Scope Ratings confirmed Danske Bank’s long-term ratings (Issuer Rating at A+), thus concluding a review for possible upgrade initiated on 17 May 2018. In line with its bank rating methodology, the agency also upgraded by one notch, to A+, the ratings of Danske Bank’s senior unsecured debt (which qualifies as “preferred senior”) and assigned A ratings to the bank’s non-preferred senior debt. The latter rating actions take account of the creation of a new bank debt class in Denmark, in effect since last July.

All the above ratings, including the S-1+ short-term rating, have now a Negative Outlook. Danske Bank’s covered bonds issued out of Capital Centres C, D and I continue to be rated AAA, with a Stable Outlook.

In initiating its rating review for possible upgrade last May, Scope cited Danske Bank’s very reassuring financial fundamentals and a successful implementation of its organic growth strategy, in addition to the successful rolling out of digital offerings to customers. However, these positive developments have been in recent months overshadowed by the evidence of very material money-laundering activities at the bank’s Estonian branch.

Last week Danske Bank published the preliminary findings from its own review (conducted by an external law firm) of these money-laundering issues – primarily related to a large number of non-resident accounts, now closed. These findings have identified significant control failings at the Estonian branch and group levels.

Scope believes that there remain considerable negative credit connotations for Danske Bank, especially since the investigation processes are still ongoing and the final amount of laundered money is yet to be identified. Subject to the ongoing investigations, various authorities may decide to impose fines or other sanctions in the future. Last week the bank’s CEO resigned, with the Chairman also set to depart, which in Scope’s view may lead to some strategic changes. Last but not least the medium-term impact of the reputational damage to the bank in terms of its client base or funding is yet to become clear. All these uncertainties underpin the Negative Outlook on Danske Bank’s ratings.

At the same time, Scope pointed out that the A+ Issuer Rating of Danske Bank continues to reflect the banking group’s very comprehensive and well-balanced market position in Denmark, its measured international diversification, the solidity of its Danish wealth management businesses, and the group’s reassuring financial and prudential metrics. The agency highlighted that these metrics continue to compare well with those of other major Nordic banks and banks elsewhere in Europe.

The following ratings of Danske Bank are confirmed with a Negative Outlook:

• Issuer rating: A+
• AT1 securities ratings: BBB-
• Short-term rating: S-1+

The following ratings were upgraded with a Negative Outlook:

• Senior unsecured debt ratings: A+ from A

The following new ratings was assigned with a Negative Outlook:

• Senior non-preferred debt ratings: A

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology/ies used for this rating(s) and/or rating outlook(s) Bank Ratings Methodology is available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had no access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory Disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Jennifer Ray, Executive Director
Person responsible for approval of the rating: Samuel Theodore, Group Managing Director
Danske's issuer rating/outlook was first released by Scope on 19.11.2014. The rating/outlook was last updated on 17.05.2018
Danske's short-term rating/outlook was first released by Scope on 19.11.2014. The rating/outlook was last updated on 26.10.2017
Danske's senior unsecured debt rating/outlook was first released by Scope on 19.11.2014. The rating/outlook was last updated on 17.05.2018
Danske's senior non-preferred debt rating/outlook was first released by Scope on 27.09.2018.
Danske's AT1 securities rating/outlook was first released by Scope on 03.06.2015. The rating/outlook was last updated on 17.05.2018

Potential conflicts
Please see http://www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

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