Nordea stars, Swedbank AT1 due as covered overshadowed

Sweden’s banks emerged from blackout periods in style this week as Nordea Bank AB sold a Eu1bn 10 year senior unsecured transaction that attracted over Eu4bn of demand at a tight level yesterday (Thursday), and Swedbank today announced an inaugural Additional Tier 1 (AT1) transaction.

Nordea, along with fellow leads Deutsche Bank, JP Morgan and SG, priced its Eu1bn 10 year trade at 43bp over mid-swaps, after building an order book of some Eu4.3bn. The re-offer level was well inside initial price thoughts of the mid-50s over and the new issue premium was described as “minimal”.

Bankers said that it underlined the strength of the market and the tight levels at which financials are now trading.

“The traction they managed to gather from IPTs to final pricing was impressive,” said Robert Chambers, FIG syndicate manager at Crédit Agricole. “The issuer benefited from being the first Nordic issuer to come to the market following a sustained period of undersupply.

“Nevertheless, the final outcome looks extremely attractive from the issuer’s point of view, regardless of whether you are comparing it with recent transactions or secondary curves that are already squeezed. This transaction has paved the way for others in the region to follow, using Nordea as a benchmark to lock in funding costs at all-time lows.”

Syndicate officials said that Nordea’s blow-out could encourage other issuers to opt for senior or capital trades over covered bonds, even if the covered bond market is in good shape.

Nordea, via Finnish arm Nordea Bank Finland, had been considered a candidate to launch the first Scandinavian euro benchmark covered bond of the year after it kicked off the Nordic bank reporting season last week, but a syndicate official away from the leads said the “hilariously successful” transaction will probably mean that it remains absent from the market in the short term.

No covered bond mandates are in the publicly-announced pipeline except for NordLB Covered Finance Bank after a two-and-a-half week long roadshow due to begin next week, and market participants said the Nordea deal and its pricing might persuade issuers to opt for other instruments.

“The covered bond, for some issuers, has always been a rainy day trade,” said a syndicate official at one of Nordea’s leads. “The market has always been pretty stable and less volatile to macro trends. So it wouldn’t surprise me to see a few issuers pull the trigger on senior and capital trades while that market it in good shape.

“The Nordics came out of blackout this week, but I think the Swedish names can still fund themselves at much tighter levels in the domestic covered bond market, so I wouldn’t expect any of them to rush to the euro market,” he added. “I think there’s going to be some opportunistic issuances, but I wouldn’t expect an awfully big pipeline.”

Another syndicate official away from the leads agreed that some issuers may be encouraged to look away from covered bonds, although he added that this might be more on the capital side — and this (Friday) afternoon Swedbank announced an inaugural, US dollar AT1 issue.

The Swedish issuer has mandated BAML, BNP Paribas, HSBC, JP Morgan, Société Générale and Swedbank as joint leads for the Reg S, CRD IV-compliant equity conversion instrument. It is expected to be rated BBB-/BBB- by Standard & Poor’s/Fitch, and will be launched after a European roadshow.

Swedbank will be the third AT issuer from Sweden, with Nordea having come first in September and SEB having followed in November.

The syndicate official said that deals are working in all market segments, giving issuers options.

“Issuers can choose to do whatever they feel like doing,” he said. “If they feel like doing covered bonds they can do covered bonds, if they feel like doing seniors they can do seniors, if they feel like doing seniors in Kiwi dollars they can do seniors in Kiwi dollars and so on. The buffet is fully laid out.

“Whoever feels like issuing something next week will probably be welcomed with open arms.”