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TEXT-Fitch affirms Skandinaviska Enskilda Banken AB ratings
July 25, 2012 / 3:15 PM / 5 years ago

TEXT-Fitch affirms Skandinaviska Enskilda Banken AB ratings

 (The following statement was released by the rating agency)
 July 25 - Fitch Ratings has affirmed Skandinaviska Enskilda Banken AB's
 (SEB) Long-term Issuer Default Rating (IDR) at 'A+', Viability Rating
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 reflect SEB's strong Swedish franchise, particularly in 
corporate and merchant banking, its solid capitalisation and its relatively 
diversified revenue base. They also factor in its reliance on wholesale funding,
although it has retained good access to debt capital markets throughout the 
financial crisis, and has lengthened its liability maturity profile.

RATING DRIVERS AND SENSITIVITIES - IDRS AND SENIOR DEBT

The Stable Outlook reflects Fitch expectation that SEB will maintain its 
diversified revenue sources and high capital ratios without materially 
increasing risk. Given its already high ratings and structural reliance on 
wholesale funding markets, any upgrade of the Long-term IDR is unlikely. The 
bank's IDRs, Viability Rating and senior debt ratings are sensitive to a 
shortened funding profile, less emphasis on liquidity or heightened trading 
risk.

SEB is more exposed to corporate customers than its domestic peers, although 
this also provides diversification. SEB's cost base as a proportion of income is
relatively high compared to domestic peers, partly due to a different business 
mix, and management is focusing on containing costs while growing income. Fitch 
expects the positive momentum achieved from these efficiency measures to yield a
positive contribution in 2012 and 2013 and the agency expects loan impairment 
charges to remain low during this period. 

Asset quality concerns in SEB's Baltic operations were addressed early on in the
financial crisis and Fitch expects SEB to be adequately provided. Nevertheless, 
non-Swedish exposures make up around one-third of total exposures, and continue 
to pose the most probable credit risk for the bank. In Fitch's view, reserves 
for impaired loans are adequate, and the unreserved portion is easily manageable
for the bank.

SEB funds around a quarter of its loan book using wholesale funding markets and 
is sensitive to a prolonged dislocation in debt capital markets. Although it has
retained access throughout the financial crisis, in particular for covered 
bonds, it has been affected by higher funding costs. To mitigate the risks, 
Fitch expects that SEB will retain a significant liquidity portfolio and its 
focus on long-term funding. SEB's short-term funding is broadly matched by net 
trading assets and used to facilitate customer trading.

SEB's risk-weighted capitalisation ratios remain strong and compare well with 
its Nordic and European peers. SEB estimates its Basel III core Tier 1 ratio at 
a still strong 12.4%, at end-June 2012, in excess of the Swedish regulator's 
requirement of 10% from 2013.

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 would be an extremely high probability that support would be 
forthcoming from the Swedish authorities if required. This is driven by SEB's 
importance within the Swedish financial sector, with 12% and 22% of retail and 
corporate deposits, respectively, at end-2011. 

The Support Rating is potentially sensitive to any change in Fitch's assumptions
about the propensity or ability of Swedish authorities to provide timely support
to the bank. 

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by SEB are all notched down 
from SEB's Viability Rating in accordance with Fitch's assessment of each 
instrument's respective non-performance and relative loss severity risk 
profiles, which vary considerably. Their ratings are primarily sensitive to any 
change in the Viability Rating of SEB.

SUSBIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES

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, and 
its ratings are sensitive to the same factors that might drive a change in SEB's
IDR. Fitch does not assign the subsidiary a Viability Rating. 

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' 

 (Caryn Trokie, New York Ratings Unit)
 

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