Interview: Henrik Andersen, Nykredit Bank

The Covered Bond Report’s Susanna Rust spoke to Henrik Andersen, head of treasury and financial institutions at Nykredit Bank, about its funding strategy.

How has Nykredit Bank funded itself this year?

Nykredit Realkredit is the parent company and takes care of covered bond issuance, including junior covered bonds, which means that here in the bank we take care of senior unsecured issuance to fund Nykredit’s ordinary banking business. Our strategy is to fund the lending book with deposits from our customers and we have been able to fulfil that for the whole year. But of course on top of that for diversification purposes and because we need a liquidity buffer we also want to be a regular issuer in the capital markets.

We plan to issue one to two benchmarks a year and on top of that we issue private placements if we get the chance to do so. We have an EMTN and a Euro commercial paper (CP) programme. The CP programme takes care of shorter dated funding and has been very stable during the year.

What senior unsecured benchmarks has the bank issued this year?

On the EMTN side we started the year with a Eu500m two year floating rate public benchmark in January, when the markets were very positive after the ECB LTROs. We took advantage of this to go to the market and had a very smooth execution. The deal was priced at 200bp over three month Euribor and the bonds performed very well afterwards.

Last Wednesday (29 August) we sold a public benchmark in the Swiss market, a Sfr200m four year deal. But otherwise we have mainly been tapping the private placement markets and have issued about Eu500m in private placements with maturities up to seven years and across different currencies, including euros, Norwegian kroner and Danish kroner.

What led you to tap the Swiss franc market last week?

We had issued in the Swiss franc market before, also in benchmark size. One of the advantages for us of being a medium-sized issuer is that the benchmark size is not that large so it means it is easier to achieve a benchmark size without issuing too much. We had for quite a while said that it would be a very nice diversification if we could do another Swiss franc benchmark and had been surveying the market. Two weeks ago we heard from the dealers that there was demand for our name and for what we wanted, which was the four year maturity, which fit very well into our maturity profile. So we decided to go ahead with the deal.

Are there other currencies that you issue into in the public markets?

Our main focus in senior unsecured is the euro market and we think that it is best for us to concentrate on our issuance there so the euro investors remember our name and stay familiar with us. That’s where we concentrate our efforts.

Is the bank prefunding for 2013?

During the last two weeks we did the Swiss franc issue and on top of that we issued around Eu300m in the private placement segment, so we have already started funding for 2013. I don’t expect us to come to the market with a benchmark in the next three months at least, but we of course look at opportunities. The timing is more likely to be in the beginning of 2013, subject to market conditions.

In a situation like right now when we don’t need to issue we are continuing our investor work and just last week we had two teams meeting investors in London, Paris, and Frankfurt. It’s very important to us to keep investors updated and we also hope that they value this so they are ready to buy in when we tap the markets.

Just a couple of weeks ago we got Fitch ratings (A and F1) so that we now again have two ratings on our EMTN and CP programmes. We are very satisfied with the cooperation with Fitch. Until April this year we cooperated with Moody’s, but the group decided to discontinue the cooperation on the covered bonds and as a consequence of that also on the senior ratings.

In 2010 the Danish government introduced what was seen as a harsh bank resolution framework — what impact did this have and what is the situation now?

Bank Package 3 made it more expensive for the Danish banks to access the market. I don’t think it was closed for us, but it was more expensive. Then there was Bank Package 4, which made it more interesting for banks to pursue private sector solutions. Bank Package 4 was put into action a few times, and that has not got any attention outside of Denmark, which means that Bank Package 4 is working as it should.

Do spreads reflect this?

Danish bank spreads are wider compared with those for other Nordic banks. As part of the bank resolution framework in Denmark the government is going to appoint SIFIs, and I think a clarification might help narrow the spread. There is a committee that has to finish its work before the end of 2012 and then the SIFIs will be appointed.

We believe that the appointment of SIFIs and capital requirements and so on will be quite similar to the international standard. Nykredit group has a market share of 30% in Denmark if you take mortgage and bank lending, so we believe that we are going to be named a SIFI.

The Danish central bank held the first of two LTROs in March — did Nykredit Bank participate?

It’s very positive that the Danish central bank is providing this facility to the banks. We did not participate in the first one and we do not plan to take part in the second one and that is because we have a very good liquidity situation already. But I don’t think there is any kind of stigma attached to using the facility. It’s another way of getting the right liquidity so it’s positive that it is there but of course if you don’t need it you don’t use it.