Swedish mortgage lenders are readying to enter the covered bond market, with the first issuance out of Sweden expected by the beginning of next year. With an outstanding residential mortgage pool of about €130 billion, the Swedish market is more than twice as large as Ireland's, the last country to introduce the funding instrument. The Swedish Ministry of Finance introduced covered bond legislation in July, but issuers are waiting for clarification from the Swedish Financial Supervisory Authority, due Sept. 21, and opinions from the rating agencies, which are expected by the end of the year.
The three most likely candidates to open the market are Nordea Hypotek, Stockholms Enskilda Bank BoLån and Sveriges Bostadsfinansierings-aktiebolag, according to Jonny Sylvén, head of credit research at Swedbank Markets in Stockholm. "The smaller banks, namely Nordea, SEB BoLån and SBAB are likely to be the leaders," said Sylvén. He added the first covered bonds will likely be conversions of existing unrated mortgage-backed bonds, of which there are about €105 billion outstanding in total. Banks with smaller pools and predominantly domestic investors will be able to convert their bonds more quickly, he said. Spintab, a subsidiary of Swedbank and the largest mortgage lender in Sweden with over €45 billion in loans on its books, will likely take a little longer, as will Stadshypotek, which is owned by Handelsbanken.
"We are just waiting for the regulatory framework to be finalized and for the opinion of the ratings agencies," said Fanny Borgstrom, head of funding at Nordea in Helsinki, adding that she doubted any covered bonds would be issued before the end of this year. Mikael Angervall, risk controller at SEB BoLån in Stockholm, said that since covered bonds would offer cheaper funding, banks wanting to remain competitive wouldn't have any choice but to participate in the market once it became viable. Spintab CEO Jan Lilja was in meetings late last week and could not be reached for comment before press time.
