NOTE: On August 17, 2017, the press release was corrected as follows: In the list of affected ratings, under Affirmations for Danske Bank A/S added “ST Deposit Note/CD Program, Affirmed P-1” as the third line. Revised release follows.
London, 16 August 2017 -- Moody's Investors Service, ("Moody's") has today upgraded Danske
Bank A/S's long-term deposit ratings to Aa3 from A1,
and its long-term deposit note/ CD program rating to (P)Aa3 from
(P)A1. At the same time, the rating agency upgraded the bank's
long-term senior unsecured debt ratings to A1 from A2, its
long-term senior unsecured MTN to (P)A1 from (P)A2 and its issuer
rating to A1 from A2. Moody's also upgraded the bank's
junior subordinated debt to Baa2(hyb) from Baa3(hyb), its preferred
stock non-cumulative to Baa3(hyb) from Ba1(hyb), its long-term
counterparty risk assessment (CRA) to Aa2(cr) from Aa3(cr) and affirmed
all other ratings. The ratings upgrades follow an upgrade in the
bank's standalone baseline credit assessment (BCA) and adjusted
BCA to a3 from baa1. The rating agency also changed the outlook
to stable from positive on Danske Bank A/S's long-term deposit
ratings, and maintained the positive outlook on its long-term
issuer rating and senior unsecured debt ratings, due to the expectation
of an increase in the volume of senior unsecured debt over the outlook
period.
At the same time, Moody's upgraded Danske Bank Plc's long-term
deposit ratings to Aa3 from A1, its senior unsecured MTN to (P)A1
from (P)A2 and its issuer rating to A1 from A2, subordinate MTN
to (P) Baa1 from (P)Baa2 and its long-term counterparty risk assessment
(CRA) to Aa2(cr) from Aa3(cr). The ratings upgrades follow an upgrade
in the bank's adjusted baseline credit assessment (BCA) to a3 from
baa1. The rating agency also affirmed Danske Bank Plc's BCA at
baa1, changed the outlook to stable from positive on Danske Bank
Plc's long-term deposit ratings, and maintained the positive
outlook on its long-term issuer rating, due to the expectation
of an increase in the volume of senior unsecured debt over the outlook
period.
The full list of the affected ratings can be found at the end of this
press release.
RATINGS RATIONALE
RATIONALE FOR THE UPGRADE OF THE BCA AND ADJUSTED BCA
The upgrade of Danske Bank A/S's BCA to a3 from baa1 reflects the continuing
strengthening of its asset quality, capitalisation and profitability,
as the bank benefits from a balanced and well-diversified lending
portfolio. These improvements follow a challenging period in the
aftermath of the financial crisis, both domestically and abroad.
These improvements bring Danske's credit profile in line with those
of its large Nordic peers.
Moody's expect Danske Bank A/S's asset quality to record moderate
improvements in the next twelve months, supported by the domestic
economy, which is forecasted to grow by 1.8% in 2017,
following continued improvements in recent quarters: group problem
loans as a percentage of gross loans (as calculated by the bank) declined
to 2.0% at end-June 2017 from 2.3%
at end-2016 and 3.0% at end-2015. The
bank's high historic problem loans ratio partially reflects weak asset
quality at its operations in the Republic of Ireland (government bond
rating A3 positive) and to some extent in Northern Ireland (UK government
bond rating Aa1 negative) and the impact of the financial crisis in Denmark
on its domestic portfolio. The Irish and Northern Irish exposure
have significantly decreased and now represent around 3% of the
loan book.
The bank's regulatory capital should continue to benefit from the normalization
of the bank's profitability in 2017 and going forward, increasing
the bank's ability to absorb potential future losses. At end-June
2017, its Common Equity Tier 1 (CET1) ratio was 16.2%.
well-above regulatory requirements.
Management's focus on reducing operating cost and a contained cost of
credit should continue to support a positive profitability trend,
mitigating margin pressure resulting from the current low interest-rate
environment in Denmark. During the first six months of 2017,
the bank's annualized net income to tangible assets was 0.6%,
in line with the bank's Nordic peers.
RATIONALE FOR THE UPGRADE OF DEPOSITS, SENIOR UNSECURED DEBT AND
ISSUER RATINGS
The upgrade of Danske Bank A/S's long-term deposit ratings to Aa3
from A1 and the upgrade of the bank's senior unsecured debt and
issuer ratings reflects the upgrade of the BCA and Adjusted BCA to a3
from baa1 previously.
Taking account of the group's consolidated balance sheet structure at
end-June 2017 and its near-term funding plan, Moody's
Advanced Loss Given Failure (LGF) analysis indicates that Danske Bank
A/S's deposits are likely to face very low loss-given-failure,
due to the loss absorption provided by subordinated debt and, potentially,
by senior unsecured debt should deposits be treated preferentially in
a resolution, as well as the substantial volume of deposits and
senior debt themselves. This results in two notches uplift.
Danske Bank A/S's senior unsecured debt is likely to face low loss-given-failure
due to the loss absorption provided by its own volume and the amount of
debt subordinated to it. This results in one notch uplift.
Moody's assumption of a moderate probability of government support for
Danske Bank A/S's senior unsecured debt and deposits results in a further
one-notch uplift, leading to long-term deposit ratings
of Aa3 and long-term senior unsecured and issuer ratings of A1.
RATIONALE FOR THE CR ASSESSMENT
As part of today's action, Moody's also upgraded Danske Bank A/S's
long-term CR Assessment at Aa2(cr) from Aa3(cr), and affirmed
the short-term CR Assessment at P-1(cr). The CR Assessment
is driven by the banks' standalone assessment based on the substantial
cushion against default provided to the senior obligations represented
by subordinated instruments, accounting for three notches of uplift
relative to the BCA, as well as one notch of government support,
in line with the agency's support assumptions on the bank's deposits and
senior unsecured debt.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward rating pressure could develop from significant improvements in
the bank's financial performance, including: (1) a further
decline in problem loans, supported by a decrease in agriculture
and oil-related exposures; (2) an improvement in the capital
leverage position, currently constrained by the large nominal size
of the bank's balance sheet; (3) a further increase in profitability
and reduced earnings volatility; and/or (4) A further increase in
the volume of senior unsecured debt over the outlook period.
Downward rating pressure could arise from: (1) any renewed pressure
on asset quality, particularly in one of the bank's core markets;
(2) any indication that the firm will not deliver the anticipated improvement
in profitability; or (3) any sign that the improvements achieved
in recent years are not sustainable.
--- Danske Bank Plc
Moody's has today upgraded Danske Bank Plc's long-term deposit
ratings to Aa3 from A1, its senior unsecured MTN to (P)A1 from (P)A2
and its issuer rating to A1 from A2. The rating agency also upgraded
the subordinate MTN to (P) Baa1 from (P)Baa2 and its long-term
counterparty risk assessment (CRA) to Aa2(cr) from Aa3(cr). The
ratings upgrades follow an upgrade in the bank's adjusted baseline
credit assessment (BCA) to a3 from baa1. At the same time,
the rating agency affirmed Danske Bank Plc's BCA at baa1.
The rating agency also changed the outlook to stable from positive on
Danske Bank Plc's long-term deposit ratings, and maintained
the positive outlook on its long-term issuer rating, due
to the expectation of an increase in the volume of senior unsecured debt
over the outlook period.
The upgrade of the bank's adjusted BCA reflects our "high"
assumption of affiliate support provided by the parent (Danske Bank A/S),
with a a3 BCA rated one notch higher than the one of its Finnish subsidiary
at baa1. The rating agency aligns the subsidiary's long term
ratings with that of its parent Danske Bank A/S and assigns one notch
of affiliate support uplift to Danske Plc.
The affirmation of Danske Bank Plc's standalone BCA of baa1 reflects the
bank's solid market position as Finland's third-largest bank,
stable earnings generation and sound asset quality. Danske Bank
Plc's profitability is relatively low. However, Moody's expects
that the implementation of restructuring measures to improve cost efficiency
and profitability, set against the low pace of economic growth in
the country, will drive a positive trend in profits.
The upgrade of Danske Bank's long-term deposit rating to
Aa3 from A1 and issuer rating to A1 from A2 with a change in outlook to
stable from positive is based on the bank's Adjusted BCA of a3 and the
results of Moody's Advanced Loss Given Failure (LGF) analysis.
Danske Bank is subject to the Bank Recovery Resolution Directive (BRRD)
and Moody's expects its resolution to take place with a Single Point of
Entry (SPE) approach. Therefore, Moody's performs the LGF
analysis on the consolidated balance sheet of Danske Bank group,
including the Finnish operations. Moody's LGF analysis for Danske
Bank Plc indicates a very low loss-given-failure,
resulting in a two-notch uplift from the bank's adjusted BCA to
the long-term deposits and a one-notch uplift to senior
unsecured ratings. The LGF analysis assesses the banking group's
own volume of deposits and debt, and the volume of securities subordinated
to them in Moody's creditor hierarchy, which together offset the
decrease in government support assumptions.
As with its parent, Danske Bank A/S, Moody's continues to
believe that the probability of government support for Danske Bank Plc's
long-term deposits and senior unsecured debt is moderate,
resulting in a one-notch uplift included in the bank's A1 issuer
rating and Aa3 long-term deposit ratings.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward pressure on the ratings might develop if: (1) the bank is
able to strengthen its earnings generation without increasing its risk
profile; and/or (2) A further increase in the volume of senior unsecured
debt over the outlook period.
Downward rating pressure would emerge if: (1) the bank's profitability
deteriorates; (2) its asset quality deteriorates; and/or (3)
its risk profile increases, for example as a result of increased
exposures to more volatile sectors or increased involvement in more risky
operations such as capital market activities.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
List of affected ratings
Upgrades:
..Issuer: Danske Bank A/S
.... LT Bank Deposits, Upgraded to Aa3
Stable from A1 Positive
.... LT Issuer Rating, Upgraded to A1
Positive from A2 Positive
.... Senior Unsecured Regular Bond/Debenture,
Upgraded to A1 Positive from A2 Positive
.... LT Deposit Note/CD Program, Upgraded
to (P)Aa3 from (P)A1
.... Junior Subordinated Regular Bond/Debenture,
Upgraded to Baa2 (hyb) from Baa3 (hyb)
.... Senior Unsecured MTN, Upgraded
to (P)A1 from (P)A2
.... Pref. Stock Non-cumulative,
Upgraded to Baa3 (hyb) from Ba1 (hyb)
.... Adjusted Baseline Credit Assessment,
Upgraded to a3 from baa1
.... Baseline Credit Assessment, Upgraded
to a3 from baa1
.... Counterparty Risk Assessment, Upgraded
to Aa2(cr) from Aa3(cr)
..Issuer: Danske Bank A/S (London Branch)
.... LT Deposit Note/CD Program, Upgraded
to (P)Aa3 from (P)A1
..Issuer: Danske Bank Plc
.... LT Bank Deposits, Upgraded to Aa3
Stable from A1 Positive
.... LT Issuer Rating, Upgraded to A1
Positive from A2 Positive
.... Senior Unsecured MTN, Upgraded
to (P)A1 from (P)A2
.... Subordinate MTN, Upgraded to (P)Baa1
from (P)Baa2
.... Adjusted Baseline Credit Assessment,
Upgraded to a3 from baa1
.... Counterparty Risk Assessment, Upgraded
to Aa2(cr) from Aa3(cr)
Affirmations:
..Issuer: Danske Bank A/S
.... ST Bank Deposits, Affirmed P-1
.... BACKED ST Deposit Note/CD Program,
Affirmed P-1
.... ST Deposit Note/CD Program, Affirmed
P-1
.... ST Deposit Note/CD Program, Affirmed
(P)P-1
.... Commercial Paper, Affirmed P-1
.... Other Short Term, Affirmed (P)P-1
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
..Issuer: Danske Bank Plc
.... ST Bank Deposits, Affirmed P-1
.... Baseline Credit Assessment, Affirmed
baa1
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
..Issuer: Danske Corporation
.... BACKED Commercial Paper, Affirmed
P-1
..Issuer: Danske Bank A/S (London Branch)
.... ST Deposit Note/CD Program, Affirmed
(P)P-1
Outlook Actions:
..Issuer: Danske Bank A/S
....Outlook, Changed To Stable(m) From
Positive
..Issuer: Danske Bank Plc
....Outlook, Changed To Stable(m) From
Positive
..Issuer: Danske Bank A/S (London Branch)
....Outlook, Changed To Stable From
Positive
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 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.
Alessandro Roccati
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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 Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
