Danske to keep eye on covered share given regulatory focus

Danske Bank’s head of group treasury has played down reports that the Danish group is going to limit covered bond issuance as a percentage of total funding, but said it will keep an eye on the level given the regulatory focus on the topic.

Steen Blaafalk, head of group
treasury at Danske Bank

Bloomberg on Tuesday reported that Danske Bank plans to limit covered bond issuance to avoid driving away senior creditors. However, Steen Blaafalk, head of group treasury at Danske Bank, who was quoted in the article, said that although the bank does not expect covered bond funding to rise into double-digits as a proportion of Danske Bank group funding (excluding Realkredit Danmark), there is no plan to limit covered bond issuance.

“We will most likely not grow it into double-digits because we think that would probably be a little bit alarming for senior creditors, in the sense of how they price us,” he told Nordic FIs & Covered. “But this is not something peculiar to Danske Bank group. This is a topic of debate among investors, raters, regulators and others. So obviously Danske Bank group is also looking into where we are and what we want to do.

“But we do not have a defined plan to limit it. We might be limited by regulators at some point in time. I don’t know.”

Blaafalk noted that regulatory limits were being introduced in relatively new covered bond jurisdictions, such as Belgium and Australia, and that the Norwegian authorities had recently debated such a limit.

“That tells me that I should not push the share of covered bond funding up into high numbers,” he said, “because then I might have a regulatory restriction coming in that I cannot comply with. And I don’t want to jeopardise that.

“I therefore have to diversify funding duly between senior and covered bond investors. So I will have to keep an eye on this.”

Blaafalk’s comments come after Danske Bank returned to the market with its first euro benchmark in almost two years last Thursday (21 February), launching a Eu1bn seven year issue.

The new issue attracted Eu1.65bn of orders, and was priced by leads Barclays, Crédit Agricole, Danske Bank, Santander and UniCredit at 30bp over mid-swaps after initial price thoughts had been set in the mid to low 30s over mid-swaps area and guidance in the 32bp over area.

Danske’s last euro benchmark, in March 2011, was a Eu1bn five year issue backed by its Combined (“C”) cover pool, which consists of loans secured on both commercial and residential property in Norway and Sweden. The new covered bond issue was backed by Danske’s International (“I”) cover pool, comprising Swedish (47%) and Norwegian (53%) residential mortgages.

“We felt there was good demand for a euro covered bond in our name and investors like the asset class, so we placed this transaction in the euro market using our international cover pool,” Andreas Ligaard, senior funding manager at Danske Bank, told The Covered Bond Report.

He added that the seven year maturity was targeted because there was good investor appetite for the tenor and it was consistent with Danske’s funding needs.

Some 85 accounts participated in the transaction, with bank treasuries taking the largest share, at 66%. Funds were allocated 20%, central banks and supranationals 9%, insurance companies and pension funds 3%, and others 2%.

“The current low absolute yield levels deterred large participation from asset managers and pension funds and insurance companies,” said Ligaard. “Nonetheless, the issuer experienced interest from its historical followers out of this end-user community.”

Germany and Austria took 51%, the Nordics 29%, the Benelux 6%, the UK and Ireland 4%, Italy 3%, France 2%, Asia and the Middle East 2%.