Sweden’s biggest mortgage bank has returned to the safest corner of the debt market after a money-laundering scandal drove up funding costs for riskier bonds. Swedbank AB, which is based in Stockholm, on Monday issued euro-denominated covered bonds for a second time this year, offering €1.25bn ($1.4bn) of new notes backed by Swedish mortgages. But the lender, which is being investigated amid allegations it may have handled more than $100bn in potentially suspicious funds, is falling behind some of its peers when it comes to tapping markets for a new kind of debt needed to comply with European rules that protect taxpayers. “At some point, Swedbank will also need to start issuing in senior non-preferred format,” Sverre Holbek, an analyst at Danske Bank, said. “From that perspective, raising covered bond funding at these levels can help mitigate the impact on overall funding costs.” Swedbank probably wants to “take advantage of the strong issuance conditions in the euro covered bond market at the moment, despite broader market turmoil affecting the spread of other funding instruments,” he said. Gregori Karamouzis, Swedbank’s head of investor relations, said issuance is in line with the bank’s broader debt plans. In 2018, the bank only sold one euro benchmark covered bond. The €1bn ($1.12bn) in covered bonds that Swedbank sold at the start of the year have continued to gain despite the bank’s dirty-money scandal. Swedbank Hypotek AB, the lender’s mortgage arm, offered €1.25bn in six-year covered bonds on Monday at 2 basis points above the benchmark mid-swaps, according to a person familiar with the matter who asked not to be identified. At the final spread, the bank “paid hardly a concession,” Rabobank analysts Ruben van Leeuwen and Cas Bonsemawrote in a May 21 note. Year-to-date sales in the euro-denominated covered bond market are up 12% from a year earlier. Swedbank hasn’t tested the market for senior unsecured debt since August 2018. Danske Bank A/S, which is at the centre of a $230bn money-laundering scandal, has opted to bite the bullet and last year started issuing the senior non-preferred bonds needed to meet European rules for bail-in-able debt. It’s roughly half-way through its issuance target. Swedbank’s covered-bond sale was arranged by BNP Paribas SA, Deutsche Bank AG, NatWest Markets Plc, Swedbank AB and UBS Group AG.
Source – Gulf of Times.
