DBRS Comments on DnB NOR’s Earnings Pre-Announcement – Senior at AA

DBRS has commented today that its ratings for DnB NOR Bank ASA (the Bank) are unchanged following the Q4 2008 earnings pre-announcement released by DnB NOR Group (DnB NOR or the Group). The Bank’s Senior Unsecured Long-Term Debt & Deposit rating remains at AA and the Short-Term Debt & Deposit rating remains at R-1 (high). The trend on all ratings remains Stable.

Given the difficult operating environment, DBRS views positively the Group’s pre-announcement on 21 January 2008 that its operating income before writedowns and taxes for 2008 is expected to be well above the previously reported target of NOK 15 billion. This indicates that DnB NOR maintained a level of profitability in Q4 2008 under challenging conditions. The Group also stated that loan writedowns increased significantly in Q4 2008 and amounted to between NOK 2 billion and NOK 2.5 billion, which represents an annualised 0.7% to 0.8% of total lending. DnB NOR also stated that despite higher writedowns, rising operating income and controlled costs led to estimated after-tax profits of NOK 2 billion in Q4 2008.

DBRS notes that continued solid earnings are necessary for DnB NOR to succeed with its plan to bolster capital by retaining earnings and controlling risk-weighted assets. In the view of DBRS, it is important for DnB NOR to strengthen capital, given the uncertainties of a deteriorating global economy and persistent financial markets turmoil. In addition, DBRS sees a risk of further credit quality deterioration at DnB NOR, particularly in its commercial real estate and shipping finance portfolios and its loan exposure to the Baltic region. Based on risk-weighted volumes reported as of September 2008, retaining all estimated 2008 profits of NOK 9.2 billion would bring DnB NOR’s core Tier 1 ratio from 6.3% as of September to 7.2% on a pro-forma basis.

The Bank’s ratings are based on DnB NOR’s dominant position in Norwegian banking, its solid underlying earnings generation ability and its sound financial profile. DBRS views as key rating challenges the Group’s tight capitalisation, the risk of deteriorating credit quality and disappointing investment results at its insurance subsidiary Vital. DBRS will continue to monitor DnB NOR’s operating performance and its progress in bolstering capital.

Notes:
All figures are in Norwegian krone unless otherwise indicated.

The applicable methodology is Analytical Background and Methodology for European Bank Ratings, Second Edition, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.