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
