Danske streamlines covered bond rating line-up, drops Moody’s

Danske Bank is cutting the number of ratings of its covered bonds to two to save resources, it said last Thursday (30 August), with Moody’s being dropped from a line-up that will henceforth consist of Fitch and Standard & Poor’s.

Danske will continue to be rated by Moody’s, however, as will covered bonds issued by Sampo Housing Loan Bank, a unit of Danske’s Finnish subsidiary Sampo Bank.

Martin Gottlob, head of investor relations at Danske Bank, told The Covered Bond Report that the bank chose to drop Moody’s because it only rated two of Danske’s three cover pools — Cover Pools D and I — whereas Fitch and S&P rate all three, including Cover Pool C.

Moody’s rating of Danske covered bonds stood at Aa1 before Danske’s decision, with Fitch and S&P assigning a triple-A rating to issuance out of all three cover pools. The issuer is rated Baa1 by Moody’s, A by Fitch, and A- by S&P.

Danske’s cover pool D comprises Danish residential mortgages, while its I pool is made up of Norwegian and Swedish mortgages, and the C pool of Swedish commercial and residential mortgages, although the bank intends to gradually add Norwegian assets.

Steen Blaafalk, treasurer, senior executive vice president, Danske Bank, noted that the prevailing market standard is for covered bonds to have only one or two ratings.

“Since it is resource-consuming to use three rating agencies,” he said, “we have chosen to reduce the number to two and consolidate the rating of the Bank’s covered bonds with S&P and Fitch.

“We do not believe this will have any significance for pricing or for investors.”

Danske’s move comes after its mortgage lending subsidiary, Realkredit Danmark, in June 2011 terminated its relations with Moody’s over disagreements about the rating agency’s approach to rating Danish mortgage bonds financing adjustable rate mortgages (ARMs), but Gottlob said that this had no bearing on the decision by Danske to discontinue working with Moody’s on its covered bond ratings.

“It is a totally separate issue,” he said.