Danske to meet with investors ahead of likely Nordic AT1 first

Danske Bank could soon emerge with the first Nordic CoCo transaction, after having yesterday (Wednesday) announced that it will next week meet with investors in connection with a potential euro Additional Tier 1.

The deal would be a euro perpetual non-call six year AT1 issue that would be temporarily written down if the bank’s transitional CET1 falls below 7%. Any such hybrid capital issue will be for at least Eu500m and “forms part of Danske Bank’s ongoing adjustment of its capital structure to future capital requirements for European banks”, according to the issuer.

Nordic banks have yet to issue new-style loss absorbing capital, with recent issuance so far restricted to Tier 2 transactions, but an AT1 from Danske has been long awaited. The issuer was active in the Tier 2 segment last year in a variety of currencies, but has held off pursuing plans for an AT1 on account of uncertainty over two tax matters.

Alex Sönnerberg, Nordic DCM at Crédit Agricole CIB, noted that an AT1 from Danske would be the second euro high trigger AT1. A Eu1bn 8% perpetual non-call seven in December for Barclays Bank was the first, although the 7% CET1 trigger is on the basis of fully loaded Basel III capital levels. However, the loss absorbing mechanism in Barclays’ deal is conversion into ordinary shares, and Sönnerberg therefore identified a 7.875% Crédit Agricole AT1 from late January as the closest comparable for a Danske AT1, although the French bank’s deal was US dollar denominated and a perpetual non-call 10 with a low as well as high write-down trigger.

“But while there is some price discovery element in the process, given the quality of the issuer and non-equity structure, there are good arguments for Danske to break a new record in terms of lowest coupon paid, although this will of course depend on the details of the deal, including the structure and the size,” said Sönnerberg.

He expects UK investors to drive the deal, with Asian real money accounts also likely to be involved despite the transaction being denominated in euros, and noted that it should also bring Nordic investors to the asset class.

Banco Santander yesterday announced that it will go on a roadshow for a euro AT1 next week, with a low trigger perpetual non-call five equity convertible structure targeted by the issuer.

“It will also be interesting to see the relative proximity of the periphery to Nordics given Santander’s issuance plans,” said Sönnerberg.

Bank of America Merrill Lynch, BNP Paribas, Danske, Goldman Sachs, HSBC and JP Morgan have the mandate.