Interview: Bengt Edholm, Svenska Handelsbanken

The Covered Bond Report’s Neil Day spoke with Bengt Edholm, head of treasury at Svenska Handelsbanken, about the group’s funding strategy.

What factors led to Handelsbanken subsidiary Stadshypotek issuing the only Swedish euro benchmark covered bond of the year?

We want to have a curve in euros, but not at any price. This year the domestic market has been very, very effective from a pricing perspective. If you look at the spread to Libor, the euro market has been as good as the domestic market, but we are not allowed to have any form of currency risk in the balance sheet, so we have to swap everything back to the Swedish currency, and so we are always monitoring both the spread and the basis swap, and it is the swap market rather than the bond market that has been the bigger challenge.

What happened when we did the trade in March was that for once the swap was nice and we could move very quickly as we had everything ready.

Of course, being a rather big issuer we want to have diversification, but we will not upset the domestic investors with paying too much all-in in euros, because the Swedish investors can then buy our euro transactions, and then that will inflate our domestic yield. And I think that’s why other Swedish banks haven’t been in the euro market as well.

What has been your strategy in senior unsecured issuance, where you have launched four benchmarks?

We want to have a diversification, considering factors such as asset encumbrance. We want to have a mix between covered and senior in all of our currencies, both in dollars and euros. And when we do a senior transaction, we are not obliged to swap it because we have assets in other currencies. So it is more spread than swap sensitive when we do a senior transaction.

We have communicated very clearly to the market that we want to be ahead of our funding needs, so we did these transactions to be well funded for the rest of the year. We are funded more than one year ahead. We have seen a tightening during the summer, but that doesn’t bother us because we have done the deals and you never know when the windows will close.

Are your considerations regarding dollar issuance similar to euros?

Yes, they are. We look at the all-in to the Swedish currency. We are willing to pay a bit, but not too much, so that’s the same thinking.

We have already done one dollar covered bond and we would very much like to be a more regular issuer in the US. We have an individual in New York doing investor relations every day, meeting with potential investors in both senior and covered. I believe we are one of the few banks that has that set-up. We have a 144A covered bond programme, which we update every quarter to be ready to come to the market, so that’s in our plans, to be visible in that market.

Have you considered the 3(a)2 format for covered bonds?

In the senior space, we have a 3(a)2 programme already, and we hear from investment banks that we save give or take 10bp-15bp. It hasn’t been clear for us that in the covered space it actually pays so much to have 3(a)2 because it isn’t clear that index eligibility is so much better when it comes to covered. It isn’t yet clear how to set up that structure when it comes to covered because we don’t have any mortgages on our balance sheet in the US. But we are looking at that as well.

What are your plans for the Kangaroo programme you established late last year?

In that country, the docs process is quite smooth. We now have the programme, we have done the travelling, we have met with investors, but we came to the same situation as in the euro market, that the all-in price was too high. At that time we also got the impression that Aussie investors were a bit frightened of Europe, as such.

We don’t need to push a transaction at the wrong price, so we are waiting for sentiment in Australia to improve a bit before we issue.

You issued a yuan bond in 2011 — what was the rationale for that?

We have a tiny balance sheet in China and we saw a window to support that business with that renminbi transaction. Our balance sheet is now growing, not so fast, but we see that we can do a potential second transaction in the near future.

We see it more as marketing, actually. We can show other investors that we even have access to the yuan market. And in our euro and dollar trades in senior and covered we have seen a lot of interest from Asian investors — more than 30% of placement at times — and part of that could be because we did this renminbi transaction, that we are visible in that part of the world as well.

Coming to investor relations, we think it is very important to have a professional debt IR team, so we have more manpower in debt IR than equity IR at the bank. As well as our man in New York we have one sitting here in Stockholm whose only job is to travel in Asia.

We have also been in Thailand looking at a Thai baht transaction. We are always trying to tap smaller markets for diversification, so we have had discussions with the authorities in Bangkok to have a green card to issue in Thailand as well. We are also looking long term to have prudent Samurai documentation in Japan, initially for senior.

Have you considered sterling?

In the UK the bank has a big presence on the street with more than 100 branches, so we are actually a British bank as well. Long term we therefore have a big interest in being an issuer in sterling, in senior and covered.

The problem is kind of a luxury problem: because the British banks’ ratings have fallen, they pay more. We have done two senior in sterling this year, but as we see it today, the euro and dollar markets give us better pricing.