Now Danske Bank admits to loaning 40 bio. DKK in the ECB.
This is hardly a surprise to regular readers. The amount has been bandied around for about ½ a year in connection with Danske Bank – and is has been a bit difficult to trace it. First substantial clue was in an open consultation on a parliamentary committee from the prime minister Helle Thorning-Schmidt, where she had to explain Danish participation in the EU stability pact. There she confirmed that the Danish Central Bank was going to put up 40 bio. DKK.
Another clue was the distinct lack of cash Danske Bank exhibited at the end of the year 2011.
The next clue was when Sarkozy snubbed her when he was talking with Merkel. Thorning-Schmidt took it with reasonably good grace. Now it seems the probable reason was, that there was some justification. Danske Bank was mucking about with the Euro – funding their worthless no-interest deferred payment real estate bond through their German subsidiary. Sarkozy was perfectly right in pointing out that Denmark should control their own mental patients in the banks.
The problem was that the Central Bank would not accept Danske Banks own issues as collateral – which is only common sense – so they had to move via the ECB. So far things are tidied up.
But what is more surprising is the news that on top of that Danske Bank borrows 15 bio. DKK in the Danish Central Bank at a rate of .7% (in contrast to ECB’s 1.0%). This makes one raise the chair to upright position. Furthermore we are informed than instead of “good” loans Danske Bank offers bonds as collateral.
To have some foundation for the guesswork lets try the method of elimination:
- It cannot be sovereign bonds – come on – Danske Bank is flat broke!
- Neither can it be Realkredit Danmark (owned by Danske Bank) issues, as “Uncle Nils” simply won’t have it. He may be daft; but not that daft.
- NyKredit/Totalkredit isn’t a possibility either: Neither is the amount near sufficient nor is the need there as Nykredit junk is presumeably placed in affiliate banks, some of which do have a significant surplus of deposits: They are probably broke, all right; but they do have cash. The Central Bank offers an insulting low interest rate, so you might as well place them in garbage.
- Nordea is excluded as it is in reality a Swedish bank – and their mother bank would have to raise the necessary cash before turning to the Danish Central Bank. Let the devil take care of it’s own.
This leaves us with mortgage bankings charming sociopath BRF (why be irresponsible, when can be destructive to excess?) – it is the smallest of the Danish mortgage banks and has been a zombie for years, so they need a helping hand. Why should Danske Bank do that?
- When BRF flops, pandemonium breaks loose and BRF would true to form choose the generally most inconvenient timing.
- For the time being BRF has kept their foreclosed properties hidden in a maze of parking-cellars (bankrupt patsies functioning as strawdummy owners) – if these rental blocs are released uncontrolled there will be evictions left right and enter – better avoid that. That will come as the brand new regulations are let loose among the financial bookkeepers – or should I say: Bookmakers?
- Now Danske Bank isn’t going to forward their creditworthiness (what pathetic shreads that are left) to shore up BRF. Neither would I.
- But Danske Bank might borrow the money in the Central Bank, buy the junk bonds and forward them to the Central Bank as collateral. Thus getting the spread between the Central Banks lending rate and the interest rate of BRF junk.
On a global scale we are talking chicken feed; but that’s what crisis management is all about: Disentangling problems – one by one.
Don’t get me wrong: It is quite skilfully done.