DBRS Initiates Ratings Coverage of Danske Bank Plc at A (low), Stable Trend

DBRS Ratings Limited (DBRS) has today initiated coverage of Danske Bank Plc (the Bank). Danske Bank Plc is a Finnish bank and a core operating subsidiary of Danske Bank A/S (Danske or the Parent), Denmark’s largest bank. DBRS has assigned to Danske Bank Plc an A (low) Issuer Rating, an A (low) Long-Term Senior Debt rating and Long-Term Deposits rating, as well as R-1 (low) Short-Term Debt and Short-Term Deposits ratings. All ratings have a Stable trend.

DBRS’s Issuer Rating on Danske is A, also with a Stable trend. DBRS considers Danske views its Finnish bank subsidiary as a core component of Danske’s Nordic franchise outside of Denmark and, therefore, DBRS has assigned a support assessment of SA1 to Danske Bank Plc. The SA1 designation implies strong and predictable support from the Parent.

The SA1 designation of Danske Bank Plc reflects its important role as a core component of Danske’s franchise outside of Denmark. Supporting this is Danske Bank Plc’s well-established, primarily retail-banking focused franchise in Finland, which has consistently generated positive annual earnings throughout recent years. As the third largest bank in Finland, with approximately EUR 29 billion in total assets, Danske Bank Plc is well-positioned in Finland with a lending market share of 9% and a deposit market share of 12%. DBRS views the Bank as having a solid domestic franchise, recurrent earnings, contained impaired loans, a well managed funding profile, and robust capitalisation. The one notch differential between Danske Bank Plc’s long-term debt rating of A (low) and Danske’s long-term debt rating of A reflects the fact that a subsidiary is based in a foreign country.

The ratings also reflect its position as a direct subsidiary of Danske and DBRS’s expectation that the Parent has the resources and motivation to support Danske Bank plc, if needed. In DBRS’s view, the Parent’s motivation is reflected by Danske’s current efforts in harmonising its pan-Nordic franchise, most notably through a streamlined legal structure.

DBRS rates the Republic of Finland at AA (high) with a Stable trend.

RATING DRIVERS
As a supported rating with an SA1 designation, Danske Bank Plc’s rating will generally move in tandem with Danske’s long-term debt ratings.

The ratings could, however, come under downward pressure if the likelihood of the Parent’s willingness or ability to support reduces.

DBRS notes that Danske is in the process of merging its activities in Finland, Danske Bank Plc and Danske Bank A/S, Helsinki branch, in order to have a uniform organisational structure across the Nordic markets. As a result, Danske Bank Plc will be dissolved and cease to exist. At the request of the Finnish authorities, a new entity will be created and named “Danske Mortgage Bank Plc” (DMB) to maintain the mortgage credit business in Finland. DBRS understands that DMB will also be a wholly owned subsidiary of Danske Bank A/S, operating solely as a mortgage credit institution and conducting its activities in cooperation with branches and other customer service points of the Danske Bank Group in Finland. DBRS also understands that Danske will ultimately be responsible for managing DMB’s funding and liquidity. DBRS expects DMB to be incorporated on the day of the demerger, expected in 4Q17.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (July 2016). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2017), DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2017), and Critical Obligations Rating Criteria (February 2017). These can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial and company disclosures. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This is the first DBRS rating on this entity.

This is an unsolicited rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Vitaline Yeterian, Vice President - Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG, Global FIG
Initial Rating Date: May 19, 2017
Most Recent Rating Update: May 19, 2017

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