Nykredit terminates cooperation with Moody’s credit rating agency as a major downgrade looms. Viewerss who can read Danish are welcome to view this article for some background.


It is kind of a pity most readers here do not read Danish, and can’t understand what Søren Holm, CEO of Nykredit has to say for himself – the translation misses some of that “5-year old caught stealing from mummy’s purse” quality:

No, That is a wrong assumption, I think, to say we have been pressed into something. We do this – as we write as well – because there is to great a volatility in Moody’s ratings and their view of Danish real estate mortgages. And we are a business that issues papers with very long maturities – up to 30 years – so we need a bit more continuous view on matters.

You can almost see the poor overpaid beggar blushing!

The disregard for others opinion is almost touching – and not consistent with the claques send out to some Danish debate fora. The latter they are as inept in as they are incompetent mortgage bankers: When you want to spin trash a debate anonymously – you don’t use your company IP-adress.

But the move does lead us to ponder:

Why are those ratings volatile? What have Moody’s Corporation (NYSE:MCO) found out – and cannot disregard?

It is by no means unusual for Danish mortgage banks to stop Moody’s credit ratings. The mortgage bank division of Danske Bank (Realkredit Danmark) did it last year – just before a major downgrading.

It probably says more about the continuing credit agency Standard & Poors and their ability and credibility than it reflects on Moody’s.

The key feature in the statement is probably: “…Moody’s ratings and their view of Danish real estate mortgages…”

I.e. Danish real estate mortgages is trash!

The late Nykredit initiative of introducing two tier refinancing of variable interest, no-service insolvent loans is apparently going absolute nowhere.

Now the argument dragged forward is that the 3½% no amortisation loan is that it is well suited for conversion of old 5-6% fixed rate annuities.

Perhaps it is – though any advantage vis a vis converting your original 30 year 5% mortgage to a 3% 20 year annuity seem to be somewhat dubious. The cost of conversion will probably eat up any benefit from lower interest.

Nykredits motive is probably somewhat more sinister.

If you have a 5% fixed interest annuity as your mortgage, then after 12 years you have paid 1/4 of your original debt. That is the Loan/Value ratio has now been reduced from the original legal  maximum of 80% to about 60%.

But that was the original sales price 12 odd years ago. True house prices has dropped the last couple of years; but compared to 10-12 years ago prices have gone up with 50-75%. A refinancing will require a revaluation of the property to present day value. This would bring the Loan/Value ratio down to 40%.

Now Nykredit has no collateral as their bad loans are probably not only over the legal limit. Never mind these no-interest, no-sevice loans – they are dead and have been for years.

The interesting point is the Loan/Value of the mortgage bank as a company!

That is probably what Moody’s found out: There is not enough collateral behind the loans totally. It is a rather simple calculation and certainly one that even Moody’s has done. Danish Mortgage Banks are trash – even by their own figures.

This has to be corrected by decreasing the company Loan/Value ratio by augmenting the value part of the fraction.

This isn’t illegal or even cheating to much – the problem is: Will the debtors fall for it? They might. If Nykredit makes conversion cheap in administrative cost; but then I might as well try another mortgage bank to see if I – as a good costumer – can get a better deal.

The reason Nykredit offers a no-amortisation is that those costumers that can make the switch should stay in the portfolio – paying of debt?

Will the ploy work? Hardly to any substantial degree as very few loans to whom the switch is advantageous are left – the numbers are being crunched, but it seem likely less than 1/5’th of Danish real estate mortgage loan are fixed rate annuities.

As Moody’s said: Danish real estate mortgages and their banks are trash.