Nordea 'Very Active' in U.S. Money Market as Reform Deters BanksBy
Biggest Nordic bank says its high ratings are proving key
Nordea plans to issue more commercial paper, CDs to U.S. funds
The biggest Nordic bank is among an elite group of issuers undeterred by the most dramatic reform to hit the U.S. money market in over three decades.
While some European lenders have found it hard to access the dollar market since new regulations went into effect last year, Nordea Bank AB says it’s offered almost $1 billion in certificates of deposit already this year, and is planning more offerings, also in commercial paper.
“We will keep the door open for further issuance,” Jaana Sulin, head of short-term funding at Nordea in Helsinki, said by phone. “We are still very active both in CDs and CP out of the U.S. market.”
The U.S. money market last year underwent the most sweeping change in more than 30 years, with funds giving up dollar-for-dollar guarantees for floating values after years of wrangling with regulators. That triggered a shift by investors of more than $1 trillion into government-only funds and away from so-called prime funds that buy banks’ and other corporate issuers’ certificates of deposits and IOUs.
“When you look at the general market today, most European banks can’t issue six and 12 months anymore because of this reform,” Sulin said.
The rules, which took effect on Oct. 14, also set new standards for the credit quality of the papers that money market funds can hold even as requirements for credit company ratings were removed. (The industry already had faced a 50 percent cut in the allowed weighted average maturity, to 60 days, from 90, a measure adopted shortly after the financial crisis. A measure of interest rate risk, WAM is calculated by using the time to maturity or next interest rate reset for each asset.)
But banks would rather issue longer-dated papers, Sulin said. Longer maturities mean more stable funding, which is a goal of bank regulators. Issuing longer maturities also makes it easier for banks to meet liquidity requirements.
The clash in regulations has created a headache for issuers, Sulin said. Banks are “required to issue longer short-dated paper to be more solid” while the investor gets “pushed the other way around.”
“Meeting in the middle is a challenge for the market,” Sulin said.
But for Nordea, its ratings are helping. Funds are willing to buy its instruments at the longer end of the short-term horizon if the ratings are right -- and Nordea’s are, Sulin said.
Funds that have to meet so-called 2a-7 rules “have to have very high quality papers if investing into longer durations, and that’s where Nordea is an attractive issuer,” Sulin said. “We’re AA rated. So they can still invest in our papers.”