Nordic FIs & Covered - 16 January 2014


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In this week’s issue:
- EC stresses EU-specific factors to raise Level 1 LCR hopes
- DNB reopens Samurais for European banks, beats euro level
- Moody’s in negative SBAB review as CEO departs
- Sparebanken Vest pleased with result in hectic covered market
- Nordea gets corporate IRB OK from FSA
- Plus: Secondary market covered bond and senior unsecured spreads

Nordic Financial Institutions & Covered Bonds is a special newsletter brought to you by The Covered Bond Report in association with Crédit Agricole Corporate & Investment Bank.
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Nordic FIs & Covered - 16 January 2014

  1. 1. In association with NORDIC FIs & COVERED INSIDE: 3 Moody’s in negative SBAB review as CEO departs 4 Vest pleased in hectic mart; Nordea in corporate IRB OK 5 Nordic euro FI spread data Thursday, 16 January 2014 EC stresses EU-specific factors to raise Level 1 LCR hopes The European Commission will take into account “features specific to the EU banking system and financial markets” in addition to European Banking Authority (EBA) reports and international standards when deciding on covered bonds’ status in the LCRs, according to an EC spokesperson. Confirming statements included in a Bloomberg article published last Friday (10 January), Chantal Hughes, spokesperson for the European Commission (EC), Internal Market and Services, told The Covered Bond Report that “the Commission is aware of the crucial importance of the covered bond market”. The comments were sought from the Commission after the European Banking Authority (EBA) in December recommended against covered bonds being treated as extremely high quality liquid assets (Level 1 under Basel III) for the purposes of Liquidity Coverage Ratio (LCR) requirements in forthcoming EU legislation, despite a technical analy- sis it had conducted showing covered bonds to be as liquid as government bonds. Instead, the EBA’s report to the Commission recommends covered bonds as Level 2, high quality liquid assets, only. However, the final decision on covered bonds’ LCR status will be taken by the Commission, by the end of June, a fact noted by the Commission spokesperson in an e-mail to The CBR. “The EBA recommendations do not have any legal force of themselves,” said Hughes (pictured above with Commissioner Michel Barnier). “The Commission will consider these recommendations when preparing the secondary legislation on liquidity coverage which it is required to adopt by 30 June 2014. This secondary legislation should, inter alia, specify which assets qualify as being of high and extremely high liquidity/credit quality. “When adopting that delegated act, (continued on page 2) Issue 66 DNB reopens Samurais for European banks, increases granularity DNB is closing the first Samurai issue for a European financial institution of 2014 tomorrow (Friday), a ¥81.6bn (Eu573m, Nkr4.78bn) dual tranche five year senior unsecured deal that achieved far broader distribution than the Norwegian bank’s last Samurai. The issue has been split into a ¥78bn fixed rate tranche and a ¥3.6bn FRN, which leads Daiwa, Mizuho and Nomura are pricing at the equivalent of Yen swap offered plus 19bp. A DCM official at one of the leads said that the level was attractive, putting the pricing 3bp-5bp tighter than DNB would likely achieve on a new five year fixed rate benchmark in euros. He said that 2020 paper in euros was trading at around 59bp mid and noted that Rabobank yesterday (Wednesday) priced a Eu1.5bn five year benchmark at 63bp over mid-swaps. The division of the transaction into the much larger fixed rate and smaller floating tranches was as expected, he added, noting that DNB was also not interested in shorter maturities and that the economics of longer dated issuance did not make sense. (continued on page 2) Latest Nordic FI benchmarks Senior unsecured (z spreads mid) NYKRE* SEB SBAB 1.750% 2.000% 2.375% 01/19 03/18 09/20 75bp 57bp 70bp Covered bonds (asw spreads mid) NDASS SPABOL DNBNO 1.250% 1.500% 1.125% 01/19 01/20 11/18 6bp 19bp 9bp *Secured. Source: CA-CIB trading 16/01/14 Page 1
  2. 2. Thursday, 16 January 2014 Issue 66 Danmarks Nationalbank suggests new derogation (continued from page 1) in accordance with Article 460(2) of the Capital Requirements Regulation (CRR), the Commission shall take into account not just the reports submitted by EBA and the international standards but also features specific to the Union banking system and financial markets.” [Commission’s own emphasis.] In recommending that covered bonds not be Level 1 assets, the EBA had stressed the “great importance” of alignment with Basel Committee on Banking Supervision rules. The EBA’s recommendation was met with dismay and frustration by covered bond market participants in general, but in Denmark the reaction was particularly strong and the EC spokesperson mentioned the Danish case. “The Commission also recognises the long tradition and solidity of Danish covered bonds, in particular, and their good liquidity characteristics, even in times of acute stress. “This is also confirmed by the technical report of the European Banking Authority.” Danmarks Nationalbank has meanwhile said that it would strongly recommend permitting countries with a shortage of extremely high quality liquid assets to allow more covered bonds in Danmarks Nationalbank LCRs as a new CRR derogation if they are ultimately excluded from Level 1. It took the position in a response released last Friday to an EBA consultation on derogations for currencies with constraints on the availability of liquid assets under Article 419(5) of the CRR that was held from 22 October to 22 December and discussed measures that can be taken by banks in countries such as Denmark where there are insufficient Level 1 assets. Danmarks Nationalbank points out that the two derogations already pro- Nordic FIs & Covered Bonds Produced by NewType Media, publisher of The Covered Bond Report Neil Day Managing Editor +44 20 7428 9575 Susanna Rust Deputy Editor +44 20 7485 4909 Page 2 In association with Vincent Hoarau Head of FIs & Covered Bond Syndicate +44 20 7214 6162 Julian Burkhard Global Head of Capital Solutions, Head of FI DCM Nordics & UK +44 20 7214 5472 Florian Eichert Senior Covered Bond Analyst +44 20 7214 6402 posed have drawbacks for Denmark with regard to the conduct of monetary policy and its currency peg towards the euro. “The use of derogation A with foreign denominated assets in the buffer is not seen as an appropriate option, since it introduces currency risk,” it said. “The use of derogation B — credit lines from the central bank — is not seen as a viable solution either, since Denmark maintains a fixed-exchange rate policy vis-à-vis the euro area.” The central bank instead proposed a new derogation that would better accommodate the country’s needs. “If Danish covered bonds are not classified as extremely liquid in the Commission’s delegated act, and if the Commission furthermore introduce a cap on the amount of assets of high liquidity and credit quality in the liquidity buffer, we would strongly recommend the introduction of the third derogation in the BCBS (Basel Committee on Banking Supervision) to allow additional use of assets of high liquidity and credit quality (e.g. certain covered bonds) in the liquidity buffer,” it said. “This third derogation could allow banks to hold a more diversified liquidity buffer than mainly government bonds and central bank reserves. Furthermore the use of the derogation could assist in breaking the link between governments and banks.” In its consultation response the Danish central bank also reiterated the country’s position that covered bonds should be eligible as Level 1 assets as well as highlighting that this favoured scenario remains a possibility. “First of all, we would like to point out that the results of the EBA’s empirical analysis across asset classes confirm that some covered bonds achieve the same average ranking as government bonds,” it said. “We agree with this analysis and see no reason to discriminate against such covered bonds based on other criteria.” “If this finding is taken into account when the Commission decide on the final definition of the LCR in June 2014, Denmark would no longer be classified as a country with insufficient liquid assets.” n
  3. 3. Issue 66 Thursday, 16 January 2014 Moody’s in negative SBAB review as CEO departs 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 DNB Samurai offers funding inside euro levels (continued from page 1) The deal is larger than DNB’s last Samurai, which was a ¥65bn five year issue launched in January 2012. The lead banker also highlighted that distribution was much more granular, with just two investors having taken some ¥55bn of the previous trade and the largest order on the new issue accounting for less than 30% of the total. He noted that execution of DNB’s last deal had been more complicated as it had come in the wake of a crisis at Norway’s Eksportfinans, which was not an issue this time around. A total of 112 tickets were sold across the two tranches, with placement having increased in Tokyo, which took ¥50.9bn of the fixed rate tranche, as well as elsewhere in Japan, which took ¥27.1bn. City banks were allocated ¥30bn, trust banks ¥0.6bn, specialised banks ¥2bn, life insurance ¥9.2bn, property insurance ¥2bn, asset managers ¥7.1bn, regional banks ¥7.9bn, Shinkins, etc ¥9.2bn, and others ¥10bn. Thor Tellefsen, senior vice president and head of long term funding at DNB, told Nordic FIs & Covered that the transaction is part of the bank’s regular funding business, coming on top of its debut Samurai to ensure the issuer maintains access to its Japanese investor base. The lead banker said that although a couple of other European names are looking at the Samurai market there is no concrete pipeline. He added that, with DNB’s peers going into blackout, the next trades are more likely to emerge in late February or March. n Page 3
  4. 4. Thursday, 16 January 2014 Issue 66 Vest pleased with result in hectic covered market Sparebanken Vest Boligkreditt sold a Eu500m no-grow five year covered bond on Thursday of last week (9 January), having seen “no reason to wait” to tap the market early in the year given strong market conditions, an official at the issuer told Nordic FIs & Covered. The Norwegian covered bond company priced the deal at 10bp over midswaps, which compares with a re-offer spread of 12bp for a Eu500m five year it sold in early September. Leads Commerzbank, HSBC, Nordea and UniCredit built an order book of around Eu850m for Sparebanken Vest’s latest issue, after having initially marketed it at 10bp-12bp over. More than 60 accounts took part. Germany took 44%, the Nordics 24%, the Benelux 10%, central and eastern Europe 8%, Austria 5%, Switzerland 3%, Asia 3%, and others 3%. Banks were allocated 54%, central banks and agencies 28%, funds and insurance companies 14%, and corporates 4%. Sparebanken Vest’s deal was one of three new covered bonds in the market that day which took last week’s supply Nordea gets corporate IRB OK from FSA Nordea has received approval to apply the advanced internal ratings-based (IRB) approach to its corporate exposures in the Nordic region, which will boost its pro forma Q3 2013 Core Tier 1 capital ratio by 0.7 percentage points, the bank said yesterday (Wednesday). The Swedish Financial Supervisory Authority (FSA), in agreement with the other three Nordic FSAs, gave the green light on Tuesday, according to Nordea. “This approval will affect Nordea’s core Tier 1 capital ratio due to lower risk-weighted assets as well as higher Core Tier 1 capital,” it said. “The pro forma Q3 2013 impact on the Core Tier 1 capital ratio is calculated at approximately 0.7 percentage points.” The bank previously stated its pro format Q3 2013 Core Tier 1 ratio as being 15%-16%, and said this is confirmed by Monday’s approval. n Page 4 Egil Mokleiv, managing director, Sparebanken Vest Boligkreditt to Eu8.5bn across nine issues. The other issuers were Commonwealth Bank of Australia, which priced a Eu1bn five year at 18bp over, and Credit Suisse, with a Eu1.25bn seven year at 13bp over. Egil Mokleiv, managing director, Sparebanken Vest Boligkreditt, said that the new issue had been planned for some time. “In early September we did a deal and before that we did substantial investor work with very good feedback, so we figured we could capitalise on our market activity in the second half of 2013 by going out relatively early this year,” he said. A positive start to new issuance in 2014 encouraged the issuer to make its move when it did, according to Mokleiv. “Investors seemed quite ready to invest so we found no reason to wait and just had to find the right day,” he said. “It seems to have worked out and we are happy with that. “The spread is quite satisfactory and we are glad to see that it is possible to place a Eu500m no-grow in a hectic market at quite a good margin.” 2014 is the first year that Sparebanken Vest will tap the capital markets for some major refinancing, according to Mokleiv, with the issuer having until now mostly having raised new funding since its creation in 2008. Refinancing in 2014 is only for Norwegian krone transactions, he said, with the issuer’s first public euro transaction, sold in 2010, maturing in June 2015. Additional funding needs are lower than in the past given slower growth in the Norwegian banking sector, he added. n Why not visit us online at
  5. 5. Issue 66 Thursday, 16 January 2014 Euro Nordic covered bond & senior unsecured secondary spreads Nordic benchmarks: covered versus ASW, senior unsecured (shaded) versus Z spreads. Thursday, 16/01/14. ISIN Coupon Maturity Mid Spd AKTIA (*AKTIA REMB) XS0640889803* 3.125 22/06/2016 2 XS0946639381 1.125 25/06/2018 0 BRF XS0882166282 2.500 31/01/2018 106 DANBNK XS0456413847 3.250 07/10/2015 -3 XS0601855652 3.250 09/03/2016 -4 XS0437056954 4.500 01/07/2016 -1 XS0501663099 3.500 16/04/2018 5 XS0469000144 4.125 26/11/2019 13 XS0519458755 3.750 23/06/2022 20 XS0802067636 2.500 09/07/2015 25 XS0627692204 3.875 18/05/2016 2 XS0751166835 3.875 28/02/2017 38 DNBNO XS0478979551 3.375 20/01/2017 2 XS0728790402 2.375 11/04/2017 2 XS0537686288 2.375 31/08/2017 3 XS0877571884 1.000 22/01/2018 3 XS0992304369 1.125 12/11/2018 9 XS0794233865 1.875 18/06/2019 9 XS0637846725 3.875 16/06/2021 18 XS0759310930 2.750 21/03/2022 19 XS0856976682 1.875 21/11/2022 16 XS0522030310 3.875 29/06/2020 58 XS0595092098 4.375 24/02/2021 66 XS0732513972 4.250 18/01/2022 70 EIKBOL XS0736417642 2.250 25/01/2017 7 XS0851683473 1.250 06/11/2017 7 XS0794570944 2.000 19/06/2019 15 XS0881369770 2.125 30/01/2023 31 JYBC XS0856532618 3mE+110bp 20/05/2015 27 LANSBK XS0926822189 1.125 07/05/2020 8 MINGNO XS0893363258 2.125 21/02/2018 78 NDASS XS0478492415 3.500 18/01/2017 -5 XS0731649660 2.375 17/07/2017 0 XS0965104978 1.375 20/08/2018 3 XS1014673849 1.250 14/01/2019 6 XS0778465228 2.250 03/05/2019 7 XS0874351728 1.375 15/01/2020 9 XS0591428445 4.000 10/02/2021 12 XS0489825223 3.750 24/02/2017 33 XS0801636571 2.250 05/10/2017 33 XS0916242497 1.375 12/04/2018 32 XS0728763938 4.000 11/07/2019 50 XS0520755488 4.000 29/06/2020 52 XS0801636902 3.250 05/07/2022 55 NYKRE (*senior secured) LU0787776052* 3.250 01/06/2017 57 LU0921853205* 1.750 02/05/2018 65 LU0996352158* 1.750 28/01/2019 75 Source: Crédit Agricole CIB Trading, Bloomberg — See disclaimer on page 6 ISIN POHBK XS0611353086 XS0785351213 XS0646202407 XS0576922271 XS0758309396 XS0540216669 XS0931144009 SAMBNK XS0693226978 XS0834714254 XS0640463062 SBAB XS0619631624 XS0498316255 XS0968885623 SEB XS0548881555 XS0894500981 XS0988357090 XS0614401197 XS0538031211 XS0628653007 XS0730498143 XS0592695000 XS0972089568 XS0854425625 SHBASS XS0625427215 XS0760243328 XS0906516256 XS0592450232 XS0490111563 XS0732016596 XS0794225176 XS0965050197 XS0693812355 XS0819759571 SPABOL XS0707700919 XS0495145657 XS0820929437 XS0738895373 XS0995022661 XS0942804351 XS0587952085 XS0674396782 SPAROG XS0853250271 XS0965489239 XS0876758664 SWEDA XS0455687920 XS0496542787 XS0925525510 XS0794246925 XS0768453101 XS0740788699 Coupon Maturity Mid Spd 3.250 1.625 3.500 3.125 2.625 3.000 1.250 01/04/2016 23/05/2017 11/07/2018 12/01/2016 20/03/2017 08/09/2017 14/05/2018 -6 -3 2 26 40 38 42 2.750 1.625 3.875 19/10/2016 27/09/2019 21/06/2021 0 10 22 3.375 3.250 2.375 20/04/2016 30/03/2017 04/09/2020 -3 -1 70 2.625 1.500 1.625 4.125 2.500 3.750 3.875 4.250 2.000 1.875 16/10/2017 25/02/2020 04/11/2020 07/04/2021 01/09/2015 19/05/2016 12/04/2017 21/02/2018 18/03/2019 14/11/2019 -1 6 11 12 13 22 35 50 57 54 3.375 1.875 1.000 3.625 3.750 3.375 2.250 2.250 4.375 2.625 11/05/2016 21/03/2017 19/06/2018 16/02/2016 24/02/2017 17/07/2017 14/06/2018 27/08/2020 20/10/2021 23/08/2022 -5 -1 -1 20 33 34 39 55 54 54 2.375 3.250 1.250 2.750 1.500 1.500 4.000 3.375 22/11/2016 17/03/2017 28/02/2018 01/02/2019 20/01/2020 12/06/2020 03/02/2021 07/09/2021 3 3 2 12 19 16 22 21 2.000 2.125 2.125 14/05/2018 27/02/2019 03/02/2020 64 77 79 3.625 3.375 1.125 1.750 2.375 3.375 05/10/2016 22/03/2017 07/05/2020 18/06/2015 04/04/2016 09/02/2017 -5 -4 5 15 31 39 Page 5
  6. 6. Thursday, 16 January 2014 Issue 66 Disclaimer This material has been prepared by Crédit Agricole Corporate and Investment Bank or one of its affiliates (collectively “Crédit Agricole CIB”). It does not constitute “investment research” as defined by the Financial Conduct Authority and is provided for information purposes only. It is not to be construed as a solicitation or an offer to buy or sell any financial instruments and has no regard to the specific investment objectives, financial situation or particular needs of any recipient. Crédit Agricole CIB does not act as an advisor to any recipient of this material, nor owe any recipient any fiduciary duty and nothing in this material should be construed as financial, legal, tax, accounting or other advice. 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