DANSKE BANK A/S Research Update:
Denmark-Based Danske Bank Upgraded To 'A+'; Outlook Negative; Off UCO On Implementation Of Revised FI Criteria
December 16, 2021
Overview
- On Dec. 9, 2021, S&P Global Ratings published its revised "Financial Institutions Ratings Methodology," (FI Methodology) and placed its ratings on Danske Bank under criteria observation (UCO).
- Under our revised FI Methodology, we are discontinuing the notch of negative adjustment to the bank's issuer credit rating, which now benefits from two notches of additional loss absorbing capacity (ALAC) uplift.
- While Danske Bank continues to face potential negative impact from the ongoing regulatory investigations, we consider bank's 'a-' SACP to be still adequately placed compared with peers and therefore do not consider the use of the comparable ratings analysis (CRA) adjustment as appropriate.
- Having completed our review of Danske Bank, we have raised our issuer credit and senior debt ratings by one notch to 'A+' from 'A', but affirmed the ratings on the bank's hybrid instruments. We have removed all ratings from UCO.
- The negative outlook reflects the possibility of a downgrade over the next 24 months if the outcome of ongoing regulatory investigations were to hamper the bank's business franchise or its capitalization more than we assume.
PRIMARY CREDIT ANALYST
Antonio Rizzo
Madrid
+ 34 91 788 7205
Antonio.Rizzo
@spglobal.com
SECONDARY CONTACTS
Harm Semder
Frankfurt
+ 49 693 399 9158
harm.semder
@spglobal.com
Andreas Lundgren Harell
Stockholm
+ 46 8 440 5921
andreas.lundgren.harell
@spglobal.com
Rating Action
On Dec. 16, 2021, S&P Global Ratings took the following rating actions:
- Raised its long-term issuer credit ratings (ICRs) on Danske Bank A/S and its Swedish Branch to 'A+' from 'A' and affirmed the short-term ICR at 'A-1'.
- Raised its long-term debt ratings on all outstanding senior instruments to 'A+' from 'A', and the resolution counterparty rating to 'AA-' from 'A+'.
www.spglobal.com/ratingsdirect | December 16, 2021 1 |
Research Update: Denmark-Based Danske Bank Upgraded To 'A+'; Outlook Negative; Off UCO On Implementation Of Revised FI Criteria
- Affirmed its debt ratings on hybrid instruments.
- Removed the ratings from UCO, where they were placed on Dec. 9, 2021.
- Revised the outlook to negative from stable and affirmed its 'A-' ICR and 'BBB' subordinated debt rating on Danica Pension Livsforsikringsaktieselskab (Danica), a core subsidiary of Danske Bank A/S.
The outlook on all entities is negative.
Rationale
The rating actions follow a revision to our methodologies for rating banks and nonbank financial institutions and for determining a Banking Industry Country Risk Assessment (BICRA) (see "Criteria | Financial Institutions | General: Financial Institutions Rating Methodology," published Dec. 9, 2021 and "Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And Assumptions," published Dec. 9, 2021).
We can now apply a comparative adjustment notch to determine a bank's stand-alone
creditworthiness. Through the adjustment, which could be either positive or negative and up to one notch, we aim to incorporate additional credit factors. These could be either transitional or more structural factors that we do not separately identify or capture in other parts of the analysis.
For Danske Bank, we have discontinued the previous negative notch of adjustment at the ICR
level. This adjustment reflected the uncertainties around the anti-money laundering investigations. At the same time, we are not introducing a negative CRA adjustment into the stand-alone credit profile (SACP) since we continue to consider the current 'a-' SACP consistent with that of peers.
The ICR benefits fully from the two-notchuplift from the ALAC buffer. We expect the ALAC ratio (ALAC eligible debt over S&P risk-weighted assets) to remain at a comfortable level and well above our threshold of 600 basis points in the next two years.
We raised the ratings on the senior preferred debt, but affirmed the rating on the hybrid debt
instruments. The ALAC uplift only benefits the senior unsecured (preferred) debt while the creditworthiness of the senior nonpreferred and other subordinated debt instruments is fairly reflected in the unchanged SACP, from which we notch up or down to obtain the hybrid rating.
Our ratings continue to reflect projected robust capitalization. This incorporates a potential fine and very high loss-absorbing capacity through 2023. At the same time, pressure on asset quality induced by COVID-19 fallout is gradually easing. We also expect the bank to maintain its leading franchise as the second-largest bank in the Nordic banking markets, and its dominant domestic role.
Lastly, the rating action on Danica reflects the entity's integration within the group and key role within Danske Bank's financial services offering as a market-leading life insurer in Denmark.
Since Danica is a core entity of Danske Bank, we rate it at the level of the group SACP, because we expect that it would receive support under all foreseeable circumstances if needed. However, we do not believe that it will benefit from the bank's ALAC in resolution.
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Research Update: Denmark-Based Danske Bank Upgraded To 'A+'; Outlook Negative; Off UCO On Implementation Of Revised FI Criteria
Outlook
The negative outlook on Danske Bank reflects the uncertainties around the ongoing money laundering investigations--mainly in the U.S. We consider that there is at least a one-in-three probability that the outcome of the investigation could jeopardize our view of the bank's business franchise and, more broadly, its financial profile compared with peers', leading to a downgrade over the next 24 months.
Downside scenario
We could lower our ICR on Danske Bank if the Estonian money laundering case incurred higher damage to the bank's franchise and capitalization than in our central scenario. Similarly, we could revise down our view of the bank's business position if we considered that management was unable to improve its governance and compliance culture. This would occur, for example, if we saw evidence of low management stability or the bank did not manage to address its outstanding legacy issues, leading to weakening market shares in its key markets.
We could also lower the ratings if management failed to execute the bank's strategy and generate better and more predictable risk-adjusted profitability, in line with peers.
Upside scenario
We could consider revising the outlook on Danske Bank to stable once the outcome of the regulatory investigations becomes clearer and if we consider their impact on Danske Bank's creditworthiness to be manageable. Moreover, a positive action would also hinge on the bank strengthening its franchise and operating profitability, as well as addressing its main legacy issues, such as errors in the debt collection systems.
Outlook: Danica
Our negative outlook on Danica reflects that on Danske Bank. This is because we regard Danica as a core subsidiary of the bank, so we believe it would receive support under all foreseeable circumstances.
Downside scenario: Danica. We could lower the ratings on Danica over the next 12-24 months if we revised our assessment of the group' SACP downward. We could also lower the ratings if we no longer regarded Danica as core to Danske Bank. We consider this unlikely, but it could result from a significant weakening of Danica's operating performance or group integration, or any indications of Danske Bank's reduced commitment to Danica.
Upside scenario: Danica. We could raise the ratings on Danica over the next 12-24 months if we revised our assessment of Danske Bank' SACP upward.
Ratings Score Snapshot
Danske Bank A/S
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Research Update: Denmark-Based Danske Bank Upgraded To 'A+'; Outlook Negative; Off UCO On Implementation Of Revised FI Criteria
Issuer Credit Rating: A+/Negative/A-1
Resolution counterparty rating : AA-/--/A-1+
Stand-alone credit profile: a-
Anchor: bbb+
- Business Position: Strong (+1)
- Capital and Earnings: Strong (+1)
- Risk Position: Moderate (-1)
- Funding and Liquidity: Adequate / Adequate (0)
- Comparable Rating Analysis: (0)
Support: +2
- ALAC Support: +2
- GRE Support: 0
- Group Support: 0
- Sovereign Support: 0
Additional Factors: 0
Related Criteria
- Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And Assumptions, Dec. 9, 2021
- Criteria | Financial Institutions | General: Financial Institutions Rating Methodology, Dec. 9, 2021
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Financial Institutions | General: Risk-Adjusted Capital Framework Methodology, July 20, 2017
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Guarantee Criteria, Oct. 21, 2016
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- RFC Process Summary: Financial Institutions Rating Methodology, Dec. 9, 2021
- Certain Financial Institution Issuer And Issue Ratings Placed Under Criteria Observation Following Criteria Update, Dec. 9, 2021
www.spglobal.com/ratingsdirect | December 16, 2021 4 |
Research Update: Denmark-Based Danske Bank Upgraded To 'A+'; Outlook Negative; Off UCO On Implementation Of Revised FI Criteria
- RFC Process Summary: Banking Industry Country Risk Assessment Methodology And Assumptions, Dec. 9, 2021
- Financial Institutions And BICRA Criteria Published, Dec. 9, 2021
Ratings List
* * * * * * * * * * * * * * * Danske Bank A/S * * * * * * * * * * * * * *
Ratings Affirmed
Danske Bank A/S
Issuer Credit Rating
Nordic Regional Scale | --/--/K-1 | |
Certificate Of Deposit | ||
Foreign Currency | A-1 | |
Danica Pension Livsforsikringsaktieselskab | ||
Subordinated | BBB | |
Danske Bank A/S | ||
Senior Subordinated | BBB+ | |
Subordinated | BBB | |
Junior Subordinated | BB+ | |
Commercial Paper | A-1 | |
Ratings Affirmed; Outlook Action | ||
To | From | |
Danica Pension Livsforsikringsaktieselskab | ||
Issuer Credit Rating | A-/Negative/-- | A-/Stable/-- |
Upgraded | ||
To | From | |
Danske Bank A/S | ||
Resolution Counterparty Rating | AA-/--/A-1+ | A+/--/A-1 |
Danske Bank A/S | ||
Senior Unsecured | A+ | A |
Certificate Of Deposit | A+ | A |
Commercial Paper | A+ | A |
Upgraded; Outlook Action; Ratings Affirmed | ||
To | From | |
Danske Bank A/S | ||
Danske Bank A/S, Swedish Branch | ||
Issuer Credit Rating | A+/Negative/A-1 | A/Stable/A-1 |
www.spglobal.com/ratingsdirect | December 16, 2021 5 |
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Danske Bank A/S published this content on 17 December 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 December 2021 07:28:00 UTC.
