Nordic banks’ strengths aid lead in Tier 2 issuance, says Fitch

Nordic banks’ strong credit stories have been a key factor in enabling their position alongside Dutch banks at the head of a wave of lower Tier 2 issues hitting the market since last week, Fitch said on Tuesday.

Danske Bank is today (Thursday) selling a dollar issue after SEB sold a Eu750m 10 year non-call five Tier 2 deal at 310bp over mid-swaps last Wednesday, alongside Dutch supply.

“Investor appetite for this type of debt from high quality banks has been strong in the last few days, probably due to low overall bank issuance volume in general since the first quarter of the year,” said Olivia Perney Guillot, senior director, financial institutions at Fitch. “As in Q1, the Nordic and Dutch banks are setting the tone, benefiting from their good credit story (reflected by ratings in the single-A range to double-A range) and indicating a very remote likelihood that these issuers would become subject to future resolution, which could mean losses on subordinated debt.

“In light of the success of the issues, both in terms of pricing and volume demand, it seems investors do not require further transparency around changes that Basel III and a potentially-statutory resolution regime would bring.”

Fitch said that Nordic and Dutch banks have issued the lower Tier 2 debt to build up an extra buffer in light of the expected bail-in regime, as per the proposed European Crisis Management Directive. The buffer is intended to reduce the potential risk of higher losses for senior bondholders and should therefore mitigate to some extent the impact that anticipation of a bail-in regime is having on European bank senior debt spreads, said the rating agency.