DBRS Takes Various Rating Actions and Assigns Additional Rating on SEB, Senior Unaffected at AA (low)

DBRS has today taken various rating actions on certain debt instruments, as well as assigning an additional rating for debt instruments of Skandinaviska Enskilda Banken AB (SEB or the Bank) 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 SEB, including the AA (low) Senior Unsecured Debt & Deposits rating, with a Negative trend.

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 and changed the name for Capital Contribution Securities (previously Hybrid Tier 1 Securities) issued by SEB to A (low) from BBB, the trend remains Negative. The new debt name more accurately describes the hybrid instruments while the upgrade reflects DBRS’s assessment of the reversible conversion feature of these instruments. SEB’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. 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 SEB’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. The Negative trend reflects the trend on SEB’s senior rating.

DBRS has also changed the debt name for Dated Subordinated Debt (previously Subordinated Debt) issued by SEB. At the same time, DBRS has assigned a new rating for Undated Subordinated Debt issued by SEB. Both instruments are rated at A (high), with a Negative 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. The Negative trend reflects the trend on SEB’s senior rating.

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.