The change in outlook relates to the uncertainty generated in relation to allegations of money-laundering through Swedbank’s Baltic operations, with a particular focus on Estonia. The recent revelations raise some concerns about the bank’s governance in this respect over a period of years. A number of questions remain unanswered following the release of a recent third-party report commissioned by the bank in relation to some of the transactions in the spotlight. Scope notes that about one fifth of Swedbank’s operating profits are generated in the Baltic states, in which Swedbank has the largest market share, particularly in Estonia. Scope further notes that Danske Bank has been requested by regulators to exit its Estonian banking business in the wake of revelations about money laundered through its branch in the country.

Swedbank has asserted that a relatively small part of its business in the Baltic states involves transactions with non-resident clients. Across the local banking sectors non-residents have proved to be the primary source of laundered money flows via the Baltic states. There are allegations that a number of non-resident clients associated with the Danske Bank investigation have also transacted via Swedbank in the past.

The bank is subject to investigations by both Swedish and Estonian banking regulators. The probe is expected to end in October 2019. In addition, Swedbank is under scrutiny by Sweden’s Economic Crime Authority.

Swedbank’s Board has removed the CEO for reasons related to the bank’s communication of its role in the emerging money-laundering scandal which envelops a number of European banks. Until a permanent CEO is appointed, the bank’s CFO, will act as the CEO. The bank will need to appoint a permanent CEO, and Scope considers that there may be a degree of strategic uncertainty in the wake of such an appointment. Scope also notes that Danske Bank is also seeking a new permanent CEO, and that the pool of high-calibre potential candidates for both Nordic banks is limited. Further, there are calls from Swedbank shareholders to replace Board members, and the Chairman announced his resignation as of 5th April 2019, with immediate effect. Swedbank’s Nomination Committee has noted that it will seek to strengthen the Board via an Extraordinary General Meeting.

It is possible that investigations by various authorities may lead to fines in the future.

Swedbank remains profitable, efficient and well capitalised and benefits from a historically low cost of risk. Investor concerns relating to the money laundering investigations (and possible fines as a result) may put some pressure on its cost of unsecured funding. Scope notes that liquidity reserves at present appear strong, and that a large portion of funding comprises covered bonds, which are likely to be less affected.

The following ratings of Swedbank AB have their Outlooks revised to Negative from Stable:

• Issuer rating A+
• Senior Unsecured debt A
• Additional Tier 1 BB+
• Short-term Rating: S-1+

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

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Bank Rating Methodology (2018) is available on www.scoperatings.com.
Historical default rates of the entities rated by 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 did not participate in the rating process. Scope had access to accounts but had no access to 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: Dierk Brandenburg, Managing Director
The issuer, short-term and senior unsecured debt ratings/Outlooks were first released by Scope on 19.11.2014. The ratings/Outlooks were last updated on 24.05.2018.
The AT1 ratings/Outlooks were first released by Scope on 03.06.2015. The ratings/Outlooks were last updated on 24.05.2018.

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

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