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Danish news roundup

by JakeS Sun Oct 12th, 2008 at 03:28:33 AM EST

So what's been going on in the Danish financial sector recently? Well, I've been alluding to a variety of bail-outs, bank failures and general unrest, so I figured I'd bring together what I consider the most important highlights in one place.

Bank Trelleborg - the canary in the coal mine

  • Bank Trelleborg was the first Danish bank in the current meltdown to fail sufficiently spectacularly for the Danish central bank to intervene. The intervention limited itself to arm-twisting, however.

  • Was taken over by Sydbank, who ate the loss after shareholders were wiped out, because they wanted to take over the staff, branches and market share.

  • Reportedly, the management and shareholders were not consulted during the negotiations, they were confronted with an ultimatum: Accept the deal negotiated between Sydbank and the central bank or go bankrupt.

  • Lawsuit ongoing against the former management, whom shareholders accuse of various and sundry forms of fraud.

Diary rescue by afew - originally posted 08/10/2008

Roskilde Bank - A Royal Danish Shitpile(TM)

  • Roskilde Bank was a local bank in the town of Roskilde that turned out to be in over its head in Shitpile(TM) when some of the real estate developers they had lent money to went belly-up.

  • At least one of the failed businesses is under investigation by the tax authorities and financial crime branch of the Danish police.

  • Shareholders were wiped out.

  • Standard depositor insurance covered the first DKK 300 thousand (approx. € 40k).

  • Remaining deposits were guaranteed by the central bank, with the taxpayers guaranteeing the central bank against losses (so in effect they were guaranteed by the taxpayers, with the central bank stepping in to provide money between the failure and the next finance bill).

  • Interbank loans were guaranteed by the same scheme, except for the first approx. € 100 mil. which were guaranteed by an ad hoc entity set up by the other Danish banks.

  • The sound assets were sold off. This, however, took two attempts: During the first attempt, the central bank and the potential buyers discovered massive accounting irregularities necessitating a month-long complete overhaul of the accounting. Whether these irregularities were due to deliberate voodoo bookkeeping or staggering incompetence is as yet unknown.

The net result is that the Danish taxpayers ended up in the hole to the tune of several hundred million €, although precisely how expensive the nationalisation was will only be clear once the sale of the sound assets is completed.

It is also unclear to me how much of the taxpayer money went to bail out depositors who weren't covered by the depositor guarantee (which would have happened in any scenario) and how much went to cover interbank loans. But my guess is that interbank loans are vastly dominant, which would make this a bail-out of the Danish financial sector rather than the depositors (needless to say, it was tabled as a measure to protect depositors...).

The Fogh Bailout Plan - somebody gets fleeced, but I'm not quite sure who...

The Fogh government has tabled a law for fast-track adoption that it claims is supposed to guarantee deposits of any size. Essentially, this scheme sets up a state-owned insurance company that will insure deposits in return for monthly payments from a counterparty formed by the covered banks.

This of course raises three important questions:

  • Which types of deposit are covered?

  • Who bails out the insurance company if it goes belly-up?

  • Which financial insitutions are covered?

A friend sent me a link to the actual text of the proposal, but IANAL, so chewing through the legalese is going to take some time.

From the press coverage, it appears that the scheme will cover ordinary deposits in retail banks - i.e. Joe and Jane Average. But in that case, and if the numbers being reported are true, the banks are getting fleeced (a bailout of Joe and Jane Average was gonna happen no matter what, so why pay on the order of a billion and a half € plus another billion a year for insurance?).

And I can't quite believe that a neoliberal government would fleece the banks. So I strongly suspect that something isn't kosher about this thing. I'll try to wade through the bill and post my results in the comments.

Nyhedsavisen - old news with new implications?

A couple of weeks ago, Nyhedsavisen - a free "news"paper delivered to your doorstep - went belly-up. This was entirely unsurprising at the time: They'd been bleeding money ever since they were launched.

The manner in which it did so, however, is kinda interesting in light of recent events. Normally, a company in financial trouble announces that they will go into bankruptcy proceedings when it becomes clear that they won't be able to make next month's payment. In this case, however, Nyhedsavisen kept going until they had the reporters and the Polish paper boys standing outside their headquarters shouting "we want our money!"

At the time, I put it down to gambling with other people's money. The owners and operators were obviously neoliberal ideologues; why should they feel adverse to keeping on going literally to the last moment, hoping for a miracle? If they had gotten their miracle, they'd have won. If they hadn't gotten their miracle... well, a limited liability company can only go bankrupt - it can't go double-plus bankrupt, so whether you are one million or ten in the red doesn't really matter (as long as you skip town before your former employees catch you...).

But here's the kicker that made me decide to include this as newsworthy: The biznizman - and the money - that bankrolled Nyhedsavisen were from Iceland.

Now, I have no proof, nor indeed even indications, but my nasty, suspicious mind cannot help but think that perhaps Nyhedsavisen was among the first casualties of Iceland's current role as Europe's Argentina.

As an aside, I won't particularly miss Nyhedsavisen: It was the single worst neoliberal rag to ever contaminate my doorstep - including now-(in)famous Jyllands-Posten... Good only in the event that you ran out of toilet paper or kindling for your oven.

Edited to add:

For all the doom and gloom here, remember that this is just the finance sector - and a rather small part of the finance sector at that. As of this writing, the trouble hasn't hit the real economy; in fact it's not even hit the big banks yet. We're still at full employment or the next best thing, and so far it's just been small fry going up in smoke - mostly stuff I'd never even heard of before it went boom (except for Roskilde Bank, but that's because I used to live in Roskilde...).

Furthermore, it appears so far (knock on wood) that the Royal Danish Shitpile(TM) has been created by ordinary, non-financial companies playing accounting games and/or basing their business models on a perpetual boom. As opposed to the situation on Wall Street, where the financial sector itself was doing the pyramid building.

So all in all, I'm not concerned about Denmark yet. Concerned about some people I know who may end up over their heads once the housing market has fully corrected, certainly. But not about the economy as a whole. When unemployment rates start to soar or the major banks are discovered to have played games with their bookkeeping or otherwise be in hot water, then I'll be concerned. Until then - as long as it's just stock gamblers getting burned - I'm happy to roast popcorn over the fire.

- Jake

a couple of handfuls of minor banks have gone belly-up since Bank Trelleborg, but have been gobbled up more or less peacefully by the big ones, with only minimal arm-twisting from the central bank.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 8th, 2008 at 02:18:08 PM EST
Here we have the microcosmos stand-in for the global macrocosmos.

As above, so below.

Sad about Roskilde, beautiful in a Danish way, with buried kings and nuclear research and the world's most experienced windpower lab.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Wed Oct 8th, 2008 at 05:07:39 PM EST
[ Parent ]
Oh, the town will survive. It'll probably get hit a bit on the budget, but it was hardly destitute to begin with and other banks are still doing business.

I am more concerned about the fact that Roskilde Bank's creditors appear to have been bailed out.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Oct 9th, 2008 at 12:25:25 AM EST
[ Parent ]
Don't understand:  creditors bailed out but shareholders wiped out?  What authority can make such decisions?

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Sun Oct 12th, 2008 at 12:27:15 PM EST
[ Parent ]
Parliament. They cobbled together a bailout package when in became clear that there were no buyers for Roskilde Bank, because the Shitpile(TM) was big enough and stinky enough that nobody wanted to take it on.

The details go roughly like this: Management got shafted (except that the management that got shafted wasn't actually the incompetent buffoons who ran things into the ground - they were long gone, taking their big bonuses with them...). Shareholders were wiped out. The rest of the Danish banks paid the first € 100 million towards Roskilde Banks debts, the state paid the rest (which as far as I understand means all its debts - deposits, interbank, the works).

I can't see any scenario in which this is not a bailout of their creditors. And I can't see any scenario in which this is a bailout of their shareholders (since the shareholders were wiped out...).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 12th, 2008 at 02:34:10 PM EST
[ Parent ]
But in that case, and if the numbers being reported are true, the banks are getting fleeced (a bailout of Joe and Jane Average was gonna happen no matter what, so why pay on the order of a billion and a half € plus another billion a year for insurance?).

I doubt they are being fleeced because they are not paying to have "Joe and Jane" covered, they are paying for an enhanced survival probability. The guarantee should diminish the possibility of a run on a participating bank by the ordinary depositors. While you are factually correct in saying that ordinary deposits would be guaranteed in any case (barring financial apocalypse), banks cannot come out and actually explicitly say this. And if given a choice between a bank that joins and one that does not, I think a large number of people would vote with their feet. In that respect I find this interesting:

Some banks may opt out of state guarantee scheme

National Irish Bank (NIB) became the first bank to explicitly opt out of the scheme last week, despite finance minister Brian Lenihan's move to extend the guarantee beyond the original six beneficiaries - AIB, Bank of Ireland, Anglo Irish Bank, Irish Life & Permanent and building societies EBS and Irish Nationwide - to include foreign-owned banks with a significant presence here.

NIB, owned by Danish bank Danske, said it would not take part in the Irish scheme, as a similar bank support scheme arranged by the Danish government would be sufficient for its purposes. Most of the other foreign-owned banks operating here, however, have applied to be included in the Irish scheme.

This makes perfect economic sense: why pay twice for the same cover? However, people in any country will tend (rightly or wrongly) to trust their own government more than a foreign one. It will be interesting to see if NIB's decision ends up hurting their operation relative to the other banks.

by det on Sun Oct 12th, 2008 at 07:09:54 AM EST
[ Parent ]

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