“The crisis treated us differently to many other banks,” says Lauri Iloniemi, head of group funding at Pohjola Bank in Helsinki. “We have been over-liquid throughout the crisis, so anything we do in the markets is more to do with matching our maturity profile rather than raising funds. Since we don’t have as much funding need as many of our competitors, we have the luxury of waiting for good windows. We don’t have to use the market whenever it is open.”
The Finnish lender is of course not the only bank that targets favourable conditions, but its strategy in the senior unsecured market this year certainly proves Iloniemi’s point.
Pohjola waited a full four months before launching its first senior deal of 2013, and it did so into what still stand as the best issuance conditions of the year in that market. Crédit Agricole, HSBC and JP Morgan joined Pohjola’s own investment bank on May 7 to sell a €500m no-grow five year deal that attracted €2.5bn of demand from more than 160 investors.
And despite coming with a negative new issue premium at 50bp over mid-swaps, the bonds outperformed a tightening market to trade nearly 10bp tighter by the end of the week. The bank returned to print another five year deal at the end of August, after watching spreads grind steadily tighter over the summer.
Finn demand
FIG bankers attribute the issuer’s following to the strength of the jurisdiction in which it operates. Finland was one of very few Western economies to emerge from the 2008 crisis with an enhanced reputation for financial strength. And while other sought-after Nordic credits like Nordea have more sprawling businesses across the region, Pohjola is one of the only ways for FIG investors to get exposure to pure Finnish risk.
But despite its more local footprint, Pohjola is a multi-currency issuer. It is an end user of euros, but watches the basis swap into sterling and dollars closely. A favourable sterling swap rate has seen Pohjola do the bulk of its 2013 private placements so far in that currency.
“We have done quite a lot of private placements in the last 12 months, especially in the one year to 18 months bracket in different currencies,” says Iloniemi.
“The point of that is to extend the maturity of our short term funding, our Euro-commercial paper funding, which is typically around three months. In addition to that through the crisis we have increased our share of long term funding both in covered bonds and senior unsecured funding.”
One such extension trade was a €10m five year floating rate note sold through DZ Bank on August 5. In the private market, too, the issuer has bided its time, with a €200m one year floater through RBS on August 2 its first of 2013 in euros.
Pastures new
A modest funding need has not stopped Pohjola trying to broaden its borrowing sources, but it did mean having to pick only one foreign market in which to build a new public benchmark curve this year. That market was Japan.
Lead managers Daiwa, Nomura and SMBC Nikko sold ¥30bn (€230m) of bonds across three tranches of Pohjola Samurai bonds in June — fixed rate paper in three and five year maturities and a five year floater.
“The Samurai was purely to diversify our investor base,” says Iloniemi. “We did a relatively small deal in order to have a shelf in one year’s time that will make the issuance process much easier. We have made a long term commitment to the Japanese market. We are aiming to use it once a year, to attract the type of investor that would otherwise not participate in our public issues.”
Pohjola has a funding target of around €4bn across senior unsecured and covered bonds for 2014. It has not printed in the latter format since a €1.25bn five year in May 2012, but investors can expect a new covered bond late this year or early next. Unlike in many European countries, both loan books and deposits are still growing in Finland.
So while the job of selling his bank’s credit story to investors may have been made easier by the events of 2008, Iloniemi’s hours are longer as Pohjola is marketed more — and more widely — today than it was before the crisis.
“Being Nordic has been a blessing during this crisis, there is no doubt about that,” he says. “There are not many well rated banks left in the world, and Pohjola is one of them. It helps that Finland is one of the best rated European countries and has been for some time. All of this makes it much easier for me marketing Pohjola to investors.”