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Danske Bank Trade Rec: Buy LFBANK 3.75% 29s Preferred Senior

FINANCIALS


  • LF Bank's 3.75% 29s is one of the longer Nordic preferred seniors on the market and and Danske feel it offers a competitive spread relative to other Nordic banks. The bond has seen a compression of ~20bps since pricing on 10 Jan with further tightening likely.
  • LF Bank generally issues at most one EUR senior transaction annually, indicating a low probability of additional EUR-denominated supply this year.
  • A positive outlook revision from S&P in late Nov enhances the potential for an upgrade, aligning LF’s rating with that of SBAB but with a higher spread. LF Bank's rating reflects that of LF Alliance, offering resilience against broader banking sector woes.
  • The bank has minimal exposure to the Swedish property management sector, with less than 5% of total lending in this area. LF's mortgage portfolio is conservatively structured, with 85% having an LTV below 50%.
  • Historically, LF prices with a pickup over SBAB, which narrows towards 10bp during stable periods, currently offering a 30bp premium over SBAB.
  • Risks to the trade include LF Bank's reliance on wholesale markets which could pose challenges if market access is restricted. Increased mortgage competition in Sweden has also led to margin pressures, which could impact LF due to its lower proportion of deposit funding.
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