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Index-linked bond Commodity Trend

Basic and Extra

It is historically typical of commodities to follow strong cycles, meaning that prices rise and fall in long trends. If we review commodity prices during the past 80 years, real (inflation adjusted) prices have risen next to none; in other words, the average price level is the same as in the 1920s. Nominally commodity prices have of course risen, but slower than the general rate of inflation.

In the past years the prices of several commodities, such as oil, metals and agricultural commodities, have risen significantly. Last autumn, however, the financial crisis and global recession pulled prices into a steep decline. Currently the demand for several commodities is weakening faster than producer countries can cut down their production. This means that commodity prices could be in a long declining trend.

Nordea’s index-linked bond Commodity Trend is a way to benefit from the rises and declines of the commodity market. Commodity Trend deviates from the common “buy and hold” commodity investments in that it offers potential yield also in falling markets. Yield calculation is based on the historically cyclic nature of commodity prices, which means that the prices go up and down in trends. This coincides with the prevailing market view in which grounds for both rising and falling prices can be found.

Two alternatives in index-linked bond Commodity Trend - Basic and Extra

At maturity, the yield of the Basic index-linked bond suitable for cautious investors is 65% of the rise of the reference index in accordance with the issue terms. The alternative Extra suits investors who tolerate limited risk and seek a higher return. The yield on the investment is 110% of the rise of the reference index in accordance with the issue terms. When the reference index falls or remains unchanged, no yield is paid and the investor loses the amount paid above par value (in the Extra index-linked bond about 10%).

In both alternatives maturity is approximately five years, and the nominal capital is repaid at maturity irrespective of the performance of the reference index. The investment can also be sold before maturity, in which case the repurchase price may be above or below the nominal value depending on market performance. In the secondary market the index-linked bond can be bought and sold on the first business day of each month.

The investment includes a risk of Nordea’s repayment capacity. Nordea’s credit rating is Aa1 (Moody’s) or AA- (Standard & Poor’s).

Reference index – Standard & Poor’s Commodity Trends Indicator Price Return Index (S&P CTI)

The S&P CTI index depicts the price development of commodities in both rising and falling markets. The index comprises sixteen different commodities divided into six sectors: energy, industrial metals, precious metals, softs, livestock and grain. Deviating from a customary commodity index, commodity prices do not have to rise in order for the index to perform positively. A falling price can also have a positive effect on the performance of the index. The essential thing is that prices either go up or down and this price trend has been recognised. Further information on the index and its operation is available in a separate appendix and on the Internet at: www.cti.standardandpoors.com.

The performance of the reference index (S&P CTI, a customary commodity index (S&P GSCI) and the global equity markets (MSCI) in Jan 2003 - May 2008
(Starting level indexed at 100)

The presented figures apply to previous yield or value performance and no reliable assumptions on future yield or value development can be formed based on them.

Diversify your equity and fixed income portfolio by investing in commodities

With commodities you can spread the risk related to a conventional equity or fixed income based portfolio. The historical price development of commodities has not followed the general development in equities or fixed income instruments. By investing in commodities you can improve the yield-risk ratio of your portfolio. A wider diversification is recommendable as it will enable you to reach the expected yield level at a lower risk or higher yield expectations without increasing risk.

Terms of issue in brief

Issuer	Nordea Bank Finland Plc, credit rating Aa1 (Moody’s), AA- (S&P).
Issue date	12 Jan 2009
Due date	20 Feb 2014
Subscription period	12 Jan–19 Feb 2009
Places of subscription	Nordea Bank Finland Plc and it´s branches in the Baltics
Subscription price	Basic 4215A: variable, about 100% Extra 4215B: variable, about 110%
Minimum subscription	EUR 1,000
Yield at maturity	Basic 4215A: 65% of the rise of the reference index as provided by the issue terms. Basic 4215B: 110% of the rise of the reference index as provided by the issue terms.
Reference index	Standard & Poor’s Commodity Trends Indicator Price Return (Bloomberg: SPTICDP Index).
Starting value	The official closing value of the reference index as on 24 Feb 2009.
Closing value	The average of the monthly closing values of the reference index starting on 6 Aug 2011 and ending on 6 Feb 2014.
Repayment of principal	As the issuer, Nordea Bank Finland Plc will repay the nominal capital of the index-linked bonds in full at maturity irrespective of the performance of the reference index. The index-linked bonds involve a risk of the issuer’s repayment ability.
Early redemption:	Early redemption is possible only if a hedging instrument has to be dissolved due to amendments to law or legal praxis.
Security	The index-linked bonds are unsecured.
Structuring cost	The subscription price includes a structuring cost, which is about 0.8% pa (see the issue terms). No separate subscription or management fee is charged on the index-linked bonds.
Secondary market	The issuer Nordea Bank Finland Plc quotes a repurchase price for the index-linked bonds on the first business day of each month. The price may be lower or higher than the nominal value. The bank must be informed of possible redemptions before the turn of the month.
Taxation	No tax is deducted at source for non-residents in Finland.
Custody	Free of charge with Nordea Bank Finland Plc.
Cancellation of issue	The issuer has the right to cancel the issue based on changes in the economic circumstances or if the total amount of subscriptions is low, or if something should occur that the issuer considers might endanger the issue.

An application will be made for the index-linked bonds to be listed on the Helsinki Stock Exchange.

Yield table for index-linked bond Commodity Trend Basic and Extra

Change in the reference asset according to the terms of the issue	Commodity Trend Basic		Commodity Trend Extra
	Issue price ca.	100 %	Issue price ca.	110 %
	Participation rate	65 %	Participation rate	110 %
	Value at maturity	Return p.a.	Value at maturity	Return p.a.
-50 %	100 %	0.0 %	100 %	-1.9 %
-25 %	100 %	0.0 %	100 %	-1.9 %
0 %	100 %	0.0 %	100 %	-1.9 %
25 %	116 %	3.1 %	128 %	3.0 %
50 %	133 %	5.8 %	155 %	7.1 %
75 %	149 %	8.3 %	183 %	10.7 %
100 %	165 %	10.5 %	210 %	13.8 %

Loans 4215A and 4215B under the MTN programme (a medium-term note programme reported to the Finnish Financial Supervision Authority from Sweden in accordance with the Prospectus Directive) of Nordea Bank AB (publ) and Nordea Bank Finland Plc dated 4 June 2008. The loan-specific terms are available at the places of subscription.

Market review

The recession in world economy and the international financial crisis dragged the oil prices into a sharp downfall last autumn. The prices have fallen as much as 70 per cent from the top figures of July 2008. The massive sales waves of funds have caused a strong downturn of the prices, in addition to factors of real economy. At present, oil demand is weakening faster than the producer countries can cut down their production, which leads to continued pressure for price decreases in the first half of 2009. Demand has weakened particularly in the OECD countries more than expected, and OPEC has had to reduce its production three times since the beginning of 2008. In the longer term, however, the oil price prospects are different. The world’s oil reserves are depleting fast, and the low prices hinder investments in long-term capacity. Even though the oil fields already in production are profitable, it is possible that new projects will have to be waived due to low prices and the complex financial situation. The effects of production cuts will be clearly reflected in the prices once the sharp fall in demand will have eased off. The slowdown of investments and restrictions in getting finance will probably cause capacity pressures when oil demand picks up towards the end of 2010. As the needs for energy are increasing, the deficiencies in capacity investments may lead to extremely strong pressures for raising the prices.

During the boom of the world economy the prices of industrial metals rose notably. Last autumn, after the downturn of industrial production in the world economy, also metal prices fell sharply. The rise during the boom melted away altogether, and no similar fall has been recorded in post-war history. The price decrease was also strongly affected by the dip in demand in the emerging economies, especially in China. The outlook for industry is expected to improve towards the end of the year, but the pace will be slow in 2010 as well. Although we have seen a drastic downfall in metal prices, the bottom has not necessarily yet been reached. Decreased demand has piled up stocks, and investors’ interest has weakened. In fact, prices are expected to fall in the early months of 2009 and reach balance only towards the end of the year. The financial crisis and decreased investments will no doubt cause risks, too. The prices may rise sharply as the world economy starts to recover as the growth in the emerging markets will require plenty of raw material in the future. The probability of this scenario is the higher the deeper and longer the recession is.

In recent years prices have also risen in the grain market and continued to do so until the grain prices reached the peak in 2008 and started to fall. One reason behind the overheating has been the increase in demand, especially in the developing countries, and weak crops in general. Despite the decreased prices, the prices of corn and soy bean are expected to stay higher than the average level in 2009. The price of wheat may also experience pressure, since low prices and small stocks are likely to lead to weakening supply in the near future.

Source: Nordea Economic Research and J.P. Morgan