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Weekly Credit Strategy Update

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Spreads are slightly tighter in an uneventful week

Fri, Sep 25 2009, 09:40 GMT
by Danske Research EmergingMarkets Team

Danske Bank A/S

Summary

• Spreads are slightly tighter in an uneventful week
• Rights issue from DnB NOR and hybrid issuance from SEB
• Headlines from the credit market this week

CDS indices have moved tighter compared with last week (if taking into consideration the roll of the indices on Monday which took XO index up by approximately 80bp). The new series 12 indices trade at 84bp and 575bp for investment grade and high yield respectively (the old XO series 11 currently trades at 490bp).

In the primary market, the pattern we have seen in recent weeks continues – namely that more and more unrated names are coming to the market taking advantage of the continued rich vein of cash available for credit investors. From the Nordic region, SEB came to the market with a new Tier 1 bond that generated enormous investor interest.

DnB NOR announces rights issue

This morning DnB NOR announced a NOK14bn rights issue. At the same time, the bank announced that it will not participate in the hybrid scheme from the Norwegian government. The deadline for participating in the state scheme is 30 September and DnB NOR had already communicated to the market that it would make an announcement relating to the capital position of the bank before that. The rights issue – which is fully underwritten – will increase the Tier 1 ratio to 11.3% and the core Tier 1 ratio to 10.2% (on full Basel II figures). Thereby DnB moves much closer to its Nordic peers when it comes to headline capitalisation figures. Adjusting for the (harsh) Norwegian rules concerning the capital charge of life insurance operations (Vital), the difference diminishes further. The Norwegian government is participating in the rights issue and will keep its ownership of the bank at 34%. In connection with the release, DnB says that estimates for loan-loss provisions and operating profits for 2009 and 2010 remain unchanged (pre-tax operating profits before write-downs of NOK20bn in 2010, total write-downs of NOK8-10bn in 2009 and NOK10-12bn in 2010).

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Published on  Fri, Sep 25 2009, 09:45 GMT