DBRS Initiates Ratings Coverage of Danske Mortgage Bank plc at A (low), Positive trend

DBRS Ratings Limited (DBRS) has assigned a Long-Term Issuer Rating of A (low), and a Short-Term Issuer Rating of R-1 (low) to Danske Mortgage Bank Plc (DMB or the Bank). The ratings have been assigned following the substitution of Danske Mortgage Bank Plc in place of Danske Bank Plc as the issuer of covered bonds in Finland, and the demerger of the mortgage credit banking operations of Danske Bank Plc and the transfer of all assets, liabilities and reserves of the mortgage credit banking business to Danske Mortgage Bank Plc. Concurrently, DBRS has withdrawn its existing ratings of Danske Bank Plc, including its A (low) Long-Term Issuer Rating, as the entity was merged into the parent entity, Danske Bank A/S, at end-December 2017. Please see the table at the end of the press release for full list of ratings.

DBRS views the Finnish operations of Danske Bank A/S (Danske or the Parent) as a core component of Danske’s Nordic franchise outside of Denmark and, therefore, DBRS has assigned a support assessment of SA1 to DMB. The SA1 designation implies strong and predictable support from the Parent.

KEY RATING CONSIDERATIONS

Danske Bank A/S has merged its activities in Finland in order to have a uniform organisational structure across the Nordic markets, and at the request of the Finnish authorities, a new entity was created to maintain the mortgage credit business in Finland, named Danske Mortgage Bank Plc (DMB). The mortgage banking activities of Danske Bank Plc were demerged on October 31, 2017 and in conjuction, the remaining part of Danske Bank Plc and Danske Bank A/S, Helsinki Branch were merged into a single branch, namely Danske Bank A/S, Finland Branch. Danske Bank Plc was merged into the Parent on December 31, 2017 and was subsequently dissolved.

DMB is a wholly owned subsidiary of Danske Bank A/S, operating solely as an issuer of covered bonds and is conducting its activities in cooperation with branches and other customer service points of the Danske Bank Group in Finland. Bonds issued by DMB are covered by a pool of loans consisting of Finnish household mortgages and the Bank does not act as the originator of housing loans but rather purchases loans from Danske Bank A/S, Finland Branch. DBRS also understands that Danske is responsible for managing DMB’s funding and liquidity. DMB was incorporated on the day of the partial demerger of the mortgage credit banking operations of Danske Bank Plc on October 31, 2017.

RATING DRIVERS

As a supported rating with an SA1 designation, Danske Mortgage Bank Plc’s rating will generally move in tandem with Danske’s Issuer Ratings.

The ratings could, however, come under downward pressure if, in DBRS’s opinion the likelihood of support was to reduce.

RATING RATIONALE

The SA1 support assessment reflects DMB’s important role as a core component of Danske’s Nordic franchise outside of Denmark. The SA1 also reflects DMB’s position as a direct subsidiary of Danske, that it shares the group branding and name, and DBRS’s expectation that the Parent has the resources and motivation to support the Bank, if needed.

Supporting this is Danske’s well-established, primarily retail-banking focused, franchise in Finland, which has consistently generated positive annual earnings throughout recent years. Danske Bank A/S, Finland branch, remains well-positioned in Finland with estimated markets shares in lending of 9% and in deposits of 12%. The Long-Term Issuer Rating is one notch below Danske’s ‘A’ Long-Term Issuer Rating in line with DBRS’ rating approach for core banking subsidiaries located in another country with low cross-border risk.

DBRS’s Issuer Rating on Danske Bank A/S (Danske or the parent) is ‘A’, with a Positive trend. The change in the trend to Positive on the long-term ratings on August 8, 2017 reflected Danske’s consistent progress over a number of years in improving fundamentals, with enhanced profitability, improving asset quality reflecting the continuous winding-up of the Non-Core unit as well as good macroeconomic conditions, a well managed funding profile and strong capital levels.

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

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 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 rating concerns a newly rated issuer. This is the first DBRS rating on this issuer.

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 and US 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: N/A
Most Recent Rating Update: Not applicable as no last rating date.

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