The Danish Covered Bond Market

Transcription

1 The Danish Covered Bond Market

2 Size Matters - Internationally p2 Australia Austria Canada Cyprus Czech Finland France Germany Greece Hungary Ireland Italy Latvia Luxembourg Netherlands New Zealand Norway Poland Portugal Slovakia Spain Sweden Switzerland UK US bn

3 5 212M M7 Public debt 21M M M7 2 27M7 2 26M M M7 3 23M7 Covered bonds 22M M7 bn 2M7 212M7 211M7 21M7 29M7 28M7 27M7 1 26M7 25M7 3 24M7 23M7 22M7 21M7 35 2M7 Size Matters - Domestically bn Covered bond funded lending 1 Deposit funded lending p3

4 Primary Market - A Basic Example Borrower instructs Realkredit Danmark to disburse loan based on 3.5% fixed rate amortising bond (isin DK ) in volume of 1m Realkredit Danmark transfer loan proceeds to borrower Realkredit Danmark loan processing systems generate order to issue 1m in isin DK to custodian and paying agent VP Realkredit Danmark bond trading desk quotes price on loan based on isin DK current market price VP systems issue bonds as ordered to the issuer account Realkredit Danmark bond trading desk sells bonds at Nasdaq OMX issuing submarket Bonds purchased by investors p4

5 Primary Market -Liquidity 2 DKKbn Tap issuance Refinancings Net new lending Gross new lending 15 Lending growth 1 5 Refinancing Remortgaging p5

6 Primary Market - Issuance in unison to grow liquidity DKKbn BRF Kredit Nordea Kredit Realkredit Danmark 5 Nykredit 2%JAN213 2%APR %OKT244 4%OKT214 p6

7 Secondary Market -Liquidity DKKbn Trading repo (Non central bank) Trading non repo Traded on Nasdaq OMX Nordic 1 8 Trade report requirement to 211 turnover ratio No formalised market making p7

8 ASW spread 1Y ASW spread 3Y Bps Pricing Bps CDS spread Danske Bank CDS spread Nordea -1 p8

9 Pricing p9 Pfandbriefe Multi Cedulas Single Cedulas Credit Fonciers UK Covered bonds - In international comparison Bid/Ask spread in bps ASW spread in bps

10 Investors Other Foreign Life and Pension Financials Foreign 14% Life and Pension 18% Other 11% Financials 57% p1 1999M12 2M12 21M12 22M12 23M12 24M12 25M12 26M12 27M12 28M12 29M12 21M12 211M12 DKKbn 212Q3

11 Investors Other Foreign Life and Pension Financials Other Foreign Life and Pension Financials Other 7% Foreign 17% Life and Pension 16% Other 16% Foreign 9% Life and Pension 23% Financials 6% Financials 52% p M12 2M12 21M12 More than 5 years Less than 5 years 1999M12 2M12 21M12 22M12 23M12 24M12 25M12 26M12 27M12 28M12 29M12 21M12 211M12 22M12 23M12 24M12 25M12 26M12 27M12 28M12 29M12 21M12 211M12 DKKbn DKKbn

12 Financial Sector Holdings of Securities - By end 211 Other assets 549bn Danish covered bonds 1,452bn Sovereign debt in short supply LCR concerns Stable demand Systemic importance p12

13 The Lehmann Collapse - How did markets react to severe stress? bn Serie2 Serie1 Jumbo markets closed down 28Q1 28Q2 28Q3 28Q4 Danish Kroner markets rolled on bps Spreads reacted promptly and returned to normal ahead of peer markets p13

14 Rating Danish Covered Bonds - Moody s and Standard & Poor s on different tracks Moody s Standard & Poor s Fitch Ratings Nykredit Ratings withdrawn AAA Pending Realkredit Danmark Ratings withdrawn AAA AAA/AA+ Nordea Kredit Aaa AAA Not rated BRF Kredit Ratings withdrawn AAA Not rated p14

15 The Debacle with Moody s Timely payment indicator adjusted from Very High to High 259bn Review of systemic support in light of Danish resolution scheme +113% 122bn Defaults of commercial banks in Denmark Mortgage banks explicitly exempted from resolution scheme 21Q4 211Q2 p15

16 Standard & Poor s takes more Favourable View - Minimum over collateralisation commensurate with current ratings 2 bps p16

17 Ratings Backed by real Capital - Buffers are substantial All mortgages are funded by covered bonds 25 DKKbn 2 Mortgage banks not in a position to include mortgages as OC 15 Mortgage banks must resort to securities as OC 1 5 Funding is provided by liable capital or senior debt Standard & Poor's Liable capital Senior debt p17

18 Margins on Upward Trend in Defence of Ratings 8 Bps Average Homeowner Margin Average Corporate Margin p

19 Disclaimer This publication has been prepared by Realkredit Danmark for information purposes only and should be viewed solely in conjunction with the oral presentation provided by Realkredit Danmark. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. The Equity and Corporate Bonds analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for retail customers in the UK or any person in the US. Realkredit Danmark A/S is a subsidiary company of Danske Bank A/S. Danske Bank A/S is authorised by the Danish Financial Supervisory Authority and subject to limited regulation by the Financial Services Authority (UK). Details on the extent of our regulation by the Financial Services Authority are avail-able from us on request. Copyright (C) Realkredit Danmark A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission. p19