Concentrated exposure to domestic real estate is a key risk factor and a negative driver of Swedish bank ratings, Scope Ratings said yesterday (Thursday), warning that the Swedish property market is overvalued by 20%-30%.
The euro senior unsecured and covered bond markets proved buoyant in the wake of the ECB’s announcement of sovereign QE and Greek elections, although blackouts constrained supply and questions remain over the prospect of Nordic banks accessing the market after results.
Nordea and SEB opened the latest earnings season this week with results that were resilient against the headwinds from autumn interest rate cuts and bode well for their peers, although the dividend and capital policies of the two Swedish banks contrasted.
Moody’s has kicked off the new year with yet another significant change to its covered bond methodology, as the rating agency intends to change its anchor point for the second time in less than 12 months to incorporate the Bank Recovery & Resolution Directive (BRRD).
The sovereign QE programme unveiled by the European Central Bank yesterday (Thursday) afternoon is expected to stimulate new issuance next week after having surprised market participants with its size and further buoyed an already tightening market.
Lately some investors have become a little concerned about Canadian and Norwegian covered bonds on the back of the major oil price drop of the last few months, write Crédit Agricole CIB covered bond analysts Florian Eichert and Stephan Dorner.
Fourteen new euro benchmarks since Monday made this one of the busiest ever weeks in covered bonds, while issuance in the senior unsecured market was similarly brisk, as financial institutions took advantage of buoyant market conditions to raise funding.
The Swedish FSA is implementing a partial waiver from the application of CRR covered bond requirements that could cause concentration risk after the European Banking Authority agreed that a similar move in Denmark is justified.
Swedish house prices could fall in 2015 against a backdrop of stricter amortisation requirements and Europe’s deteriorating economic outlook, but Swedish covered bond ratings would likely prove resilient even if prices fell by 30%, Standard & Poor’s said yesterday (Wednesday).
Financial institutions issuance picked up through the first week of the year, helped by issuers offering healthy new issue premiums, and activity is expected to remain high next week, especially with uncertainty seen increasing as January progresses.