Moody’s in negative SBAB review as CEO departs
Jan 16th, 2014
Moody’s placed the A2 rating of SBAB Bank on review for downgrade on Tuesday, a day after the bank announced the departure of its CEO, with the rating agency citing profitability and the fate of new product offerings among challenges facing the bank.
The rating agency said that its review will primarily focus on analysis of the Swedish bank’s likely future profitability and the potential for its new products to succeed in the Swedish banking market.
“Additionally, the review will focus on the likelihood of systemic support for SBAB’s subordinated debt given the clear government indications of reduced support but the difficulties in actually achieving this in the more immediate term,” it said.
The Swedish government, SBAB’s sole shareholder, has made clear its intention to sell the bank, noted Moody’s.
SBAB on Wednesday said it will engage with Moody’s within the next few months with a view to resolving the review.
The rating action came after SBAB on Monday announced the departure of its chief executive, Carl-Viggo Östlund, given a difference of opinion between him and the board about implementation of the strategy in connection with, inter alia, cost development at the bank.
Bo Magnusson, chairman of the SBAB board, said that costs of implementing the strategy have increased more than expected while a competitive mortgage market is putting further pressure on margins and capital and liquidity requirements have increased.
“The situation requires that the strategy implementation is carried through with an increased focus on cost efficiency and balance sheet management,” he said. “Given this, the Board of Directors concludes that SBAB needs a change of leadership. The process of finding a successor is initiated promptly.”
In the interim, non-executive director Per Anders Fasth is taking on the role of acting CEO.
Moody’s said that its review for downgrade of SBAB reflects some of the same concerns about profitability raised by the bank’s board, but is not a direct response to the change in management.
SBAB’s profitability has historically been weak, and it is seeking to boost this by diversifying its product range and earnings, for example by increasing deposit funding, according to Moody’s, which said this action would be credit positive “if proved to be sustainably profitable”.
“Whilst we view increased deposit funding positively, SBAB currently pays relatively high deposit rates compared to other Swedish banks which casts doubt on the long term stickiness of such deposits,” it said, “and the launch of new products needs in Moody’s view, a longer timeframe to prove their viability.”
The rating agency cited efforts to lengthen the bank’s maturity profile as a positive, but noted that the flipside of this is that longer duration market funding is likely to put pressure on net interest income in the short to medium term.
Continued weak profitability could however, make the bank harder to sell and may presage longer government involvement, which may support SBAB’s long term ratings, said Moody’s.
Weak profitability is also a concern from a capital standpoint, according to Moody’s, which said that it could make supporting capital levels difficult in a stressed scenario and result in relatively fast capital depletion.
“Whilst the ratings agency does not currently anticipate such a scenario in Sweden, SBAB’s sensitivity to such an event is credit negative,” said Moody’s.
Moody’s placed the A2 rating of SBAB Bank on review for downgrade on Tuesday, a day after the bank announced the departure of its CEO, with the rating agency citing profitability and the fate of new product offerings among challenges facing the bank.
The rating agency said that its review will primarily focus on analysis of the Swedish bank’s likely future profitability and the potential for its new products to succeed in the Swedish banking market.
“Additionally, the review will focus on the likelihood of systemic support for SBAB’s subordinated debt given the clear government indications of reduced support but the difficulties in actually achieving this in the more immediate term,” it said.
The Swedish government, SBAB’s sole shareholder, has made clear its intention to sell the bank, noted Moody’s.
SBAB on Wednesday said it will engage with Moody’s within the next few months with a view to resolving the review.
The rating action came after SBAB on Monday announced the departure of its chief executive, Carl-Viggo Östlund, given a difference of opinion between him and the board about implementation of the strategy in connection with, inter alia, cost development at the bank.
Bo Magnusson, chairman of the SBAB board, said that costs of implementing the strategy have increased more than expected while a competitive mortgage market is putting further pressure on margins and capital and liquidity requirements have increased.
“The situation requires that the strategy implementation is carried through with an increased focus on cost efficiency and balance sheet management,” he said. “Given this, the Board of Directors concludes that SBAB needs a change of leadership. The process of finding a successor is initiated promptly.”
In the interim, non-executive director Per Anders Fasth is taking on the role of acting CEO.
Moody’s said that its review for downgrade of SBAB reflects some of the same concerns about profitability raised by the bank’s board, but is not a direct response to the change in management.
SBAB’s profitability has historically been weak, and it is seeking to boost this by diversifying its product range and earnings, for example by increasing deposit funding, according to Moody’s, which said this action would be credit positive “if proved to be sustainably profitable”.
“Whilst we view increased deposit funding positively, SBAB currently pays relatively high deposit rates compared to other Swedish banks which casts doubt on the long term stickiness of such deposits,” it said, “and the launch of new products needs in Moody’s view, a longer timeframe to prove their viability.”
The rating agency cited efforts to lengthen the bank’s maturity profile as a positive, but noted that the flipside of this is that longer duration market funding is likely to put pressure on net interest income in the short to medium term.
Continued weak profitability could however, make the bank harder to sell and may presage longer government involvement, which may support SBAB’s long term ratings, said Moody’s.
Weak profitability is also a concern from a capital standpoint, according to Moody’s, which said that it could make supporting capital levels difficult in a stressed scenario and result in relatively fast capital depletion.
“Whilst the ratings agency does not currently anticipate such a scenario in Sweden, SBAB’s sensitivity to such an event is credit negative,” said Moody’s. n