In September 2012, Danske Bank brought a USD 1 billion Tier 2 subordinated debt issue (Subordinated Fixed Rate Resettable Notes due 2037, ISIN XS0831342679, the “Securities”) to the market for the specific purpose of improving Danske Bank’s Risk Adjusted Capital (“RAC”) ratio in accordance with Standard & Poor’s (“S&P”) rating methodology criteria of November 2011. The Securities were assigned “intermediate” equity content by S&P, essential for the RAC eligibility of the issuance. The Securities’ eligibility to S&P’s RAC was publicly confirmed by S&P in its press release of 28 November 2012.
In March 2013, S&P published a “Request for Comment”, proposing changes to its methodology for bank capital securities, indicating that the Securities may no longer be eligible for inclusion in the RAC. On 16 July 2013, S&P published its revised methodology, which concluded that the equity content assigned to the Securities will be changed to “minimal” from “intermediate”, implying that the Securities will no longer be included in the RAC ratio.
At the time of issuance, the Securities had been designed according to S&P’s methodology, and certain features were incorporated beyond regulatory requirements specifically to address S&P’s requirements. The inclusion of such features impacted the pricing of the Securities, resulting in a higher cost compared with a conventional Tier 2 issue.
The terms of the Securities specifically provide for the possibility of an amendment (after consultation with the Danish regulator) in order to allow for the inclusion of a call option at par following a change in S&P’s capital recognition. Danske Bank has consulted with legal advisers and the Danish Financial Supervisory Authority (Finanstilsynet). Danske Bank has concluded that such options are available.
Danske Bank is considering potential options following S&P’s methodology change, however no final decision has been made yet.
Following the change of methodology, S&P published a statement of 16 July 2013 confirming that Danske Bank’s ratings are unchanged as the assessment is that the Bank’s capital and earnings still remain adequate.
Danske Bank A/S
Henrik Ramlau-Hansen, CFO, tel. +45 45 14 06 66
Kenni Leth, Group Press Officer, tel. +45 45 14 56 83/+45 51 71 43 68