TEXT-S&P cuts several European banks' subordinated debt
-- The European Commission has proposed a framework for a bank recovery and resolution regime, which in our view reduces the likelihood that subordinated debt will benefit from government support to negligible. -- We are consequently removing any uplift for potential government support from our issue ratings on subordinated instruments to reflect the banks' stand-alone credit profiles only. -- We are therefore lowering our ratings, by one or more notches, on nondeferrable subordinated debt issued by banks in several European countries. July 24 - Standard & Poor's Ratings Services said today that it had lowered its issue ratings on nondeferrable subordinated debt issued by banks in several European countries. These rating actions reflect our reading of the European Commission's (EC's) proposal for a framework for bank recovery and resolution. See the ratings list below for a full list of the banks affected. On June 6, 2012, the EC published a draft directive on a bank recovery and resolution framework. A bail-in tool introduced in this framework will allow the government to transfer part of the financial burden of a bank's rescue to investors. As stated in our publication of May 10, 2012, "How A Bail-In Tool Could Affect Our Ratings On EU Banks," we already anticipated lowering our ratings on banks' nondeferrable subordinated bonds as a result of the upcoming resolution regime. Today we are removing any uplift for potential government support from our issue ratings on nondeferrable subordinated instruments issued by banks in Europe. The issue ratings now solely reflect the banks' stand-alone credit profiles (SACPs). SACPs reflect our view of a bank's credit risk without extraordinary support from the government. We believe that by notching from the SACP, we better capture the greater likelihood that government intervention will not be available to support subordinated debt issues. Until recently, notching from the long-term issuer credit rating (ICR) was the norm for determining most of our ratings on bank capital instruments. From our reading of the EC proposal, the likelihood that subordinated debt will benefit from government support will become negligible. The upcoming EC regulation gives the authorities sufficient flexibility to inhibit the performance of subordinated debt without forcing a bank into liquidation, even if there were a conflict with terms and conditions. We see an important indicator of potential for "bailing in" various regulatory capital instruments, including subordinated debt, in the regulators' ability to transfer assets and liabilities to other legal entities--such as a bridge bank, or a "bad bank"--in a way that could impede the servicing of subordinated debt. To derive the ratings on subordinated bank debt, we deduct one notch from the SACP of banks with SACPs in the 'bbb-' category or higher, and two notches if the SACP is at 'bb+' or lower. Before these rating actions, we already notched our ratings on nondeferrable subordinated bank debt in 10 European countries from the SACP, reflecting our assessment of the regulatory and legal frameworks in these countries. We will now notch from the SACP in all European countries. The ICR and our ratings on other bank debt are not affected by these rating actions. For senior obligations, notwithstanding the proposed directive's intention of limiting the cost of bank rescues for taxpayers, we observe that the proposed directive does not prohibit extraordinary support and we would need to understand governments' intentions and incentives as the draft directive moves toward final legislation. The impact of these rating actions is greatest for banks with ICRs that factor in a high uplift from their SACPs because of our expectation of future extraordinary government support. Our ratings on subordinated debt issued by banks with low systemic importance are not affected by these rating actions because they already reflect the banks' SACPs only. If a bank subsidiary benefits from group support and is located in a non-European country where we continue to notch from the ICR, we cap the rating on subordinated and hybrid capital instruments issued by that subsidiary at no higher than, but potentially lower than, the issue rating on the parent bank's equivalent types of capital instruments. We consider that restrictions on a parent bank's ability to pay its own nondeferrable subordinated debt are likely to affect its ability to support nondeferrable subordinated debt issued by subsidiaries. We use this approach unless the ICR on the subsidiary is higher than that on the parent (see Subpart E of "Group Rating Methodology And Assumptions," published Nov. 9, 2011). With the momentum building internationally toward wider implementation of resolution regimes, we will continue to monitor regulatory and legal developments in other regions. Accordingly, we expect to continue increasing the number of countries for which we notch from the SACP instead of the ICR as more resolution regimes are adopted and implemented globally. RATINGS LIST Downgraded To From Luxembourg Banque et Caisse d'Epargne de l'Etat, Luxembourg Nondeferrable subordinated debt A AA Finland Nordea Bank Finland PLC Nondeferrable subordinated debt A A+ Pohjola Bank PLC Nondeferrable subordinated debt A A+ Sampo Bank PLC Nondeferrable subordinated debt BBB- BBB+ Sweden Nordea Bank AB Nondeferrable subordinated debt A A+ SBAB Bank AB Nondeferrable subordinated debt BBB+ A Skandinaviska Enskilda Banken AB (publ) Nondeferrable subordinated debt BBB+ A Svenska Handelsbanken Nondeferrable subordinated debt A A+ Swedbank AB Nondeferrable subordinated debt BBB+ A Swedish Export Credit Corp. Nondeferrable subordinated debt BBB+ AA Norway DNB Bank ASA Nondeferrable subordinated debt A- A Austria Erste Group Bank AG Nondeferrable subordinated debt BBB A- HYPO NOE Gruppe Bank AG Nondeferrable subordinated debt BBB A- Oberoesterreichische Landesbank AG (1) Nondeferrable subordinated debt BBB- A- Raiffeisen Bank International AG Nondeferrable subordinated debt BBB A- Raiffeisen Zentralbank Oesterreich AG Nondeferrable subordinated debt BBB A- UniCredit Bank Austria AG (2) Nondeferrable subordinated debt BBB+ A- (1) The 'AA+/Negative' ratings on Oberoesterreichische Landesbank's guaranteed subordinated obligations, which benefit from a guarantee from the State of Upper Austria (AA+/Negative/A-1+), are not affected by this action. (2) The 'AA' ratings on UniCredit Bank Austria's guaranteed subordinated obligations, which reflect the deficiency guarantee from the City of Vienna (unsolicited rating AA+/Negative/A-1+), are not affected by this action. Ratings Affirmed Russia Raiffeisenbank ZAO Nondeferrable subordinated debt BBB- Sweden Landshypotek AB Nondeferrable subordinated debt A- Denmark Danske Bank A/S Nondeferrable subordinated debt BB+ RELATED CRITERIA AND RESEARCH All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated. -- How A Bail-In Tool Could Affect Our Ratings On EU Banks, May 10, 2012 -- Applying The Bank Hybrid Capital Criteria To Specific Instruments, Dec. 20, 2011 -- Sharing The Burden Of Bank Support: Countries Where Subordinated Debt Is Becoming Riskier, Nov. 29, 2011 -- Group Rating Methodology And Assumptions, Nov. 9, 2011 -- Banks: Rating Methodology and Assumptions, Nov. 9, 2011 -- Bank Hybrid Capital Methodology and Assumptions, Nov. 1, 2011 -- Bank Resolution Regimes: Potential Rating Implications As Sovereign Support Frameworks Evolve, March 16, 2011 -- General Criteria: Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010 EXTERNAL RESEARCH -- "Proposal for a directive of the European parliament and of the council establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directives 77/91/EEC and 82/891/EC, Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC and 2011/35/EC and Regulation (EU) No 10093/2010," Brussels, DG Internal Market And Services, June 6, 2012 -- "Bank recovery and resolution proposal: Frequently Asked Questions," European Commission Memo, Brussels, June 6, 2012 -- "Discussion Paper On The Debt Write-Down Tool - Bail-In," DG Internal Market of the European Commission, Brussels, March 30, 2012 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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