We recently noted Denmark’s huge public debt crisis, which only does not seem like a crisis because the media ignores it. We have been following the situation in Denmark closely and have noted many problems, especially with Danske bank.
Credit Write Downs reported yesterday that The Danish central bank mimicking the ECB’s recent actions, will provide 3-year loans to local banks.
Below is our take on the issue:
Sovereign bonds are always nice; but real estate bonds have
traditionally in Denmark been regarded as on par with sovereign.
The problem is now that the real estate bonds are mainly no-service
variable interest with an AVERAGE Loan/Value ratio of close to the
maximum 80% – due to irresponsible lending to unrealistic house
The only way the Mortgage Banks (and the banks that have lend the
remaining 20% of the grotesque price) can avoid general default among
the debtors is a moratorium – which deferred service on principal and
interest rate below inflation is – to all intents and purposes.
The way to keep interest rate down on the bonds you issue is to buy
them yourself at an unrealistic high price – which at least Danske
Bank does – through various devious ways.
Now the Central Bank has made a point of NOT accepting own issues as
collateral. As the squeezed banks do not have sovereign bonds – they
are far to busy buying their own issues.
Strangely enough creditors don’t trust banks buying their own issues,
so Danske Bank can’t borrow even a rude word from other banks.
So the Central Bank expanded the credit facilities – presumably mainly
to gain insight into the portfolio of assets in the banks.
Danske Bank counter moved by taking advantage the ECB’s facility
(unlimited)despite the higher interest rate.