Swedbank takes Tier 2 record, pre-empts Swedish finish

Swedbank priced the second Nordic bank capital trade of the year on Monday, a Eu750m 10 year non-call five Tier 2 transaction that an official at the issuer said was launched in anticipation of final capital requirements from the Swedish FSA.

The deal is Swedbank’s first transaction in the benchmark market since it announced its fourth quarter results on 28 January. It comes after its peers Nordea and SEB opted to tap the senior unsecured market last week after they reported 2013 results earlier this month, with the mix of deals seeming to support syndicate bankers’ comments that a range of markets are open to Nordic issuers.Svenska Handelsbanken opened the bank capital market on 7 January with a Eu1.5bn 10NC5 subordinated issue.

The Tier 2 is Swedbank’s first such benchmark since November 2012.

Gregori Karamouzis, head of investor relations at Swedbank, said that Swedbank has no imminent need for Tier 2 capital given buffers available in the form of Common Equity Tier 1 (CET1) capital, but that there are indications that the financial supervisory authority, Finansinspektionen, is close to finalising its capital requirements for Swedish banks under Basel III and that the Tier 2 deal was launched in anticipation of these.

“This was an attempt to pre-empt these requirements and pro-actively fill the Tier 2 requirements we envisage being part of the Swedish finish,” he said. “The FSA has also changed its mind about Basel I transitional floors, which will remain effective until further notice, and this Tier 2 counts toward that.”

Swedbank has a CET1 ratio of 18.3% under Basel III, and a total capital adequacy ratio, which includes Tier 2, of 20.6%. Although the issuer does not need more Tier 2 capital, it is cheaper to hold than CET1, and in launching the trade on Monday Swedbank was anticipating being able to use Tier 2 capital to meet regulatory requirements, according to Karamouzis.

The issuer had been monitoring the market and meeting with investors since releasing its results, and decided to proceed with a transaction after markets opened positively on Monday.

Leads Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank, JP Morgan and Swedbank built an order book of around Eu2bn for the trade and priced it at 140bp over mid-swaps, with a coupon of 2.375%.

Initial price thoughts had been set in the high 140s over, implying a 15bp new issue premium, with Handelsbanken’s Tier 2 from January seen trading in the high 120s over, according to a syndicate official at one of the leads.

At 140bp over, the spread is the tightest on a 10 non-call five Tier 2 transaction since the collapse of Lehman Brothers, noted Karamouzis.

The record had been held for a short while by Handelsbanken, which priced its Tier 2 in January at 143bp over and in turn took the baton from DNB, which priced a Eu750m 10NC5 at 177bp over in September 2013.

“We’re quite happy with the outcome,” said Karamouzis. “The reception was good and shows that investors perceive Swedbank as a low risk and stable bank.”

The issuer chose the 10 year non-call five structure as the most “efficient” structure, reflecting the fact that once a Tier 2 capital instrument reaches a maturity below five years there is no full recognition for regulatory capital purposes.

More than 140 accounts participated in Swedbank’s Tier 2. The Nordics and the UK/Ireland were each allocated 25%, Germany and Austria 16%, the Benelux 14%, France and Switzerland 13%, Italy and Iberia 4%, and others 3%.

Real money took 75% – split between 55% for asset managers and 19% for insurance companies and pension funds, official institutions 16%, banks and private banks 6%, and hedge funds 4%.