DBRS Takes Various Rating Actions and Assigns Additional Ratings on Nordea, Senior Unaffected at AA

DBRS has today taken various rating actions on certain debt instruments, as well as assigning additional ratings for some debt instruments of entities of the Nordea Group that were not rated previously. The rating actions are based on DBRS’s recently issued methodology for Rating Bank Subordinated Debt and Hybrid Capital Instruments with Contingent Risk. Importantly, today’s rating actions do not reflect any issuer-specific credit events, nor do they impact the other ratings for the Nordea Group, including the AA Senior Unsecured Debt & Deposits rating, with a Stable trend, for Nordea Bank AB and its main operating banks.

Today’s rating actions impact a relatively limited subset of debt capital instruments with contingent risks, for which DBRS draws an important distinction in its ratings between those instruments where these adverse events are reversible, and those instruments where these adverse events, once triggered, are irreversible. Accordingly, instruments with reversible contingent events are generally rated like other debt instruments that otherwise have similar characteristics. Conversely, instruments with contingent events that are not reversible are viewed as more risky and more equity-like, and as such, are generally rated lower, with notching driven by DBRS’s preferred rating scale for banks.

DBRS has today published a methodology, “Rating Bank Subordinated Debt and Hybrid Capital Instruments with Contingent Risks”. This methodology addresses instruments with contingent risk features that have already been issued by European banks, and also lays out the framework for rating instruments with such features in the future. This publication builds on DBRS’s approach to rating subordinated debt and hybrid instruments, which was clarified in our press release on 21 December 2009 and is detailed in our recently published methodology, “Rating Bank Subordinated Debt and Hybrid Instruments with Discretionary Payments”.

With this backdrop and consistent with the aforementioned methodologies, DBRS has upgraded the ratings for Capital Contribution Securities issued by Nordea Bank AB to “A”, with a Stable trend, from A (low). The rating action reflects DBRS’s assessment of the reversible conversion feature of these instruments. Nordea Bank AB’s Capital Contribution Securities can be converted into equity-like instruments to the extent that may be required to avoid the issuer being obliged to enter into liquidation, or to avoid or remedy any breach of applicable banking regulations. However, any converted amounts are to be reinstated as debt on the balance sheet, before the issuer makes dividend or other payments to shareholders. As discussed above, DBRS views reversible conversion or write-down features as adding less risk than similar features that are irreversible, as if the bank survives, the risk to the investor remains largely the same as it would be in the absence of this feature. DBRS now rates Nordea Bank AB’s Capital Contribution Securities three notches below the issuer’s senior debt rating. The notching reflects the junior status of the Capital Contribution Securities and the deferrable/non-cumulative nature of the coupon payments. DBRS has changed the name of the Hybrid Tier 1 Securities rating for Nordea Bank AB to Capital Contribution Securities rating as DBRS’s Capital Contribution Securities rating more accurately describes the hybrid instruments of the issuer.

DBRS has also changed the debt name for Dated Subordinated Debt of Nordea Bank AB (previously Subordinated Debt) to more accurately describe the instrument. The ratings for the issuer’s Dated Subordinated Debt and Undated Subordinated Debt remain unchanged at AA (low), with a Stable trend. The Dated Subordinated Debt has no conversion or write-down features and is therefore rated one notch below the senior rating (standard notching). The Undated Subordinated Debt has a reversible conversion feature (similar to the Capital Contribution Securities), and as such, is rated the same as subordinated debt without the conversion feature. The Undated Subordinated Debt ranks senior to Capital Contribution Securities and coupon payments are deferrable, but cumulative.

DBRS has changed the name of the Subordinated Debt issued by Nordea Bank Norge ASA (Nordea Norway) to Undated Subordinated Debt and has subsequently downgraded this rating to “A”, with a Stable trend, from AA (low). The debt name was changed to more accurately describe the instrument. The ratings reflect DBRS’s assessment of the irreversible write-down feature of these instruments, and DBRS’s view that this feature adds significant risk compared to similar instruments without such features. Nordea Norway’s undated subordinated debt can be written down in part or in full, under certain circumstances, including if a substantial amount of share capital is lost and if a material part of the value of the undated subordinated debt has been lost. Any such write-downs are irreversible, and write-downs may occur before the issuer becomes technically insolvent. Consistent with its refined methodology, DBRS rates Undated Subordinated Debt of Nordea Norway two notches below the intrinsic assessment for the issuer.

DBRS assigned a new rating for Undated Subordinated Debt issued by Nordea Bank Finland plc. The instrument is rated at AA (low), with a Stable trend. The rating reflects DBRS’s standard notching for subordinated debt, as the instrument has no special conversion or write-down features.

Note:
The applicable methodologies are
Global Methodology for Rating Banks and Banking Organisations,
Rating Bank Subordinated Debt and Hybrid Capital Instruments with Contingent Risks,
Rating Bank Subordinated Debt and Hybrid Instruments with Discretionary Payments,
Rating Bank Preferred Shares and Equivalent Hybrids,
Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments,
which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.