May 30, 2012 / 7:07 AM / 5 years ago

TEXT-S&P cuts Danske Bank to 'A-/A-2';outlook stable

May 30 -

Overview

-- We expect Denmark-based Danske Bank A/S to suffer high impairment costs as a result of continued weakness in the Irish property market.

-- We are lowering our long-term counterparty credit rating on Danske Bank to ‘A-'.

-- We are also lowering the bank’s stand-alone credit profile, to ‘bbb’ from ‘bbb+', to reflect a change in its risk position to moderate from adequate.

-- The outlook is stable, reflecting our expectation that Danske Bank will succeed in working out its remaining asset quality problems over the next three years within our base-case loss assumptions.

Rating Action

On May 30, 2012, Standard & Poor’s Ratings Services lowered its long-term counterparty credit ratings on Denmark’s largest commercial bank, Danske Bank A/S, and its core operating subsidiary, Sampo Bank PLC, to ‘A-’ from ‘A’. The outlook is stable.

At the same time, we lowered our short-term ratings on the banks to ‘A-2’ from ‘A-1’. We also lowered Danske Bank’s stand-alone credit profile (SACP) to ‘bbb’ from ‘bbb+'.

Rationale

The rating action reflects our expectation that Danske Bank will continue to suffer high impairment losses in its Irish banking business as a result of continued weakness in the Irish property market. It also reflects our view that the resolution of the Danish financial crisis will create above-average impairment losses for the bank. We now expect Danske Bank’s projected losses to be higher than we previously anticipated. We further expect the turning point for the group’s financial performance to be delayed. In our view 2012 is unlikely to be a materially better year for Danske Bank than 2011. This is turn creates additional challenges for the group in terms of improving its capitalization, which presently is in the 5%-7% range according to our risk-adjusted capital (RAC) framework.

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