Nordea and Danish Bank are in the direct line of fire for unvoluntary dis-merger, if the proposals from the Liikanen-Committee of the EU-Commission becomes reality.
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The Committee´s proposal, has determined criteria for a forced split up for major European banks with particularly large trading portfolios, which results in a higher risk exposure in the face of a meltdown on the financial markets or if they have large speculative positions. Ten banks are pointed out on the basis of the determined criteria, as indubitably will have to be split up in a retail bank and a commercial bank, though these can be owned by the same holding company. Both Danish Bank and Nordea Bank AB (STO:NDA-SEK) are among the nominated ten banks that have a relatively large share of their assets as a high risk trade portfolio.
The purpose of the Committee
The committee was formed in february 2012 by the EU-Commission and chaired by the Finnish CB CEO Erkki Liikanen. The purpose was to bring forward proposal for a structural reform in the EU-countries banking systems. Last weeks proposal is up to now not more than a proposal from an independent committee with neither time schedule nor clear political intentions for the further process.
This is the move we have been waiting for since the British “White Paper: Banking Reform” that clearly follow the recommendations of the committee 3 months before it was published.
Without knowing the names of the other culprits it is significant that both Danske Bank and Nordea is on the shortlist. The question is if they are not to be split up in detail, mortgage and commercial banks both of them.
The issue is that the two banks are about 60% of not only the Danish banking system; but of the financial sector as such. This is also true of the mortgage banking where they are about half.
Splitting them up would involve distributing equity among the daughter companies of the holding company thus eliminating the possibility of direct cross-holding. The next problem would be the pension savings. Here quite a lot of own stock and own mortgage bonds are held.
The mortgage banks have issued bonds of 2400 bio. DKK or 1 1/3 of Danish GDP. This leaves Danske Bank with issued bonds at around ½ Danish GDP. A full third of the mortgages are refinanced annually – and have deferred payment on principal.
The notable thing is that the Danish banking system is evaluated to be positively dangerous with the large share of risky banks.
That is quite another colour to the phrase “systemic important” – which translates into colloquial: “Too bloody dangerous”.