Tom

With these large banks like Danske Bank you have a definite problem: Crossholding – where A owns B that owns C which owns A. That is one way of pumping up equity. This extends to loans where A lends B etc. and guarantees. As to assets you don’t have a clue: They depend on the state of impairment. That is why the Basel III rules prescribe somewhat objective measures for what a “bad” loan is: Such as lack of collateral, state of default. That didn’t work, as the CB’s had to lower interest rates to 0, which make it pretty damned hard to default if the bank does not demand repayment. So that didn’t go anywhere, which was just what the banks wanted. That has been the standard technique of Japanese banks for a quarter of a century if I’m not mistaken. Next step is – like the ECB and the new Bank Union does – is to take classes of assets – like farm land: What yield can you expect of that farm – reasonably run – with corrections for soil conditions and world market prices – plus a modest income for the farmer. Anything above that in juniority
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Danske Bank A/S (CPH:DANSKE) (OTCMKTS:DNSKY) still seems to working under the misapprehension, that being classified as a “Systemic Important” (SIFI) monetary and financial institution is a good thing. It isn’t. Nils Bernstein On Danske Bank A/S (CPH:DANSKE) (OTCMKTS:DNSKY)’s Issue The former CB CEO Nils Bernstein was very explicit when he said in the wake of the unlimited guarantee issued to Danske Bank at the height of the crisis in 2008 that never again should such extensive guarantees be forthcoming. The present CB CEO Lars Rohde, at the time CEO of the largest pension fund in Denmark (ATP) has publicly pointed to the enormity of the guarantee of 2008. The point made can be illustrated with mentioning that apart from Cyprus no other European country has a bank with a balance of Danske Bank in relation to the GDP. The Swedish banks are large as well, but there are four of them roughly the same size as Danske Bank A/S (CPH:DANSKE) (OTCMKTS:DNSKY), but in an economy only double the Danish. Thus it should be for the reader to evaluate if Sweden as a nation can back those guarantees given to the Swedish banks: Cyprus certainly could not. That is the point of
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”It pays off defending the Euro.” Interview: Hans-Werner Sinn in Frankfurter Allgemeine Zeitung. 27.04.2013   Star Economist Hans-Werner Sinn speaks up for a monetary union of the strong and demands higher sacrifices from savers and banks. Professor Sinn: A new party in Germany demands leaving the euro. Are they right? The arguments of the party are mainly sensible. Bernd Lucke and many of his co-fighters are recognized economists that know what they are talking about. In spite of that I do not belong to the party and will give the euro still more chances than my colleagues. Do you think a return to the D-mark unrealistic? I think it pays off to defend the euro as such, but I consider it a major error to bend and break the weaker countries in southern Europe just to keep them within the euro. It doesn’t help these countries and you diminish the chances of survival of the euro. Isn’t the crisis calming down somewhat? Only apparently. That is because taxpayers in the still sound countries have entered into enormous credit and liability risks through the ECB and the EMS. That helps private creditors in the southern countries getting out of the dust, but
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I’ve just had occasion to look into the IMF: DENMARK STAFF REPORT FOR THE 2012 ARTICLE IV CONSULTATION Dated: December 20, 2012 From what I’ve been able to skim, the report is very useful for insomniacs. But what caught my attention was the authors of the report. Discussions took place in Copenhagen from October 25 through November 5, 2012. The staff comprised Mr. Dorsey (head), Mmes. Batini, Mordonu, Xiao, and Zoli (all EUR). Mr. Andersen and Ms. Pedersen (both OEDNO) joined parts of the mission. An advance team led by Ms. Batini and including Ms. Xiao visited Stockholm on October 24 to discuss cross-border financial sector issues. They did WHAT? The reason I looked into it was this report from the Danish Bank Inspection: Titled: Account of inspection A/S (management and control in the credit area) Now the interesting part is not the flagrant non-compliance with credit risk procedures; but the dates! The report is published April 19, 2013, but the inspection took place in October 2012 – why the delay? Also on April 19, 2013, Danish CB submitted an official response to the Business and Growth Ministry’s report on “Systemically Important Financial Institutions” (SIFI). I quote the concluding remarks:
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North Korean nuclear threat. JyllandsPosten has: Now I don’t know what target drone that is nor what it is made of, but aluminium burns excellently – provided you can get it hot enough – and when it burns there is no way to put it out, as it burns without oxygen. The laser reminds me of the Boeing YAL-1 program: http://en.wikipedia.org/wiki/Boeing_YAL-1 It was a Boeing 747 with a laser on board supposedly meant to be used against tactical ballistic missiles. The program was stopped a couple of years ago. Apparently not enough power could be generated to give the required range, furthermore there was a problem with the optics getting sufficient accuracy – as I recall it. Comparing the size of the weapon in the nose of the 747 and the one on board the USS Dewey (DDG 105), they seem about the same size.  It is not impossible that what failed as an airborne system could very well be successful as a close range anti-aircraft system on board larger ships. Bringing down range requirement with a factor of 10 should easily bring the power needed within manageable proportion – adding to that, that weight is not the same consideration
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Is large scale tax-evasion coming to an end? It most certainly has caught the attention of the German Finance Minister Wolfgang Schäuble that Luxemburg is intensifying its international cooperation with tax authorities in other countries. Frankfurter Allgemeine Zeitung: Luxemburg’s Finance Minister Luc Friedens tells the Frankfurter Allgemeine Zeitung: ”We want a stronger cooperation with the foreign tax authorities.” In an interview with Deutschland Radio Wolfgang Schäuble said to the report: …..That is nothing new, but has for quite some time, and then it is really – I’m much pleased by this report, because it will increase the pressure, as we know there are unbelievably complicated constructions. Whether they are all illegal is another question, but a lot of it is at least a grey zone. Your correspondent has just shown the complications of the matter and the limitations in action. We have for long worked, internationally as well, to get a grib on the problem – this still appears to me as a decisive Handle – that you report over the tax basis, that is what economic activity generates what amount where – to make a transmission of these incomes to a tax heaven – into different tax jurisdictions – more
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There has been snippets of information all over European newspapers, so a summary might be called for. It ended where it started with the solution originally proposed by the ECB and Germany: 1)      Small depositors (below 100.000 EUR) should be paid in full. 2)      Large depositors take a”haircut” to bring the balance sheet to some sort of solidity. 3)      Branches abroad (Greece) are sold off in proper impaired condition. 4)      A restructuring of the economy is put in place. The background is that the Cypriote bank sector had balances of about eight times the GDP a third of the deposits Russian; but neither that nor the rest would pass any scrutiny for being acquired through “best business practices. To earn a yield much of it had been placed in Greek sovereign bonds, which suffered a nasty ”haircut” last year. As with any financial reconstruction plan, it is paramount to pay off the small creditors, as the large will not be materially less furious for the pittance their loss is increased by sharing the burden with the small fry. On the other hand minor creditors can wreck havoc with any attempt to find a sensible solution and waste time when speed is of the
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Cyprus bailout the latest…. Now things percolate – and thanks to a debate forum – things are much clearer. It seems like German Finance Minister Wolfgang Schäuble’s idea was that the minor depositors (below 100,000 EUR) would get off. He now points to the Cypriot government and the ECB, for not choosing that solution. Schäuble said to the German channel ARD: ”They had decided this solution, and will now have to answer to the Cypriot people”. On the contrary the famous well informed source around the ECB says that Asmussen had specifically warned against touching accounts less than 100,000 EUR at all! But it was the Cypriot government that had to decide the precise structure. The EU Currency Commissioner Olli Rehn to Financial Times: ”When the responsible in Cyprus wants arrange the depositors participation otherwise – then we will support it – as long as the amount remains the same. The reason given for wanting to involve small depositors should have been that large deposits otherwise would flee the country. But the Cypriot President Anastasiades (a conservative wanting the reunification of Cyprus; Northern Cyprus is illegally occupied by Turkey) could not get an understanding for his original proposal that depositors should go free.
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Cyprus rescue gone bad. Frankfurter Allgemeine has: Cyprus needs the Credit package to finance their domestic banks. The banks were hard hit by the debt restructuring in Greece last year. The Cypriot bank balances are 8 times the GDP where the EU average is 3½. The Cypriot Banks are now being forced to slim down. Cyprus introduces a onetime tax of 9.9% on deposits of more than 100,000 EUR smaller sums pay 6.75%; but will in exchange become part owners of the banks. Cyprus has encouraged investors with the lowest corporate tax in the EU (10%) that will now be raised to 12½%. That should bring in .2 bio. EUR annually. A tax on interest is planned. The interest carrying deposits are around 70 bio. EUR, somewhat more than half are foreign mainly British and Russian. Cyprus could be encouraged to bring the state phone company, power supply and harbours into private ownership. Russia will probably also help Cyprus in as much as they will extend the already paid loan. Comments from ‘Northern European perspective’: 1) If Russian tax evaders think Germany is going to pay their speculative investments, they have another thing coming. 2) The surprising thing is that the
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Denmark has labelled all of its major banks as (Systemically important financial institutions) SIFIs or as many would term ‘too big to fail’. Denmark will likely up the capital requirements for its largest banks. The SIFI report lists the major Danish banks including, Danske Bank, Nykredit, Nordea Bank Danmark, Jyske Bank, BRFkredit and Sydbank   This is just the summary. The full report is intended to be translated into English and might be found on the ministry’s home page – eventually: None of them are strangers to my regular reader, as I have missed few opportunities to post snide remarks on their machinations. There are indubitably a lot of objective quantitative reasons for the appointment to the SIFI status – which the report goes into in considerable detail. The real reasons are probably simpler: -          Danske Bank – being over half the Danish financial sector – is very hard to avoid. -          Nykredit – is the largest real estate mortgage bank with a deliberately confusing un-ended merger with Totalkredit. Totalkredit was the real estate mortgage bank owned by the regional banks and it has used the regional banks as a distribution channel with resulting devastating financial involvement in that disaster. -          Nordea
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Though you probably can’t read this, it is quite an important document. That is how deals are made: First there are the obligatory tantrums to the press, public and electorate. Then they dig into substance – or not. Each side in the negotiations have their demands or rather”wishes” (you don’t present the other side with ultimatums – which will impede negotiations by having to work around blustering) and then sit down for a predetermined period to create the proper atmosphere of impending collapse and doom. Each side then checks and you reconvene to work out the compromise. This compromise is a letter of intent as to what the national legislation will say once it gets through the bureaucracy that will give chapter and verse, cross the t’s and dot the i’s. So you might ask: Is that all it is? Yes, as a competent staff will know how to translate it truthfully into law text. That is indeed the problem of some of the smaller nations in the EU: They don’t have a competent force of little gray men to work out the details. So the basis they have to work on is this “letter of intent”: 1)      The Basel
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