April 4, 2013 / 2:51 PM / 5 years ago

Fitch Affirms Skandinaviska Enskilda Banken at A+; Outlook Stable

(The following statement was released by the rating agency) LONDON/PARIS, April 04 (Fitch) Fitch Ratings has affirmed Skandinaviska Enskilda Banken AB's (SEB) Long-term Issuer Default Rating (IDR) at 'A+', Viability Rating (VR) at 'a+' and Short-term IDR at 'F1'. The Outlook on the Long-term IDR is Stable. A full list of rating actions is at the end of this rating action commentary. RATING ACTION RATIONALE The affirmations are driven by SEB's strong domestic franchise, particularly in corporate and merchant banking, its solid capitalisation, its overall sound asset quality and its good revenue generation. They also reflect the group's higher exposure to larger corporates than at most Nordic peers as well as its structural reliance on wholesale funding, although the bank retained good access to the debt capital markets in recent years. KEY RATING DRIVERS - VR, IDRS AND SENIOR DEBT The Stable Outlook reflects Fitch's expectation that SEB will maintain its strong domestic operating profile and solid capital ratios without materially increasing risk. Fitch expects SEB to maintain healthy revenue while containing costs, providing some upside potential at the pre-impairment operating level. The agency also expects loan impairment charges to continue to normalise in 2013, following significant reversals in the Baltics since 2010. However, SEB's revenue-generating capacity is viewed by the agency as potentially more volatile compared to most regional peers as a result of its stronger focus on corporate banking. This, to some extent, also explains SEB's higher cost base, and cost efficiency measures remain a key focus for management. SEB's asset quality is viewed as sound. The bank's domestic loan portfolio accounts for around 70% of total lending, and Fitch expects the economic outlook in Sweden to remain relatively solid; however the corporate sector, which is strongly export-orientated, is not immune to the rest of the world, and a continuation of problems in the eurozone may affect SEB's corporate exposure, with a risk of potentially few but large problem cases. SEB has maintained its reserves at adequate levels, and the stock of impaired loans has continued to reduce in 2012, particularly in the group's Baltic operations. SEB is reliant on wholesale funding, although to a somewhat lesser extent than most of its Nordic peers, and hence is sensitive to a prolonged dislocation in the debt capital markets. The bank has retained capital markets access throughout the financial crisis, in particular in the covered bond market. Fitch also expects SEB to keep a significant liquidity portfolio and continue to lengthen its liability maturity profile to mitigate wholesale funding risk. SEB's solid capitalisation supports its ratings. The group estimates its Basel III common equity Tier 1 ratio at 13.1% at end-2012, in line with its targeted 13%, which compares well with its Nordic and European peers'. Its leverage ratio (tangible equity/tangible assets) is slightly higher than that of similarly rated Nordic peers. RATING SENSITIVITIES - VR, IDRS AND SENIOR DEBT Given SEB's already high ratings, greater exposure to potential corporate or trading risks and its structural wholesale funding reliance, any upgrade of the Long-Term IDR is unlikely. SEB's reliance on wholesale funding also means that any negative pressure on the bank's ratings is most likely to come from an adverse change in investor sentiment materially affecting SEB's access to debt capital markets, a shortened funding profile and reduced emphasis on liquidity. Pressure on SEB's ratings would also be generated if the bank were to increase its risk profile. KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR The bank's Support Rating and Support Rating Floor reflect Fitch's expectation that there is an extremely high probability that the Swedish state ('AAA'/Stable) would support SEB if required. This is driven by SEB's importance within the Swedish financial sector, accounting for 13% of retail deposits and 23% of corporate deposits, respectively, at end-2012. The Support Rating and Support Rating Floor are potentially sensitive to any change in Fitch's assumptions around the propensity or ability (as reflected in its ratings) of the Swedish state to provide timely support to the bank if required. They are also sensitive to a change in Fitch's assumptions around the availability of sovereign support for banks more generally. In this context, Fitch is paying close attention to on-going policy discussions around bank support and 'bail in', especially in Europe. KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by SEB are all notched down from SEB's VR in accordance with Fitch's assessment of each instruments respective non-performance and relative loss severity risk profiles, which vary considerably. SEB's subordinated debt ratings are broadly sensitive to the same considerations that might affect the Bank's VR. SUSBIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS SEB's German operation is conducted via SEB AG, its wholly owned subsidiary. Given the close integration, SEB AG's debt ratings are aligned with SEB's. Fitch does not assign the subsidiary a VR. SEB AG's ratings are sensitive to the same factors that might drive a change in SEB's VR and IDR. The rating actions are as follows: SEB Long-term IDR: affirmed at 'A+'; Outlook Stable Short-term IDR: affirmed at 'F1' Viability Rating: affirmed at 'a+' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A-' Senior Debt: affirmed at 'A+' Subordinated Debt: affirmed at 'A' Upper Tier 2 instruments: affirmed at 'BBB+' Hybrid instruments: affirmed at 'BBB' SEB AG Long-term IDR: affirmed at 'A+'; Outlook Stable Short-term IDR: affirmed at 'F1' Support Rating: affirmed at '1' Contact: Primary Analyst Olivia Perney Guillot Senior Director +33 144 299 174 Fitch France S.A.S. 60 rue de Monceau 75008 Paris Secondary Analyst Bjorn Norrman Director +44 20 3530 1330 Committee Chairperson Michael Dawson Kropf Senior Director +49 69 768076 113 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com. Skandinaviska Enskilda Banken's ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. SEB AG's ratings above were unsolicited and have been provided by Fitch as a service to investors. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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