Nordea in £400m senior, SMN nears, amid uncertain outlook

Feb 7th, 2013

Nordic FIG supply this week was limited to a £400m three year senior unsecured FRN for Sweden’s Nordea Bank today (Thursday), although a SpareBank 1 SMN senior unsecured deal is still in the pipeline and others are said to be monitoring global market conditions.

NordeaNordea is understood to have met with £475m of orders for its FRN, allowing it to increase a £250m minimum deal to £400m (Skr4.03bn/Eu468m) and price the transaction at 50bp over three month Libor, the tight end of guidance of the low 50s over area. HSBC and UBS were lead managers.

A syndicate official away from the deal said that Nordea’s deal came at an interesting juncture for the debt markets, with talk of a bond boom and the rates rally coming to an end, and that he expects supply to be thin over the coming months.

“It speaks volumes when you have a small opportunistic-type sterling three year floater as the first visit to the public markets by a very strong Nordic national champion,” he said.

“The issue now I think is that people may be reluctant to come to this market anytime soon because it’s very clear that the very good days of January have passed us by, and there is no doubt that new issue premiums will be elevated, especially going out along the curve.”

Meanwhile, SpareBank 1 SMN released its fourth quarter and preliminary annual results yesterday (Wednesday) after having completed a roadshow on Friday, and is monitoring the market and collecting feedback from investors as part of its decision-making about whether to launch a euro senior unsecured transaction, Dag Olav Uddu, head of treasury at SMN Bank, told Nordic FIs & Covered.

The savings bank posted a pre-tax profit of Nkr1.355bn, up from Nkr1.236bn in 2011, and is pursuing a new capital plan based on a common equity tier one ratio target of at least 12.5% by the end of 2015, up from a current target of 9%. The new target takes into account residential mortgage risk weightings of 35% being targeted by the Norwegian financial supervisory authority.

Uddu previously told NFIC that the issuer had explored senior unsecured issuance opportunities last year but that it was not satisfied with market possibilities then, with improved market conditions this year prompting it to go on a roadshow.

That concluded on Friday, with the issuer having received good feedback, said Uddu yesterday, although meetings and conference calls are continuing on the back of the bank’s fourth quarter results.

“We are following our original plan by monitoring the market and collecting feedback from investors,” he said.

Investors have shown interest in understanding more about the savings bank’s plan for achieving its targeted capital levels, the housing market in Norway and the regulator’s plans to increase risk weightings for residential mortgages, said Uddu.

The Nordea sterling deal in the market today is the sixth Nordic FIG benchmark debt issue this year, coming after euro covered bonds for DNB Boligkreditt, Nordea Bank Finland and Terra BoligKreditt, and euro senior unsecured transactions for BRFkredit and SpareBank 1 SR Bank.

Nordic financial institutions have been busy releasing fourth quarter and full year results since last week, with their emergence from blackout periods raising questions about whether supply from the region, in particular Sweden, could be forthcoming should the market backdrop improve — cautious sentiment and central bank meetings combined to keep FIG primary market activity to a minimum this week.

Viet Le, FIs, covered bonds and ABS syndicate manager at Crédit Agricole CIB, said that Nordic banks can avail themselves of a range of markets across different currencies and asset classes, and that they will be weighing global options despite being well funded and therefore not under pressure to come to market.

“The Nordic banks are high profile credits so everything is open to them,” he said. “When market conditions stabilise there might be an argument for moving first in covered bonds given squeezed spreads and limited room for performance there, whereas in the senior market there is still scope for further price compression.

“The dollar market has been on fire since the beginning of the year and it’s natural for them to look at that, too, given that there is very good liquidity offered to Yankee names.”

The prospects of Swedish benchmark covered bond supply in euros is a particular focus in light of how little has hit the market in recent times — a Eu1.5bn five year deal for Svenska Handelsbanken’s Stadshypotek from March last year was the last Swedish euro covered bond — and given that Swedish banks were quite active in the euro senior unsecured market last year.

Alex Sönnerberg, Nordic DCM Origination, Crédit Agricole CIB, said the all-in cost of issuing a covered bond in euros versus Swedish kroner is more expensive than at the end of last year, but should still be manageable for issuers, although other factors such as diversification also play a role in the decision making process.

“The EUR/SEK cross-currency basis swap curve has tightened considerably over the past six months to levels not seen since 2010,” he said, “but so have credit spreads in the domestic covered bond market.

“As such, the differential between the euro and Swedish krona markets is around 10bp-15bp at the five year part of the curve right now, which is probably within the threshold for most Swedish issuers, but of course there are various considerations at play.”

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