Nordea, DNB to merge Baltic operations

Riga /AFP

Two Scandinavian banks, Nordea and DNB, announced on Thursday they will merge operations in Baltic eurozone members Estonia, Latvia and Lithuania.
Their new bank will be the second-largest financial institution in the region behind market-leader Swedbank, with assets worth 13 billion euros ($14.6 billion) and more than 3,000 employees.
“Nordea and DNB have entered into an agreement to combine their operations in Estonia, Latvia and Lithuania to create a leading main bank in the Baltics with strong Nordic roots,” a joint statement issued by the banks said.
“Now it is time to take the next step and build for the future. Together we will have the scale, stronger geographic presence and broader a product offering, enabling us to become the main bank for customers in the Baltics,” said Inga Skisaker, who heads the Swedish Nordea’s Baltic state
operations.
“Scale is key in banking today, with larger banks having more efficient use of resources. The new bank will be better equipped to counter increasing competition in the region,” said Mats Wermelin, head of Norway’s DNB’s Baltic division.
The move will not affect other markets, in which the two banks will remain entirely separate and competing banks.
The announcement is subject to regulatory approval, and the merger is likely to be complete by the middle of 2017, the banks said.

Nordea plans more synthetic swaps after doing $9.5 billion deal

Bloomberg

Scandinavia’s biggest bank says it’s planning to do more deals to remove risk from its balance sheet through synthetic swaps after completing the region’s first such transaction.
Nordea Bank AB said it found investors to buy notes linked to the junior credit risk of an $9.5 billion chunk of its loan portfolio. The transaction, which was arranged by Barclays, JPMorgan and Nordea Markets, creates enough “credit loss protection” to cover both “expected and unexpected losses,” the bank said.
“We are in a position to look at doing more deals,” Tom Johannessen, head of group treasury and asset liability management, said, “I would hope to be able to start thinking about doing another deal within the next six to 12 months.”
Nordic pension funds were “anxious to work with” Nordea, but didn’t make it “over the finishing line” because of the “relatively accelerated time frame for this first transaction,” Johannessen said.
“I feel really good about the feedback from them as to what the next structure might look like,” he said. The deal, the largest of its kind in Europe this year, is a seven-year credit default swap that provides protection against losses on the first 5 percent of the portfolio, or roughly 420 million euros, he said.
Coupons on similar trades in Europe have ranged from around 10 percent to 12 percent, according to Johannessen. Any losses would lower the return.
Nordea expects to have to meet a minimum requirement of common equity Tier 1 capital ratio of 17 percent, after the FSA imposed tougher rules on the risk weighting of corporate assets. The bank’s capital by that measure was 16.8 percent at the end of June. Johannessen said the bank has worked hard to ensure the synthetic swap meets with approval from Sweden’s Financial Supervisory Authority.
“We always have at the back of our minds what our regulators want,” he said. “The regulator is the key business partner around these type of transactions. They must be on board, and that is the driving force behind the thinking in our transaction.”
The swap doesn’t require the FSA’s approval, but the agency needs to verify that the risk has actually been transferred. According to S&P Global Ratings, such transactions are at the very least credit neutral and may be credit positive, because investors would absorb any losses in the underlying loan portfolio.
So far, synthetic securitizations like the instrument Nordea has issued have yet to win preferential regulatory treatment because of their complexity. But the European Commission and the European Banking Authority have signaled some instruments, namely those like Nordea’s that transfer credit risk, could be eligible if they meet specific criteria.