Swedish bank crackdown sends corporates to bond market
Home page > News

Swedish bank crackdown sends corporates to bond market

www.reuters.com   | 26.01.2012.

LONDON, Jan 26 (IFR) - Sweden's tough regulations on its own lenders, regarded as even more stringent than the Basel III bank capital rules, could fire up the Nordic country's corporate debt market in 2012, as small and mid-cap borrowers in particular rush from hard-to-get loans to readily available bonds.
br />

While heads of the world's leading economies have agreed to introduce stricter bank capital and global liquidity rules by 2013, Sweden has urged its four biggest lenders to ensure that they have bigger buffers sooner.

"Stricter rules means corporates will find it tougher to borrow money and will be forced to the debt capital markets instead," one syndicate banker said.

Luke Hickmore, investment director at Scottish Widows Investment Partnership (SWIP), described it as "the French effect", referring to a flurry of French corporates that accessed the bond market in the second half of last year amid fears that long-standing relationships with their domestic banks could sour in the wake of tighter regulations.

"There is a possibility that you get this "French effect" as companies look to disenfranchise the banks and borrow directly from capital markets more to diversify their liquidity and funding sources," he said.

The key difference between France and Sweden's banking landscape though, is that the Nordic banks are already relatively well financed, wh ereas some French banks are grappling to retain their credit ratings.

Handelsbanken, SEB and Swedbank's balance sheets already meet the 12% core capital being demanded by 2015 to protect taxpayers from any future bail-outs, and the fourth -- Nordea -- is en route to doing so.

On Tuesday, Nordea, which is the Nordic region's biggest bank by value, posted fourth-quarter operating profit that topped forecasts.


Syndicate bankers say that the new regulations are not an attempt to outshine their European neighbours in terms of financial safety, but a necessary step.

Swedish lenders are still scarred by the severe credit crunch and widespread bank insolvency of 1992, and have been more heavily regulated ever since.

In November, the Riksbank put out a memorandum arguing that the ratios implied by Basel III provided a capital conservation buffer of 2.5%, but did not provide a contra-cyclical buffer.

"The Swedish banking system is so concentrated (...) Risks arising in a single bank's operations can thereby easily spread to the other major banks," the Riksbank said.

Swedish banks also have a large amount of funding in foreign currencies, meaning that economic events could have a disproportionately severe impact on the Swedish economy.

Finally, Swedish banks are relatively large in relation to the Swedish economy, the Riksbank, the central bank of Sweden, which is also the world's oldest central bank, said.

"This means that the failure of a major Swedish bank risks being difficult to manage and could create uncertainty as to how the costs would be distributed between the countries involved."


Tomas Lundquist, head of European debt capital markets at Citigroup, said that while he expects large-cap Swedish multinationals to be able to access funding relatively easily, small and mid-caps will be the ones to feel the pinch.

"Large corporates generally do not have any problems accessing bank funding and will likely not have problems in the future," he said.

In 2011, 39 Swedish corporate bond transactions were executed, amounting to around USD13bn worth of issuance, according to Thomson Reuters data. Loan volumes significantly trumped that, with USD34.05bn worth of issuance, according to Thomson Reuters LPC data.

SAS, TeliaSonera, Volvo, Electrolux, Scania and Norcell are just some of the names which priced successful bond deals that tightened in secondary trading.

Smaller and mid-cap companies though -- especially unrated ones -- are more likely to rely on the domestic and international bond markets for funding going forward, Lundquist said.


Additionally, syndicate bankers in the Nordic region make the point that a swing to the bond market might also be driven by demand and a healthy appetite from risk-averse investors.

"The euro-to-krona basis swap remains favourable, which makes Swedish krona issuance attractive for foreign issuers," Paul Watters, head of corporate credit research at Standard & Poor's said.

Sweden's five-year CDS is at a slim 65bp, compared with France at around 180bp and Greece and Portugal at a staggering 7,000bp and 1,400bp, respectively.

"The Scandinavian market will also likely be very attractive as Scandinavia has largely been sheltered from the crisis," Niclas Sylven, bond origination manager at Nordea Markets said.

Johan Wennerholm, also a bond origination manager at Nordea Markets, added that he expected repeat issuers, such as Volvo and Scania, to return to the bond market over the next year and take advantage of international investor appetite.

"Aside from this, we also think that debut issuers might price bonds."

Both are adamant that bond issuance volumes will increase significantly over the course of the next 12 months.

"It is difficult to put a number to the prediction, but we do expect major deals in the high-yield, investment-grade and unlisted space. The high-yield Com Hem deal is an example of the size of deal we may see in future," said Sylven.

Nordea were joint bookrunners on a deal in November, when the Swedish cable firm priced a EUR287m unsecured bond, callable after four years, at a steep discount at 94.98 to yield 11.75% with a 10.5% coupon. (Reporting By Josie Cox; editing by Philip Wright)

Comments (0) Add Your comment Add news < Previous news Next news >

  Add your news >>>