Danske Bank is establishing a Swedish covered bond issuer that will ultimately fund Swedish residential mortgages that have hitherto backed its Danish legislation ‘I’ pool, with the latter becoming a Norwegian-only programme and its ‘C’ pool possibly evolving likewise afterwards.

Alongside a Finnish issuer and a Danish legislation programme backed by Danish mortgages (its ‘D’ pool), Danske has issued covered bonds off I (international) and C (combined) Danish legislation programmes backed by a mix of Swedish and Norwegian mortgages, with the I pool comprising only residential mortgages and the C pool a mix of residential and commercial mortgages. (It also issues Danish-style match-funded covered bonds via subsidiary Realkredit Danmark.)

The bank announced yesterday (Tuesday) that Norwegian assets will remain in the I pool, which will in time be exclusively Norwegian, while Swedish assets in the I pool will migrate into a new Swedish pool managed by a new mortgage institution under Swedish law. Danske said this will be operated as a domestic Swedish covered bond programme “with all that this entails”, citing the governing law, tap issuance and market-making, for example.

“We have ambitions to strengthen our market position in Norway and Sweden, and intend to adjust our covered bond funding structure accordingly,” said Danske.

“This adjustment to our cover pools will bring our covered bond funding structure in line with that of our biggest Nordic peers, providing the best possible access to funding in both Scandinavian and international currencies.”

Danske expects to issue Swedish krona covered bonds out of the new Swedish issuer from the beginning of 2017 at the earliest, based on applications to the Swedish FSA in respect of the programme in the first half of this year.

The issuer has seven euro benchmarks totalling Eu7.75bn outstanding off the I pool and three totalling Eu3bn off the C pool.

The I programme has some Dkr106bn (Eu14.2bn, Skr132bn) of issuance outstanding and the cover pool is split 51% Sweden, 49% Norway. Danske said that, subject to pool dynamics and market conditions, the current share of Swedish assets in the I pool allows for a migration of Dkr53bn (issue-equivalent) by the end of 2018, implying that the I pool will no longer contain Swedish assets after 2018. The maturity profile of outstanding I pool covered bonds will be respected, the bank said.

The C pool – which has Dkr44.5bn of outstandings and is split Sweden 72%, Norway 28% – will retain a significant share of Swedish “residential-like” assets until at least 2020, according to Danske, after which eligible Swedish assets may migrate into the Swedish programme. The group said that 23% of C pool assets are expected to be eligible for the Swedish programme (co-operative and rental housing).

“The Swedish covered bond programme will to a high degree be focused on Swedish krona funding, whereas the I pool will be partly dedicated to Norwegian krone issues,” said Danske. “Nonetheless, both pools will have the option to issue in other currencies.

“Danske Bank expects to continue to issue euro covered bond benchmarks on a regular basis from both the I pool and the C pool.”

Triple-A ratings from Standard & Poor’s and Fitch for the I and C programmes are not expected to be affected, with Danske also expecting a triple-A rating for the new Swedish programme.

The Dkr53bn (Eu7.1bn) figure cited by Danske in relation to how much it could transfer to the Swedish issuer compares with Eu213bn-equivalent of Swedish covered bonds outstanding as of the third quarter of 2015, according to the Association of Swedish Covered Bond issuers (ASCB).