Danske Grabs Bond Crown as Central Banks Rewrite Market Rules

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Danske Bank A/S became the top arranger of Nordic bond deals last quarter as policy steps from central banks sent the market into uncharted territory.

Danske arranged 8 percent of deals in the first quarter, excluding debt sold on its own behalf, according to data compiled by Bloomberg. That includes bonds by financial institutions and corporate clients. Sales brokered by the Copenhagen-based bank exceeded $3.8 billion as its share of the market rose 2.6 percentage points from a year earlier.

“A lot of corporates and financial issuers, and for that matter, some of the sovereigns, have taken advantage of a very attractive new-issue environment in the sense that we have seen narrowing credit spreads and we continue to see low overall interest yields,” Bo Wetterstein, global head of debt capital markets at Danske Bank, said by phone Tuesday.

Central banks are engaging in unprecedented monetary easing. The European Central Bank last month began buying government bonds as part of its 1.1 trillion-euro ($1.2 trillion) asset-purchase program and Sweden’s Riksbank cut its key interest rate to minus 0.25 percent and unleashed its own bond buying. Central banks are trying to revive inflation that is hovering below their targets.

Difficult Environment

Nordea Bank AB’s share slid 4.3 percentage points to 7.9 percent, as it sold $3.8 billion in bonds. France’s BNP Paribas SA was third, with 7.2 percent of the market, after managing 12 deals worth $3.4 billion.

“We’re very much in new, uncharted territory,” Thomas Begley, co-head of Nordea’s debt capital markets unit, said by phone. “We’ve seen absolute yields continue to decline, we’ve seen further spread compression. It’s a very difficult environment for investors, issuers and intermediaries.”

The ECB’s program is supporting low funding costs in the bond markets, Fitch Ratings said March 31. European companies were on course to raise more money through bonds than loans in the first quarter, Fitch said.

“Activity outside the Nordic region has been fairly brisk and volumes are higher,” Begley said. “In the Nordic region, there are very strong pockets of depressed issuance, for various reasons.”

For example, the Norwegian junk bond market, a key funding source for oil and gas companies, has largely ground to a halt amid slumping oil prices.

Client Coverage

Corporate and financial debt issuance combined fell 11 percent last quarter from a year earlier to $48 billion, with the number of transactions declining a third to 310, according to data compiled by Bloomberg.

Danske helped arrange large deals for corporates including Vattenfall AB and Neste Oil Oyj.

“We’re starting to see the results of both an improved issuing environment for our issuers, but also that Danske Bank is in a position where we’ve been able to be persistent with our client-coverage model, broadly speaking,” Wetterstein said.

Mandates on just five bond deals sent BNP Paribas to the top of the list in the first quarter for company debt issuance. The Paris-based bank helped Vattenfall, Svenska Cellulosa AB, TDC A/S, TeliaSonera AB and Statoil ASA issue bonds.

“Even though interest-rate and spread levels are really, really compressed, there’s no rush or surge of issuance by corporate clients to raise money opportunistically as they’re not investing and capital expenditure remains subdued,” Begley said. “Many of our clients in the Nordic region continue to have extremely strong balance sheets and cash positions and really see no need to capture opportunistic funding.”

Danske Bank’s Wetterstein said that increasing merger activity and a potential revival of the high-yield market would mean a busy second quarter.

“If that’s the case, then the market should approach even a record year in terms of new issuance volume from Nordic issuers in 2015,” he said.

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