Edward Russell-Walling reports on what is likely to be Sampo Bank’s last conventional bond issue before it enters the covered bond market.
It was a case of April showers in the bond markets, as the General Motors downgrade dampened investor enthusiasm for non-government issues.
Finland’s Sampo Bank stayed out of the wet, however, with a nicely judged €500m offering that was nearly twice oversubscribed.
This was also likely to be the bank’s last conventional issue before it enters the covered bond market later this year.
Measured by capital and assets, Sampo Bank is the third-largest Finnish banking group, after Nordea and OP Bank. On the ‘we try harder’ principle, it lays particular emphasis on service, a strategy that has proved particularly effective in the long-term savings market. It is now market leader or runner-up across all Finland’s investment and savings segments, and has recently been winning awards for its fund management and private banking services.
Sampo Bank’s roots lie in the Post and Savings Bank, founded in the 19th century, and it has some 1.1 million retail customers. But it has also been strengthening its position in corporate banking, where it now ranks second in Finland, with around 100,000 corporate and institutional clients. Since 2000 it has acquired banking operations in Estonia, Lithuania and Latvia, on the basis that they are not only close physical neighbours but are also exhibiting strong growth – especially now that they are part of the EU.
Group dynamic
The bank is wholly owned by Sampo plc, listed on the Helsinki Stock Exchange and itself the product of some energetic mergers and acquisitions over recent years. Sampo Bank is one of three main group legs. Another – the largest profit contributor – is If, the largest non-life insurer in the Nordic and Baltic region. The third, and smallest in profit terms, is Sampo Life. The group is also active in the fund management and estate agency segments under the Mandatum and Realty World brands respectively.
The group’s funding needs are managed centrally by its head of group treasury and funding, Martti Porkka. The holding company has not raised equity finance since the late 1980s and, indeed, has been returning capital to shareholders. Mr Porkka says there is no prospect of a share issue in the foreseeable future. “The holding company is very well capitalised and the operating companies fund themselves,” he explains.
The unrated life insurance subsidiary, he continues, focuses on unit-linked business and has no need for capital strengthening. If, which is rated A-/A2, has no immediate capital needs, though it does come to market occasionally and has two outstanding bond issues. “Some refinancing is possible in the future,” Mr Porkka observes.
The A-/A1 rated Sampo Bank, by contrast, is a more frequent issuer in senior and subordinated notes, and has outstanding euro medium-term note and European commercial paper programmes with respective sizes of €5bn and €1.5bn. Last year it raised some €1.7bn in 25 transactions.
The bank’s 2.5-year April issue followed a visit to the bond markets in March, when it raised €300m in three-year paper. April’s joint bookrunners were Sampo Bank itself, UBS and Goldman Sachs, and the €500m issue was aggressively priced at 9 basis points over a Euribor benchmark. The book attracted orders worth over €900m and was over-subscribed in the first hour and a half. Three days later it was trading at 8bp-8.5bp over.
A good fit
“Sampo Bank has a solid market position and is seen as a very good credit,” notes Mr Porkka. “Because of the turbulence in the market, a short floating rate note was seen to be very good at that moment and was an easy one to sell. We were looking for a short maturity and 2.5 years happened to fit our own liability purposes.”
Now the bank intends to diversify its funding sources by issuing covered bonds. It has announced that its subsidiary, Sampo Housing Loan Bank, will come to market with an inaugural covered bond after the summer break. The bank’s housing loan portfolio grew by 15% last year to reach some €6bn, out of total Sampo Bank assets of €20bn.
“New Finnish legislation passed in 2000 makes it easier to issue covered bonds,” Mr Porkka explains. “We have a high quality mortgage portfolio in the bank, and believe we can benefit from cheaper funding with a guaranteed product.”
The bank is targeting an initial issue size in the region of €1bn.
“That would be a good benchmark for the market,” Mr Porkka maintains, “and would definitely take care of our funding needs for the rest of the year. We intend to be a frequent issuer in covered bonds and plan to issue once a year in the years ahead.”
