Denmark

The Association of Danish Mortgage Banks is exploring the possibility of specialist mortgage banks being allowed to meet the Capital Requirements Directive’s requirement for continuous loan-to-value (LTV) compliance by providing guarantees for the portions of loans that exceed relevant LTV limits, a measure that is currently only available to the country’s universal banks.

Denmark’s mortgage banks, central bank and financial supervisory authority have said that new liquidity rules proposed by the Basel Committee on Banking Supervision and the European Commission pose a serious threat to the Danish mortgage credit system and wider economy and would destroy the country’s model of adjustable rate mortgage (ARM) lending.

Standard & Poor’s removed 10 covered bond programmes from review after affirming their ratings at AAA on Friday, but downgraded five programmes and these remain on review. The actions were taken on the last day of a four month period by the end of which S&P said it aimed to have resolved all 98 ratings it placed on review in December after introducing a new methodology.

With more than Eu4bn of benchmark issuance priced yesterday (Wednesday), there were no signs of the covered bond market slowing down after a record first quarter. And pricing at the tight end of guidance for three new benchmarks showed spreads holding up under the heavy supply.

Spread guidance on new issues launched this (Wednesday) morning was wider than levels heard yesterday, but with re-offers ultimately fixed at the tight end of guidance, syndicate bankers were speaking of a good day for covered bonds. Meanwhile, Spanish supply emerged in the form of two taps.

Stadshypotek and Société Générale today (Tuesday) announced mandates for benchmark covered bonds that market participants said are likely to be launched tomorrow (Wednesday). At least one other issuer is said to be planning to access the market, despite a short working week and reduced investor availability due to the Easter holidays.

Nykredit is today (Tuesday) nine days into an auction of Danish covered bonds and mortgage bonds that lasts until Thursday and is intended to reduce the volume of bonds that are refinanced during the country’s traditional end-of-year auctions. Ten times more is being auctioned than last March.

The Danish government is planning to amend the country’s covered bond framework to rectify an imbalance that has been in place since new legislation was introduced in 2007, but market participants have played down the impact of the change.

Standard & Poor’s on 30 December changed its outlook on Nykredit Realkredit’s A+ rating from stable to negative because of pressures on its banking operations, but said that the asset quality of the group’s core lending business remained resilient.

Denmark’s mortgage banks have sold a record volume of mortgage bonds during the country’s traditional end-of-year auctions that are held to refinance variable rate mortgages. But very high bid-to-cover ratios suggest the large supply was easily absorbed.

Danmarks Nationalbank will accept junior covered bonds as collateral for credit on a permanent basis from February 2010, the central bank has announced.

Moody’s yesterday (Monday) downgraded Nykredit Realkredit’s junior covered bonds from Aa2 to Aa3, concluding a review for possible downgrade initiated on 11 September.