Swedbank in Eu500m senior FRN despite holiday season

Swedbank launched the first Nordic senior unsecured euro benchmark since May on Tuesday, taking advantage of a quiet market to print a Eu500m five year floating rate note, but bankers predicted that euro benchmark supply would remain slim in the summer holiday season.

The Swedish bank’s deal is the first sizeable public senior unsecured euro deal from the Nordics since the last week of May, when several banks from the region tapped the market, and Swedbank’s new issue emerged despite a summer lull in primary market activity.

“We got good indications from the joint lead managers that investors, especially in the senior unsecured space, were present and that a transaction, without any competing supply in the pipeline, would go well and at a tight level compared to the fixed market,” said Stefan Abrahamsson, funding officer at the long term funding desk at Swedbank.

Leads BAML, Citi and Swedbank priced the Eu500m (Skr4.79bn) five year FRN at 40bp over three month Euribor. The deal was launched with initial price thoughts of the mid 40s area, before guidance was set at the 40bp area on the back of more than Eu650m of orders.

“We are quite pleased with the outcome, given that we aimed at Eu300m-Eu500m and were able to issue Eu500m, with 80 unique investors involved in the trade,” said Abrahamsson.

Robert Chambers, FIG syndicate manager at Crédit Agricole CIB, said the price in particular was a good result.

“I think most issuers in Europe would be happy with five year paper at that level,” he added.

Seeing Nordea FRN 2020s quoted at 33bp, and noting that Swedbank has been trading flat to Nordea in fixed rate format, Chambers said the deal offered a new issue premium of around 7bp.

“That’s fairly skinny compared with what we’ve seen so far this year,” he said.

Swedbank’s Abrahamsson said the issuer had opted for the floating format because pricing in euro senior FRNs versus fixed is currently favourable and because it had a use for senior unsecured funding.

“Also, in the covered bond space we have been active in the domestic market lately and the need for covered funding is of less interest to us right now,” he added.

Swedbank’s last euro benchmark was a Eu750m seven year senior unsecured fixed rate issue in May. The bank has also launched two benchmark covered bonds this year, printing a Eu1bn seven year issue in March and a $1bn five year in May.

“We have completed all the benchmark trades scheduled in our funding plan, but at the same time the bank has a balance sheet that continuously grows in line with the market and funding is needed on an ongoing basis,” Abrahamsson said. “We currently have an opportunistic view on the market but we would not say that we, at this stage, are opting for another benchmark-sized transaction this year.”

While stating that investors are willing to participate in new supply and that deals could still be done, bankers said further euro benchmark supply in both the senior and covered markets is unlikely to emerge this month.

Chambers said Stadshypotek’s new issue highlighted that there is some execution risk centred on deal sizes during the holiday period, noting that the last reported book size for the deal was Eu650m.

“While they got a very good transaction away at a very good price, deals in the larger benchmark sizes might struggle to find traction until continental European market participants return from their holidays,” he said. “Some sub-benchmark deals may be done, but I think we might enter a bit of a quiet patch in euros now, in both the covered and senior markets, until nearer the end of August.”

There was meanwhile $16.325bn of supply in the dollar market this week, with $7.5bn from European banks on Monday alone.

“The depth of that market still seems to be there, and issuers are trying to use dollars before a potential Fed rate hike on 17 September,” said Chambers, “so that is where the focus has been.”