Moody’s continues its coverage of Swedish banks

Moody’s has altered its ratings on two of Sweden’s key banks, as it continues its review of the region’s financial institutions.

On 8 June Moody’s upgraded SEB’s junior subordinated and Tier 1 positions with an ‘outlook stable’.

The junior subordinated debt was upgraded to Baa2 from Baa3, while the Tier 1 hybrid securities were upgraded to Ba1 from Ba2.

The bank maintained its A1 long-term debt and A2 subordinated debt ratings, as well as a C- financial strength rating.

The main driver of the changes was improvement in the quality and improving profitability of its Baltic operations. In the first quarter of 2011, the region accounted for 70% of impaired loans, but just 7% of credit exposure. The Baltic markets were hit hard during the financial crisis, resulting in a sharp increase in non-performing loans.

A rights issue undertaken in 2009 has helped the bank’s overall Tier 1 position, Moody’s added.

On 9 June the ratings agency upgraded the financial strength rating of Swedbank to C- from D+, after it concluded a review of the bank started in late 2010.

Following the improvement in financial strength, Moody’s also upgraded Swedbank’s junior subordinated debt and Tier 1 hybrid securities one notch respectively to Baa3 and Ba2.

Swedbank’s long-term debt and deposit rating remains A2, and its subordinated debt rating A3.

Moody’s has said it had a ‘positive outlook’ on the bank, again citing improvements in business exposed to the Baltic markets. Improvements since 2009 mean that the bank reported a net profit on its Baltic business of SEK1bn for the first quarter of 2011.

The upgrades announced for these Swedish banks stands in contrast to action taken earlier this year, when Moody’s downgraded a number of Danish banks on concerns that local regulations could see bondholders harmed if banks failed.

The concerns were raised after rules forcing investors to take some of the losses associated with failing banks were used for the first time when Amagerbanken collapsed in the first quarter of 2011.

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