Moody’s assigns first-time Baa1 deposit ratings to Luminor Bank in Estonia; stable outlook
Moody’s Investors Service, (“Moody’s”) has assigned first time ratings to Luminor Bank AS (Estonia) (“Luminor” or “Luminor Estonia”), including long-and short-term foreign- and local–currency deposit ratings of Baa1/P-2, a provisional local currency long-term (P)Baa2 senior MTN rating, and local and foreign currency counterparty risk ratings (CRR) of A3/P-2. Furthermore the bank was assigned a baseline credit assessment (BCA) of ba1, an adjusted BCA of ba1, as well as a counterparty risk assessment of A3(cr)/P-2(cr). The outlook on the long-term deposit ratings is stable.
The ratings assigned to the bank incorporate: 1) the standalone baseline credit assessment (BCA) of ba1, which balances the strong capital levels and unwinding legacy assets against modest profitability weighed down by merger related costs and the ongoing restructuring of its funding profile; 2) the substantial amounts of debt that would absorb losses in case of failure, as indicated by Moody’s advanced loss given failure (LGF) analysis, resulting in 1 to 3 notches of uplift for each rated debt class; and 3) a moderate probability of government support for deposits and senior unsecured debt due to the systemic importance of the group, resulting in one additional notch of uplift in the ratings.
Luminor is a recently created merger of Nordea Bank AB (Aa3/Aa3 stable, a3) and DNB Bank ASA’s (Aa2/Aa2 negative, a3) operations in the Baltics, with the branch structure still pending. Luminor is also in the process of changing ownership, with majority control to be acquired by a consortium of investors led by Blackstone, a private equity firm, joined also by a wholly-owned subsidiary of the Abu Dhabi Investment Authority. In Moody’s opinion, the change in ownership will have limited effects on the bank’s strategy and risk appetite during the next 12 to 18 months, with Blackstone supporting the management’s efforts to build an independently funded and profitable pan-Baltic bank. While we view the group of owners as providing strong governance and financial backing, the ratings do not benefit from affiliate support uplift given the mid-term investment horizon of private equity firms.
The long term deposit ratings carry a stable outlook, reflecting Moody’s view that over the next 12-18 months, the bank will perform in line with forecasts in the context of a benign operating environment, and issue senior unsecured debt according to funding plans.