Press Release: S&PGR Raises Danica Rtg To ‘A’; Affirms Danske Bank At ‘A’

Press Release: S&PGR Raises Danica Rtg To ‘A’; Affirms Danske Bank At ‘A’

 
 
The following is a press release from Standard & Poor's: 
 
     -- Danske Bank's capital levels have improved materially, with the 
risk-adjusted capital (RAC) ratio moving above 10%, and we expect it will 
remain higher than 10% in the coming 12-18 months, improving the group credit 
profile (GCP). 
     -- However, at this higher capital and earnings level, the bank's 
additional loss-absorbing capacity (ALAC) buffer no longer leads to one notch 
of uplift for the rating. 
     -- As a result, we are raising the rating on Danske Bank's core insurance 
subsidiary Danica Pension to 'A' from 'A-' and upgrading the bank's and 
insurance company's subordinated debt and hybrid instruments. 
     -- We are affirming our ratings on Danske Bank at 'A/A-1'. 
     -- The stable outlook reflects our expectations of stable capital ratios 
and further earnings improvements. 
 
STOCKHOLM (S&P Global Ratings) July 8, 2016--S&P Global Ratings today affirmed 
its long- and short-term counterparty credit ratings on Denmark-based Danske 
Bank A/S and its subsidiary Danske Bank PLC at 'A/A-1' and raised its 
long-term counterparty credit and insurer financial strength ratings on Danske 
Bank's insurance subsidiary Danica Pension Livsforsikringsaktieselskab 
(Danica) to 'A' from 'A-'. The outlook for all entities is stable. 
 
In addition, we have upgraded Danske Bank's subordinated debt to 'BBB+' from 
'BBB' and its junior subordinated debt to 'BBB-' from 'BB+'. We also upgraded 
Danica's subordinated debt instruments to 'BBB+' from 'BBB'. 
 
The rating action reflects our view that Danske Bank's capital levels have 
improved. We have revised our capital and earnings assessment to strong from 
adequate, as the bank's RAC ratio increased to 10.1% on Dec. 31, 2015, from 9% 
on Dec. 31, 2014, and we expect it will remain between 10.5% and 11.0% in the 
coming 12-18 months. While the ratio is relatively close to our 10% threshold, 
we believe that the bank has additional flexibility, given its ability to 
reduce the currently high buyback activity and dividend accruals in the event 
of stress that resulted in higher-than-anticipated losses or turbulent capital 
markets. 
 
As a result of our revision of Danske Bank's capital and earnings position to 
strong, we have revised the unsupported GCP to 'a' from 'a-'. 
 
At the same time, we are removing the one notch of ALAC support from our 
rating on Danske Bank. We estimate ALAC of 2.4% of S&P Global Ratings 
risk-weighted assets (RWAs) as of year-end 2015 and do not expect it will go 
above our adjusted threshold of 4.5% in the coming two years. We apply a 
50-basis-point-lower threshold to Danske Bank because of its significant 
insurance operations. These activities represent about 14% of total S&P Global 
Ratings RWAs, which we believe would be out of scope for any resolution 
process. 
 
Our ratings on Danske Bank's core insurance subsidiary, Danica, at 'A', are 
now at the level of our unsupported GCP on Danske Bank. We believe that 
Danica, as an insurance subsidiary of Danske Bank, would not benefit from ALAC 
at the bank. 
 
Danica is one of the leading life insurers in Denmark, ranking second in terms 
of gross premiums written, with developing insurance operations in Sweden and 
Norway. Danica is also the main life insurance risk carrier within the Danske 
Bank group. In our view, Danica plays a core role in Danske Bank's strategy to 
fortify its position as a leading and well-diversified player in Denmark's 
financial services market as part of its newly formed wealth management 
division. 
 
The stable outlook on Danske Bank reflects our view that the bank will be able 
to maintain its recent improvements in capital and profitability, which have 
enhanced the bank's long-term capital flexibility. We anticipate that Danske 
Bank will continue to pay out a significant share of annual profits via 
dividends and share buyback programs, maintaining capital ratios close to 
10.5% by our measures. We believe that the prospect of higher regulatory 
capital requirements and flexibility to discontinue its high payout levels 
supports this view. The stable outlook also reflects our expectation that the 
bank will maintain its current stock of instruments that we consider eligible 
for ALAC buffers below our threshold of 4.5% of S&P Global Ratings RWA over 
the coming two years. 
 
A negative rating action on Danske is currently unlikely, given improvements 
in the domestic economy and the existence of meaningful ALAC buffers should we 
revise our stand-alone capital and earnings assessment. However, while the 
Northern Ireland division is relatively small and reasonably profitable, a 
significant loss there in the wake of Brexit or other material losses could 
affect our assessment of the bank's overall capital position. 
 
A positive rating action on Danske Bank could occur if the bank's development 
of ALAC buffers exceeded our expectations, reaching at least 4.5% of S&P 
Global Ratings RWA on a sustainable basis. 
 
The stable outlook on Danica reflects that on Danske Bank, based on Danica's 
core status and the rating being aligned with the unsupported GCP of Danske 
Bank. 
 
RELATED CRITERIA AND RESEARCH 
 
Related Criteria 
 
     -- Criteria - Financial Institutions - Banks: Assessing Bank Branch 
Creditworthiness - October 14, 2013 
     -- General Criteria: Use Of CreditWatch And Outlooks - September 14, 2009 
     -- Criteria - Financial Institutions - Banks: Revised Market Risk Charges 
For Banks In Our Risk-Adjusted Capital Framework - June 22, 2012 
     -- Criteria - Financial Institutions - Banks: Banks: Rating Methodology 
And Assumptions - November 09, 2011 
     -- Criteria - Financial Institutions - Banks: Banking Industry Country 
Risk Assessment Methodology And Assumptions - November 09, 2011 
     -- Criteria - Financial Institutions - Banks: Bank Capital Methodology 
And Assumptions - December 06, 2010 
     -- General Criteria: Group Rating Methodology - November 19, 2013 
     -- Criteria - Financial Institutions - Banks: Quantitative Metrics For 
Rating Banks Globally: Methodology And Assumptions - July 17, 2013 
     -- Criteria - Financial Institutions - Banks: Commercial Paper I: Banks - 
March 23, 2004 
     -- Criteria - Financial Institutions - Banks: Bank Hybrid Capital And 
Nondeferrable Subordinated Debt Methodology And Assumptions - January 29, 2015 
     -- Criteria - Financial Institutions - Banks: Bank Rating Methodology And 
Assumptions: Additional Loss-Absorbing Capacity - April 27, 2015 
     -- General Criteria: National And Regional Scale Credit Ratings - 
September 22, 2014 
     -- General Criteria: S&P Global Ratings' National And Regional Scale 
Mapping Tables - June 01, 2016 
     -- Criteria - Financial Institutions - Banks: Methodology For Mapping 
Short- And Long-Term Issuer Credit Ratings For Banks - May 04, 2010 
 
Related Research 
     -- The Future Of Banking: Nordic Banks Looking Svelte In The Fintech 
Race, June 14, 2016 
     -- Banking Industry Country Risk Assessment: Denmark, Jan. 28, 2016 
     -- Danske Bank A/S, July 31, 2015 
     -- Danish Insurer Danica Pension Livsforsikringsaktieselskab's Proposed 
Subordinated Notes Rated 'BBB', Sept. 15, 2015 
     -- Denmark-Based Life Insurer Danica Pension Livsforsikringsaktieselskab 
Rated 'A-'; Outlook Stable, Sept. 11, 2015 
 
Certain terms used in this report, particularly certain adjectives used to 
express our view on rating relevant factors, have specific meanings ascribed 
to them in our criteria, and should therefore be read in conjunction with such 
criteria. Please see Ratings Criteria at www.standardandpoors.com for further 
information. Complete ratings information is available to subscribers of 
RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All 
ratings affected by this rating action can be found on the S&P Global Ratings 
public website at www.standardandpoors.com. Use the Ratings search box located 
in the left column.  Alternatively, call one of the following S&P Global 
Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office 
(44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; 
Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009. 
 
Primary Credit Analyst: Sean Cotten, Stockholm (46) 8-440-5928; 
                        sean.cotten[a]spglobal.com 
Secondary Contact: Alexander Ekbom, Stockholm (46) 8-440-5911; 
                   alexander.ekbom[a]spglobal.com 
Additional Contact: Financial Institutions Ratings Europe; 
                    FIG_Europe[a]standardandpoors.com 
 
 
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Press Release: S&PGR Raises Danica Rtg To ‘A’; -2-

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