Moody's downgrades Swedbank to Aa2/P-1/B-; outlook remains negative
June 27, 2008
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
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
Swedbank is headquartered in Stockholm, Sweden and had total assets of
SEK1,696 billion at the end of March 2008.
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Full namePublic Joint Stock Commercial Bank "Omega Bank"