Equities: Swedish banks show rights issues can still work

The Swedish banks face an immediate but probably manageable problem in bad loans to borrowers in the hard-hit Baltic states and see looming the bigger and less quantifiable worry of just how badly the European and global recession will hit corporate and retail borrowers at home in Sweden.

As they seek the capital they need to survive mounting loan losses, Swedish banks have one key advantage over banks in the UK and the rest of Europe. They each tend to have one or two large reference shareholders that can anchor an equity capital raising by publicly affirming their intention to subscribe to their allotted rights – and even by underwriting beyond their pro-rata entitlement – so giving arranging investment banks greater confidence in underwriting the rump of the rights issue and enabling the issuing banks to announce their deals are essentially done from day one.

These deals highlight the value...