Swedish Brilliance in EBA Tests Underpins Riskiest Debt Appeal

After topping the European Banking Authority’s stress tests, Swedish banks may be a good place for investors to snap up high-risk bonds.

With an average common equity Tier 1 ratio of 18.1 percent in the adverse scenario, banks in Scandinavia’s largest economy did better than their competitors across the rest of Europe. The results, which were published after markets closed on Friday, ranked Swedbank AB the top performer among publicly traded banks. Its overall ranking in the test, which assessed 51 banks in an adverse scenario, was No. 2 after German development bank NRW.Bank, which isn’t listed on a stock exchange.

Sweden’s biggest mortgage bank would still have a CET1 ratio of 23.1 percent of risk-weighted assets in the EBA’s worst-case model. Finnish, Norwegian and Danish banks were also among the best capitalized in the tests.

The results confirm the appeal of additional Tier 1 notes -- the riskiest category of bank bonds -- issued in the Nordic region, according to Danske Bank A/S analysts Katrine Jensen and Lars Holm.

“Overall, it was a non-event for the Nordic banks and is likely to provide some relief to the market as the conditions of the European banks look reasonable,” the analysts said. Though some may find the tests “too lenient,” Danske’s view is that the “results confirm the strength of the Nordic banks and the Nordic AT1s remain attractive from a relative value perspective.”

A 2020 dollar-denominated 5.75 percent AT1 note issued by SEB AB was singled out by Danske as being “attractive as it has under-performed peers recently.”

Jonathan Tyce and Arjun Bowry, analysts at Bloomberg Intelligence, note that the strong performance means “Nordic lenders may look to lobby national regulators over the size of required capital buffers,” according to a report published on Monday.

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