S and Nykredit Bank A/S reported total assets of DKK1,180 billion (EUR158 billion) and DKK210 billion (EUR28 billion), respectively.

London
Oscar Heemskerk
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Simon Harris
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
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London E14 5FA
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's places Nykredit Realkredit and Nykredit Bank ratings on review for downgrade (Denmark)
No Related Data.
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