Swedbank Rating Outlook Raised to Stable at S&P on Capital Ratio

Swedbank AB (SWEDA)’s credit-rating outlook was raised to stable at Standard & Poor’s Ratings Services, which said the lender is better prepared than rivals to handle increasing risks in the Swedish economy.

S&P removed its negative outlook on both the A+ long-term rating and the A-1 short-term opinion, it said in a statement late yesterday. S&P also gave notice of possible downgrades for Svenska Handelsbanken AB and SBAB Bank because of concern about those banks’ use of short-term wholesale funding. It will conclude its review of the two institutions within 90 days.

S&P’s revised outlook for Swedbank comes less than two months after Moody’s Investors Service boosted the bank’s long-term debt and deposit and issuer rating one step to A1, its fifth-highest investment-grade rating. Moody’s cited reduced risks, an improved funding profile and increased capital levels.

Swedbank has been seeking improved credit measurements to lower its funding costs and said April 23 it expected its rating to improve this year and be “harmonized” with that of peers.

“Swedbank’s steadily improving capitalization and comparably balanced funding profile provide a buffer against the effect of the increased economic risks we see for banks in Sweden,” S&P said in yesterday’s statement. “We believe Swedbank will maintain a relative advantage versus peers in terms of capital and earnings, funding and liquidity.”

Since Michael Wolf became chief executive officer in 2009, Swedbank has lowered risks in the Baltics, reduced the size of its Russian unit and sold its subsidiary in Ukraine. Those markets account for about 10 percent of net lending, compared with 20 percent at the end of 2008, according to Moody’s. The bank has also boosted capital buffers and is now the second-best capitalized major lender in the European Union, after Swedish rival Handelsbanken, according to data compiled by Bloomberg.

Capital Ratios

The Stockholm-based bank reported a common equity Tier 1 ratio under Basel II regulations of 18 percent at the end of June, up from 16.7 percent six months earlier, and a ratio of 17.2 percent under Basel III rules. The bank said it needs a ratio of about 15 percent under Basel III capital regulation.

“We are working actively for further recognition of the extensive risk reduction Swedbank has made and expect over time that this will continue to positively affect our ratings,” Wolf said July 16. “Relative funding costs will continue to decline and will be a sustainable competitive advantage for the bank.”

In the Swedish Riksbank’s latest worst-case stress test of the country’s banks, Swedbank was the only major lender that would post a profit in the three years of the scenario, which included contracting economies in Sweden, the Nordic countries and the Baltics as well as a 20 percent slump in house prices across the region.

‘More Appropriate’

S&P affirmed its AA- and A-1+ ratings on Nordea Bank AB (NDA) and the A+ and A-1 ratings on SEB AB (SEBA) “in view of these banks’ efforts to display a more appropriate match between their short-and long-term assets and liabilities,” S&P said. Its negative outlooks on those ratings “reflect the possibility of downgrades over the next two years if we see no further improvement in these banks’ funding profiles and their primary markets remain weak,” the credit rating company said.

S&P said Handelsbanken’s and state-owned SBAB’s “efforts to improve the matching of assets and liabilities are behind those of both international and domestic peers” and that it is “increasingly concerned that government support would not fully mitigate the risks associated with Handelsbanken’s (SHBA) and SBAB’s high shares of short-term funding.”

S&P has a long-term credit rating of AA- for Handelsbanken and a short-term rating of A-1. SBAB is rated A and A-1.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

To contact the editor responsible for this story: Dick Schumacher at dschumacher@bloomberg.net

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