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Top Investors Shun 12% Bank Returns in Nordics Amid New Risk Era 

August 29, 2016

Frances Schwartzkopff, Bloomberg

It may seem odd to turn down returns of 12 percent in these days of negatives yields, but that’s what some of the biggest investors in the Nordic region are doing.

The assets are synthetic securitizations, in which banks turn credit risk on their balance sheets into notes and pay investors to hold them. Nordea Bank AB closed the first such transaction in the Nordics last week. Investors agreed to absorb the first losses of as much as 420 million euros ($473 million) on a select portfolio of corporate loans.

Nordea declined to say what coupon it’s paying, beyond noting the range is 10-12 percent for similar instruments offered elsewhere in Europe. But for some of the Nordic region’s biggest institutional investors, that’s just not enough given the perceived complexity and risk structure entailed.

Carsten Stendevad, chief executive officer of Denmark’s ATP pension fund, which has about $120 billion in assets, says he doesn’t like the idea of “being first to take losses” because the fund’s simply not equipped to gauge the likelihood of that happening. Stendevad said he would prefer sharing risks with banks more evenly. Read more

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