Denmark’s Private Debt Load: A Huge Looming Problem Ignored by Media

Denmark’s Private Debt Load: A Huge Looming Problem Ignored by Media

Denmark’s private debt issue has not been mentioned in the Danish media – though there is nothing new in the problem as such.

What HAS happened is:

The sales figures for Q4 2011 are now in from the Mortgage Bank Association, they show the same dismal picture as the official figures from Denmark’s Statistik.

Denmark's Private Debt Load: A Huge Looming Problem Ignored by Media

  1. The prices are back down to the level of Q1 2009 – despite the shenanigans of the Banks and Mortgage Banks. The Banks have been desperate to push prices up because the Mortgage Banks are only allowed to lend up to 80% of real estate value. And now suddenly all the deals since 2004 are above that limit.AND with no service on principal and shuffling of private debt to variable interest no service debt since then, a very substantial part of the homeowners are in debt to Mortgage Banks for over 110% of the value of their property.
  2. AND on top of that insolvency there is the bank loan for the last 20% of the original purchase price.The sales figures are down to Q4 2008 and Q1 2009 levels (they are always down in the winter – but…) that are as bad as – or worse – than during the aftermath of Oct 2008. Especially interesting is the orange curve for Zeeland. The Danish banking crisis actually broke on Zeeland where a middling Bank (Roskilde Bank) died spectacularly – long BEFORE Oct 2008.That is falling prices AND falling sales: This can only end badly.
  3. There has been NO service on debt – neither bank nor mortgage. In fact the private real estate debt goes steadily up with the dismal sales figures.

There is absolutely no connection between the pension savings and the real estate debt:

While the debt is backed by the world’s second-highest pension savings rate after the Netherlands, those assets are “locked shut,” Bernstein said.

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How?  He asked impertinently?

Well in several ways:

  1. The pension savings are taxed when they are paid out to the pensioner. And the price of withdrawing from a pension saving is considerable.
  2. The pension funds that formerly had the majority of their funds invested in real estate mortgage loans will not touch variable interest-only bonds with a 10 foot pole. The rearrangement of the pension funds assets has been made easy by the huge rescheduling of private real estate debt from the traditional fixed interest annuities that have been called home and reissued as variable interest-only bonds.
  3.  Those with the highest pension savings are predominantly over 50 – and they have bought their houses ages ago. Those deepest in debt are the 30-49 old with children – and no pension savings of significance.

The mortgage banks (all owned by banks or vice versa) are in a desperate situation:

  1. a.    Moody’s is about to downgrade NyKredit three notches and Danske Bank’s Realkredit Danmark has already given up all hope of getting anything but a derisive laugh out of credit rating agencies.
  2. b.    Realkredit Danmark is issuing senior bonds of various maturity to back up their covered real estate bonds. But there is more to it than that: Danske Bank tried last year to propose adding more equity to Realkredit Danmark, but quite overlooked that that recapitalization of Realkredit Danmark would be eliminated when the annual report of the Danske Bank concern was consolidated: You can’t count equity twice. Internal transfers are eliminated.
  3. This is a ploy to get around that very sensible accounting rule: No sane investor will touch senior bonds from Danske Bank or Realkredit Danmark without state guarantee.
  4. What will happen is that Danske Bank will be forced to buy their own senior junk bonds and hope that neither the accountant (they are born blind) nor the Bank Inspectors will find out this “Ramsey” maneuver in the kitchen and leave the books “well done”.  But believe me: The Governor of the Central Bank will – they have repeatedly pawned their own issues in the National Bank . (That is why I call him “Uncle Nils”)
  5. Well that had an end as Uncle Nils got wise to the trick – now they try it on the ECB, which has opened an unlimited guarantee. Typical of the half-wits in Danske Bank: As if Uncle Nils isn’t talking to the ECB? Off course he is!
  6. Now it is a firm rule in analysis that you always have to look out for conjurer’s misdirection. The last week or so the parliamentary committees have been working double shifts. Frank Aaen from the extreme left “incidentally” slipped his tongue from the rostrum of the parliament (smart – according to law a member of parliament cannot be prosecuted for what he has said in parliament): “They were working on yet another plan to save the banks.”
  7. That would be “Bank Package 6” to those who are still counting.The smallest mortgage bank – BRF – has dared to squeak, that they consider themselves systematically vital. I had wondered where they got their funds from to sell their junk –an educated guess is: Danske Bank, but they are more and more clearly having serious funding problems – so they just might turn off the life support system to BRF.

Bloomberg: “The nation’s haven status from the debt crisis has spurred investment in its mortgage bonds.”
That is indeed a truth with modifications:


  1. The “investment” in mortgage bonds is the mortgage banks buying their own issues.
  2. The “investments” from international investors is probably Danske Banks foreign companies – most likely the German Branch in this case. How that does play out with the Bundesbank and Merkel? Very badly – is my prediction? Again one of these half-smart moves that are only intelligent if you assume everybody else is a complete idiot.
  3. No the investors have fled to Danish Sovereign Bonds and into deposits in the CB. Not only is there a foreign currency reserve in Denmark of a staggering 100 bio. USD, but also deposits in the CB – hovering around 30 bio. USD. The interest rate on Danish sovereign bond has just now gone UP to the level of German sovereign bonds.

In conclusion:

There is no possibility of letting the pension savers pay the debt of the home owners. The home owners deebly in debt are indubitably not the same persons that have the considerable pension savings. This is Bernsteins task at the moment: Finding out just how bad it is – he is in for a solid weeping.

The home owners have neither the ability nor the inclination to ever paying interest – let alone on principal.

The banks and mortgage banks security isn’t there, as the collateral – even at present manipulated prices – in no way covers the loans. The banks can’t foreclose, as the property cannot be sold on – at any price. We are talking about turning 10-20% of the Danish population into the streets – from the best property in the country, and among the defaulters are a disproportionally high part with infants and children AND the best incomes (otherwise they could not have bought in the first place).

It is not that the home owners can’t survive – who cares about them: The banks cannot survive.

This is an indication that the Central Bank and Government have given up hope that the major banks can survive – the problem is damage control.


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