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Rating Action:

Moody's rates additional Tier 1 securities issued by 3 leading Nordic financial institutions

22 Jul 2015

London, 22 July 2015 -- Moody's Investors Service has today assigned a Ba1(hyb) rating to the 'high-trigger' additional Tier 1 (AT1) securities issued in the first quarter of 2015 by Danske Bank A/S (deposits A2, baseline credit assessment (BCA) baa1) and Nordea Bank AB (deposits Aa3, BCA a3), and a Baa3(hyb) rating to the 'high-trigger' AT1 securities issued by Swedbank AB (deposits Aa3, BCA a3).

The perpetual non-cumulative AT1 securities issued by these institutions share common features. They rank junior to Tier 2 capital, pari passu with any other deeply subordinated debt securities, and senior to all classes of share capital and other capital instruments that qualify as common equity Tier 1 (CET1) capital. Coupons may be cancelled in full or in part on a non-cumulative basis at each issuer's discretion, or mandatorily if the distributable items are insufficient. The principal of the AT1 securities issued by Danske Bank and Nordea is partially or fully written down if these banks' transitional CET1 ratios fall below defined thresholds. Principal can be written up at the issuer's discretion. Swedbank's AT1 securities convert into ordinary shares if the bank's transitional CET1 ratio falls below certain thresholds.

The AT1 securities have increased the institutions' loss-absorbing going-concern capital and offer protection to senior bondholders. In Moody's view, the AT1 securities' write-down feature for Danske Bank and Nordea and the equity conversion feature for Swedbank result in higher quality capital than for previously issued Tier 1 securities that lack these features.

The ratings for these AT1 securities were initiated by Moody's and were not requested by the rated entities. Whilst Danske Bank, Nordea and Swedbank are participating issuers, subject to Moody's definition of participation as referring to the relationship that Moody's maintains with the rated entity, they did not engage in dialogue or exchange information with Moody's regarding this specific rating action for these securities.

Please see the report "Moody's Has Rated Additional Tier 1 Securities Issued by 3 Leading Nordic Financial Institutions", which will be published later today, for further details on the features of these instruments (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_183131).

RATINGS RATIONALE

The ratings assigned to the securities reflect Moody's approach to rating 'high-trigger' securities described in its "Banks" rating methodology, published in March 2015. This methodology takes into account multiple risks including the likelihood of a trigger breach, the risk of coupon suspension on a non-cumulative basis, the probability of a bank-wide failure, and loss severity, if any or all of these events occur.

With regards to the AT1 securities' multiple trigger structure, Moody's based its rating assessments on the triggers that are likely to breach first. As a result, Moody's analysis focused on group-level CET1 triggers.

According to its methodology for 'high-trigger' contingent capital securities, Moody's rates to the lower of a model-implied rating and a non-viability security rating. As such, Moody's first applied a model to assess the probability of the institutions' CET1 ratios breaching the above triggers and the loss severity if the triggers are breached. The model is based on the BCAs of these banks, which incorporate the institutions' overall intrinsic credit strength. The model also captures the institutions' CET1 capital ratios of 14.3% for Danske Bank, 16.0% for Nordea and 22.4% for Swedbank as of 30 June 2015. The model outcome is Ba1(hyb) for Danske Bank and Nordea, and Baa3(hyb) for Swedbank.

Moody's then compared the model outcome with the rating of a non-viability security, which, taking into account the banks' liability structures, is positioned based on Moody's advanced Loss Given Failure (LGF) analysis. The non-viability rating captures the probability of a bank-wide failure, the risk of coupon suspension on a non-cumulative basis, and loss severity if one or both of these events happen. None of the 'high-trigger' ratings are constrained by the corresponding non-viability rating. In addition, Moody's ran a sensitivity analysis on these institutions that factors in changes to the relevant CET1 ratios and each institution's BCA. The outcome of this sensitivity analysis confirms that Moody's assigned ratings are resilient to moderate changes in CET1 ratios.

WHAT COULD CHANGE THE RATING UP/DOWN

Danske Bank: Upward pressure on the rating of this instrument could arise if the BCA is raised. Conversely, downward pressure on the rating of this instrument could develop if Danske Bank's baa1 BCA is lowered by two notches or if Danske Bank's group-level CET1 ratio decreases below 11.7% on an ongoing basis (assuming no BCA change).

Nordea: Upward pressure on the rating of this instrument could arise if (1) the BCA is raised; or (2) the group-level CET1 ratio is strengthened above 17.4%. Conversely, downward pressure on the rating of this instrument could develop if Nordea's a3 BCA is lowered, combined with a decrease of Nordea's group-level CET1 ratio below 15% on an ongoing basis.

Swedbank: Upward pressure on the rating of this instrument could arise if the BCA is raised. Conversely, downward pressure on the rating of this instrument could develop if Swedbank's a3 BCA is lowered, combined with a decrease of Swedbank's group-level CET1 ratio below 20.3% on an ongoing basis.

In addition, for all institutions, Moody's would also reconsider their AT1 ratings if the probability of a coupon suspension were to increase.

..Assignments:

Issuer: Danske Bank A/S

....Pref. Stock Non-cumulative Preferred Stock, Assigned Ba1(hyb)

Issuer: Nordea Bank AB

....Pref. Stock Non-cumulative Preferred Stock, Assigned Ba1(hyb)

Issuer: Swedbank AB

....Pref. Stock Non-cumulative Preferred Stock, Assigned Baa3(hyb)

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

These ratings were not initiated or not maintained at the request of the rated entities.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. On this basis, these rated entities or their agents are considered to be participating entities. These rated entities or their agents generally provide Moody's with information for the purposes of their ratings process.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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.

Oscar Heemskerk
Associate Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Sean Marion
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's rates additional Tier 1 securities issued by 3 leading Nordic financial institutions
No Related Data.
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