The credit rating agency Standard & Poor’s has downgraded Danske Bank a notch to A/A-2 from A/A-1, but at the same time notched up its outlook from negative to stable.

“The rating action reflects our expectation that Danske Bank will continue to suffer high impairment losses in its Irish banking business as a result of continued weakness in the Irish property market,” Standard & Poor’s says.

“It also reflects our view that the resolution of the Danish financial crisis will create above-average impairment losses for the bank. We now expect Danske Bank's projected losses to be higher than we previously anticipated,” it adds.

The rating agency says that it expects the turning point for the group's financial performance to be delayed, with 2012 unlikely to be materially better than 2011.

Standard & Poor’s goes on to say that its stable outlook reflects its expectation that Danske Bank will succeed in working out its remaining asset quality problems over the next three years, and that management will remain focused on consolidating its current business.

S&P does not see any major strategic transactions for Danske Bank until the group has regained a stable earnings and capital position.

Commenting on the downgrade, Danske Bank says it is surprised.

“This was an unexpected decision from Standard & Poor’s given that write-downs in Ireland and Denmark fell from Q4 2011 to Q1 2012. At the same time we have announced a new business model for Ireland and expect fewer losses in the coming years,” Financial Director Henrik Ramlau-Hansen says in a Danske Bank news release.

“We have a clear goal to re-establish the former rating levels as soon as possible through current and new initiatives,” Ramlau-Hansen says adding that Danske Bank remains one of the best capitalised banks in Europe.

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