Swedbank euro covered return sparks ‘mad’ rush of demand

Swedbank launched its first euro benchmark covered bond since August 2011 today (Thursday), a Eu1bn seven year issue that attracted strong demand, with the leads taking a cautious approach to execution but able to tighten the spread after a “catchy” opening, said a banker on the deal.

Leads Danske Bank, LBBW, RBS, Société Générale and Swedbank set initial price thoughts in the high teens, guidance at 15bp over mid-swaps, and fixed the re-offer spread at 13bp over.

A syndicate banker away from leads said the deal was “madness”.

“It’s a Nordic name, is rare, it’s the usual madness,” he said.

He added that there is a lot of liquidity in the market and that accounts are “desperate” to place it somewhere and are likely to have remained in the transaction despite the strong spread tightening during bookbuilding.

Orders approached Eu1.7bn soon after the opening of the books, and demand reached Eu3.3bn, pre-reconciliation, by the time the books were closed, according to a lead syndicate banker. More than 160 accounts were involved in the transaction, he said.

Vincent Hoarau, head of FIs, covered bond and ABS syndicate at Crédit Agricole CIB, said that Swedbank could not have timed its transaction better and took a smart approach to pricing.

“At first sight the guidance looked a bit defensive given the positive market backdrop and the lack of price sensitivity at the investor end,” he said. “But in the end the issuer priced what is the tightest Nordic seven year covered bond since the crisis began.

“The issuer knew from the outset that with a huge book and a capped deal size it would have the power to tighten the spread significantly and I think the pricing strategy was rightly designed around this.”

Another syndicate banker away from the leads said that with IPTs in the high teens the deal looked generous at the beginning, as it was offering some 5bp-6bp of a new issue premium. The concession shrank with the tightening of the spread, and at 13bp over mid-swaps there were only 1bp-2bp of new issue premium left, he said.

A lead syndicate banker said that going out with a “catchy” figure and then trying to achieve a tighter pricing was part of the execution strategy adopted by Swedbank.

“IPTs were indeed quite generous, as they have been for the transactions we saw in the last couple of weeks,” he said.

The lead syndicate banker said that a more cautious approach to deal execution has been implemented by issuers in light of the outcome of a transaction launched by Sweden’s Stadshypotek on 12 March, a Eu1bn five year deal that was priced some 5bp wider than IPTs.

“The Stadshypotek deal showed that there is a risk in going to the market too tight, and this was among our considerations when launching our deal this morning,” he said.

However, he added that Stadshypotek’s transaction would have gone much better in today’s market conditions.

A syndicate banker away from the leads said that the two deals could not be compared as they were more than a month apart from each other, and that “a stream of liquidity had washed away any concerns regarding Stadshypotek’s deal”.

However, he said that he was surprised to see a deal by Swedbank out this morning, as there had been no signs in the past weeks of such a deal being in the pipeline.

The deal is Swedbank’s first euro benchmark covered bond transaction since August 2011, when the issuer priced a Eu1.5bn four year issue at 46bp over mid-swaps. It has, however, printed two dollar transactions since then, the last being a $1bn five year deal launched on 26 March.

The lead syndicate banker said that Swedbank had been monitoring the market for a while and decided to launch the deal this morning on the back of positive market conditions.

“Today there were perfect market conditions for the deal,” he said. “In the past weeks we were concerned about a trend of falling low absolute yields level, but the trend seems to have stabilised so we advised Swedbank to go to market today.”

Swedbank announced quarterly results on Tuesday.