Danske will likely resume Finnish covered bond issuance in 2018, a treasury official told The CBR, having been absent from the market for almost two years partly as the group set up a new Finnish issuer, which was established this week, giving Danske a “more transparent” pool structure.

Danske Mortgage Bank Plc was incorporated as of Tuesday and the demerger of the mortgage banking activities of Danske Bank Plc – the previous Finnish entity – has been implemented. The establishment of the new mortgage bank is part of a plan to simplify Danske’s organisation and legal structure.

The assets, liabilities and reserves, including issued covered bonds, of the mortgage credit banking business of Danske Bank Plc have been transferred by way of a partial demerger to Danske Mortgage Bank.

The new entity therefore has four benchmark covered bonds outstanding, three fixed rate Eu1bn issues due in 2019, 2020 and 2021, and a Eu1bn FRN due in 2021 (ISINs XS0834714254, XS1325648761, XS0640463062 and XS1533885981, respectively).

The transfer of the bonds was approved in a consent solicitation in May. Danske Mortgage Bank is now issuer and principal debtor of the outstanding bonds, with a guarantee also provided by Danske Bank Plc.

Bent Østrup Callisen, senior vice president, group treasury, Danske Bank, said the documentation required for new issuance from Danske Mortgage Bank has not yet been finalised, and the new issuer will probably return to the covered bond market next year.

“It would be realistic to assume that a new issuance from Danske Mortgage Bank Plc will be a 2018 manoeuvre,” he said. “We are not in a hurry.”

He noted that in the Danske group’s third quarter results, published today (Thursday), the group had announced that its funding needs for 2018 have been reduced from Dkr70bn-Dkr90bn to Dkr55bn-Dkr70bn, because of higher than expected deposit inflows.

Danske’s last benchmark Finnish covered bond came in November 2015, when Danske Bank Plc issued a Eu1bn five year. Danske has continued to issue euro benchmark covered bonds out of Denmark, the most recent a Eu1bn five year in February.

In August, the group’s newly established Swedish mortgage bank, Danske Hypotek, sold an inaugural Skr5bn (Eu526m) covered bond. The deal was backed by Swedish mortgages transferred from one of the parent’s pools, the I-pool, which until now has consisted of both Swedish and Norwegian residential mortgages.

“We are very focused on issuing in Norwegian kroner and Swedish kronor, to better match assets and liabilities, and to cater for the broadest possible market access in support of our customers in all market conditions,” said Callisen. “In euros, we will continue to be an active issuer – I would expect at least one benchmark per year in covered bond format.

“But there are multiple pools that could be used for that, either some of the pools we have in Denmark, in Danske Bank AS, the Copenhagen-based entity, or the pool of the new Finnish entity. The group funding plan includes all cover pools and separate entities, including Danske Hypotek and this new mortgage bank, so we have a holistic view of the funding requirements in the group.”

Callisen said there will be no substantial differences between issuance from Danske Mortgage Bank and the old Finnish entity.

“In the big picture, the covered bonds are the same,” he said. “The pool is the same as before, and it is a Finnish issuer issuing under Finnish legislation.

“With the setup we now have in Danske Bank in relation to the residential cover pools, in Norway – which will be based on our I pool, including purely Norwegian mortgages in time – Sweden and Finland, it will be a more transparent pool structure that will be easier and more straightforward from an investor’s point of view.”