Danske Targets More U.S. Debt Sales Amid $11 Billion Plan

  • $1 billion dollar issue is Danske Bank's first since 2011
  • Danske plans to tap the U.S. bond market 1-2 times a year

Danske Bank plans to rely more heavily on dollar-denominated funding in the future.

Scandinavia’s biggest bank after Nordea wants “to tap the dollar market once to twice a year, so that we become a recurring issuer that the investors get to know,” Christoffer Møllenbach, head of treasury, said in a phone interview. He says dollar funding is a “key ambition” for the bank.

Danske offered $1 billion in five-year notes last week, at a 2.75 percent coupon. It was the bank’s first benchmark dollar issue since 2011. In August, Danske revealed it was returning to the U.S. commercial paper market following a ratings upgrade. Møllenbach said Danske is “going to be increasing” that program.

“With the short-term market, we needed the rating,” Møllenbach said. “The long-term market, you can do deals at any rating but the pricing just becomes more expensive.” The issuance is part of as much as 70 billion kroner($10.6 billion) in debt sales that Danske plans to do this year.

The timing is fortuitous. The euro-dollar cross currency basis swap has fallen to its lowest levels in more than two years, according to Fitch Ratings. That’s prompted a number of European banks to issue in the U.S. market. Since last year, the share of Yankee bonds -- dollar bonds issued outside the U.S. -- has risen 6 percentage points to 28 percent, Fitch said in a Sept. 10 note.

Danske’s return to the U.S. market follows two years of efforts by Chief Executive Officer Thomas Borgen to improve the bank’s credit profile, which had taken a beating amid losses in Ireland and Denmark. Borgen’s goal has been to bring Danske’s funding costs down so he can rival the return on equity delivered by his biggest competitors in Scandinavia. Danske returned 12.5 percent in the second quarter, compared with Nordea’s 13.1 percent.

Borgen’s efforts are paying off. The bank has seen demand grow from fixed-income investors in the U.S. and Asia. Its shares have also done better than the industry on average. Danske stock is up about 7 percent over the past three months, compared with a 12 percent decline in the 44-member Bloomberg index of Europe’s most traded financial companies.

“Danske Bank is now our top pick in the Nordic banking sector,” bumping Nordea off the top spot, SEB analysts Masih Yazdi and Christoffer Adams said in a Sept. 3 note.

Danske’s pension and insurance arm is taking advantage of market demand for the Danske brand. Danica Pension is planning to issue its first subordinated debt since 2006, raising its capital buffer by more than 20 percent.

The issuance will allow for growth and diversify Danica’s capital structure, which has been comprised exclusively of equity from Danske since the last bond matured in 2011. Any excess capital may be returned to Danske in the form of dividends, Danica said.

Møllenbach said the bank probably won’t do another Yankee bond before January, and it doesn’t have a specific target for how much of its funding will be in dollars. But returning to the U.S. market diversifies the bank’s funding sources, an important consideration amid uncertain regulatory demands, he said.

“There are many different regulatory tracks at the moment, and it’s one of those things that, until we actually see how they materialize, it is difficult to plan specifically in terms of funding,” Møllenbach said. “You can only factor what you know into your planning, and make sure that you have the flexibility in your plans to adjust to what might happen.”

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