Interview: Timo Ruotsalainen, Aktia

May 30th, 2013

Timo Ruotsalainen, managing director, Aktia Real Estate Mortgage Bank, gave Nordic FIs & Covered an update about the Finnish group’s switch to issuing directly out of Aktia Bank, and discussed other developments.

Is Aktia Bank in a position to be able to issue its first covered bonds?

Aktia Bank plc has had the concession to operate as mortgage bank since March. The process with the FSA was fairly smooth because it is largely the same group of people running the new cover pool and covered bond business that used to do it in the Real Estate Mortgage Bank (REMB), so the FSA had a fairly good understanding of our ability to run things. We are very close to finalising updating Aktia Bank’s current EMTN programme with covered bond language.

The second quarter is certainly our best guess in terms of when we might launch an inaugural issue, and we hope to at least have done the marketing before the mid-summer holidays in late June, which have a fairly large impact on the availability of the investor community in Finland and other Nordic countries.

How are the old REMB cover pools being managed and how does the new pool compare with these?

There has been no change to our plans. The mortgage bank cover pools are in run-down and the REMB will not issue any public covered bonds or any new loans to consumers. We are here to take care of the businesses related to running the pool down and finance it as it is being wound down. At the moment the pool redeems about Eu50m per month based on the normal repayment schedule of the loans.

All the owners of the REMB, including the savings banks and POP banks, are committed to keeping the old mortgage bank business in as good shape as it has been, and to comply with Finnish covered bond legislation. There is still almost Eu3.7bn worth of consumer loans in the combined pools and these are from clients that are very important to each of the banking groups. The support and support networks that were there before are still there. The structure of the REMB is the same. The REMB cover pools were able to keep their double-A rating from Moody’s last year because we committed not to leverage the structure further.

There is not much difference between the REMB and new Aktia Bank pools, mainly because we are talking about more or less the same clients. From a quality perspective the same eligibility criteria apply as for the REMB pools. There may be a small difference in seasoning because some of the loans are new for the Aktia pool, but that is about it.

You previously mentioned potentially tendering for outstanding Aktia REMB covered bonds — is that still being considered?

We still need to discuss this with the investors. The original idea came up when the covered bond rating was under pressure to fall below the double-A level. If that had happened there would have been a few investors that would not have been able to keep the bonds. But now taking into account the supporting market conditions I would guess that investors are fairly happy keeping the REMB bonds and I hope that we are able to convince them that the support and structure will remain as it has been.

To what extent was moving the covered bond programme from a specialised lender to a universal bank related to discussions around asset encumbrance?

The initiator of the whole process was the methodology that the rating agencies used, which originally challenged the REMB ownership structure. At the same time, as a result of tightening regulation Aktia Bank decided that it would no longer be able to act as the central credit institution for the savings banks and POP banks so the decision to move to a universal bank operation made sense. Strictly from an asset encumbrance perspective a specialised lender, depending on what regulations might come, may actually have been better than the universal bank structure.

There is more of a discussion initiated also by the FSA about asset encumbrance in Finland as opposed to any initiated processes toward regulating it at the moment. As part of applying for a concession Aktia Bank had to set itself a sort of limit. The FSA did not provide any guidance as to the level, but they are encouraging operators to set a kind of self-restriction. I think they are very much following the discussion in other markets, but at the moment in Finland it is more of an exchange of opinions that is going on.

What is the state of the housing market in Finland and what LTV limit discussions are there?

The housing market has cooled down already last year and this year does not look like it will be a very hectic real estate business. The government has already discussed LTV limits but has decided against any rules or regulations. Also the Bank of Finland recently said there should be a limit on LTVs. The FSA has recommended a maximum LTV of 90% and has been monitoring this.

On 1 July Aktia plc will merge with subsidiary Aktia Bank plc — what is the rationale for this and what will the impact be?

The merger is to streamline the structure of the organisation so we don’t have the plc holding entity anymore, but everything is lined up under Aktia Bank plc, which in the future will be the listed public entity. The biggest structural change is that both the life insurance and the real estate agency businesses will become subsidiaries of the new listed bank entity whereas before they were subsidiaries of the holding company. In that sense structurally it is not a huge change but about bringing the group under one umbrella and one name so you don’t have any questions about the role of the holding company. The merger will have a small impact on total capital adequacy levels and the tier one capital ratio but only a minor one.

How did Aktia plc perform in the first quarter and what is your outlook for the rest of 2013?

The first quarter was better than expected and continued a very positive tone from the year 2012. There weren’t any extraordinary events behind the good performance, just normal business continuing to put good numbers on the board. There were a few winners: the life insurance company provided profits due to a new service and the asset management posted good results. But all segments provided good numbers. It was just a good first quarter. We have a plan up to 2015 to, among a few other targets, increase the cross-selling of different services and enhance commissions and at the same time improve competitiveness.

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