Interview: Louise Bergström, SBAB

We spoke to SBAB head of investor relations Louise Bergström after the launch of its recent senior unsecured benchmark, and discussed the issuer’s overall funding plans with respect to ALM, covered bonds and regulation.

You recently launched a Eu750m seven year senior unsecured deal — what was the background to that?

We had been looking at the market and, as we’ve been saying from the beginning of the year, we want to do two to three public transactions in senior and covered in total, depending on market conditions. We have been extending our maturity profile for quite some time and did a Eu750m five year fixed rate deal in the Spring and then we saw strong market momentum.

We had already been monitoring the market and we know that September is normally quite a strong month for issuance and of course you don’t want to be in the market when it’s swamped with other issuers so we just felt there was a good market opportunity last week. It was either then or later and we felt that it was better to come to the market before the rush rather than doing it later.

We always tend to do a bit of prefunding rather than being in the market when we absolutely have to. It’s about trying to take advantage of a good market backdrop.

In terms of the maturity was the seven year choice driven by your desire to extend the maturity profile and obtain longer term funding?

Yes. We’ve been trying to extend our maturity profile for quite some time. The five year fixed rate transaction earlier in the year was a starting point and now we felt that there was an opportunity to prolong it even further. Getting those strong points on the curve is important for us.

On 19 July S&P put SBAB and Handelsbanken on CreditWatch negative due to concerns about asset-liability mismatches and use of short dated funding. What are your thoughts on this and will SBAB make any changes in response?

As I said earlier, we have been extending the maturity profile for quite some time now. The comments from S&P of course may make us accelerate our terming out of funding, but that is something that has already been the plan, so S&P’s comments are not changing our strategy. We will accelerate and maybe go longer than we were before just to make the terming out process go faster, but otherwise our approach hasn’t really been affected.

The numbers that S&P based their view on were as of year-end and with regards to certificates, etc. that we are issuing in the market the volume is quite small in comparison with other banks. We tend to keep it to around 10% of the total funding that we do. Going forward we will be decreasing that slightly.

Nevertheless, just looking at the total amount that we need to go to the market for it is not that large so we can change our maturity profile quite quickly with one or two new issues. We are fairly well known in the market and even though we are a smaller bank we’re still on the road quite a lot and put ourselves in a position to be able to do deals when we need to. That’s important to note.

Can you give more detail on how you’ve been extending your maturity profile?

What we’ve done is decrease the commercial paper portfolio slightly this year and over the years we have done longer dated new issuance. We did our inaugural fixed rate euro senior unsecured transaction in 2011 and we came to the Samurai market in 2011 as well. And then we did a five year fixed rate deal in the spring. Our first euro senior benchmark maturity is in October 2014. All three deals have been for Eu750m. When it comes to senior unsecured deals that tends to be our size, although in covered bonds it’s more around Eu1bn. One of the reasons for that is that we want to provide liquidity, and my personal view is that Eu500m is not really a benchmark.

What euro covered bond issuance plans does SBAB have?

It was two-and-a-half years ago that we did our last euro covered bond transaction. I think it’s important that we keep our presence in that market. At the same time, we look at the euro market overall and if we see that there is a better opportunity to do another senior we would consider that as well, or we could do that instead of a covered bond, but at the moment it’s more likely that would do a covered bond than a senior.

It feels like the covered bond market has been there more or less the whole time and that it doesn’t have the same volatility as in senior. The market for covered bonds is there almost continuously but nevertheless you have to do the groundwork to launch a successful transaction. A covered bond would be more attractive out of cost efficiency.

We have always said to our investors that we will keep a presence in covered bonds and senior and because it was two-and-a-half years ago that we did our last euro covered bond I think it’s time that we come back. And in the future we will probably aim to do one deal at least every 18 months in covered bonds as well, and of course a benchmark size is the aim.

Are there any key regulatory issues on SBAB’s agenda at the moment?

All of these new rules and regulations are something that we follow very closely, such as with respect to capital adequacy. Sweden is a strong frontrunner when it comes to all of this, so we follow all these rules and try to do everything that the other universal banks are required to. We’re not listed as a SIFI but we try to go by the same rules because you never know when the regulator might change its mind. There’s a lot of new regulatory information coming out continuously and we have specialised teams following all of that.