Moody's downgrades Swedbank to Aa2/P-1/B-; outlook remains negative

London, 27 June 2008 -- Moody's Investors Service today downgraded the bank financial strength rating ("BFSR") of Swedbank from B to B- and its long-term senior debt and deposit ratings to Aa2 from Aa1. The outlook on these ratings remains negative. The short-term Prime-1 rating was affirmed. The bank's subordinated debt ratings were also downgraded by one notch in line with the senior debt downgrade. The B- BFSR now translates to a baseline credit assessment of A1. At the same time, the senior and subordinated debt ratings of Swedbank Mortgage AB were downgraded to Aa2 and Aa3, respectively, due to the change in the rating of the parent, whose support is factored into these ratings. All ratings of Swedbank's two Ukrainian subsidiaries Swedbank OJSC and Swedbank Invest were affirmed. The rating affirmations are based on the large rating differential between Swedbank and its Ukrainian subsidiaries, as well as the continued high probability of support from Swedbank. Today's rating action reflects Moody's opinion that Swedbank's financial ratios are under increasing pressure from its sizeable exposure to the weakening economies of the Baltic countries through its fully owned subsidiary AS Hansabank, whose ratings were also today downgraded to Aa3/A1/C from Aa2/A1/C+. At the end of the first quarter of 2008, Baltic exposure accounted for 30% of Swedbank's total group earnings and around 15% of the group's lending portfolio. Moody's notes that Hansabank has leading market shares in all three Baltic countries, which are considered a strategic market for Swedbank. According to Moody's, Swedbank's capital ratios (Tier 1 at 6.5% and total capital ratio at 9.3% at end-Q1 2008 according to adjusted Basel 1) are low relative to similarly rated peers, particularly taking into consideration Swedbank's higher risk profile due to the worsening macroeconomic environment in the Baltic area and its strategy of geographic expansion into riskier countries, including Ukraine and Russia. In Moody's opinion, Swedbank's capital adequacy levels could leave the bank more vulnerable in the event of a more severe downturn affecting the Baltic countries, although this scenario is still considered unlikely. In addition, Swedbank's core earnings generation capacity has started to demonstrate downward pressure due to a lower proportion of earnings deriving from its Baltic operations mainly due to pressure on asset quality, coupled with the slowdown in the Swedish domestic economy. Moody's foresees that this trend will continue over the next months. On the other hand, Moody's positively noted that Swedbank continues to display good profitability, and strong asset quality and efficiency levels. The bank also continues to maintain a leading position in the Swedish retail banking market. Moody's decision to continue to apply a negative outlook to Swedbank's ratings reflects the possibility -- under the still uncertain economic conditions in the Baltic area and a slower Swedish domestic economy-- of a further deterioration in Swedbank's earnings and capitalisation to levels that would be incompatible with the bank's current ratings. A separate press release has been issued on the ratings of Hansabank. Moody's previous rating action on Swedbank was on 18 January 2008, when the outlook on the BFSR and long-term ratings was changed to negative from stable. Swedbank is headquartered in Stockholm, Sweden and had total assets of SEK1,696 billion at the end of March 2008.

• Full name
  Public Joint Stock Commercial Bank "Omega Bank"
• Industry
  Banks