Swedbank in T2 tight

Swedbank priced a Eu750m 10 year non-call five Tier 2 transaction on 17 February, the Swedish bank’s first such benchmark since November 2012, and an official at the issuer said it was launched in anticipation of final capital requirements from the Swedish FSA.

The deal was Swedbank’s first transaction in the benchmark market after it announced its fourth quarter results on 28 January and came after Svenska Handelsbanken opened the bank capital market on 7 January with a Eu1.5bn 10 non-call five subordinated issue.

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 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 the Monday morning of its deal.

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 was 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, it in turn having taken over the baton from DNB, which had 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%.