Berlingske has quote: ‘The finance and economy secretaries of the EU cannot agree on the framework for the common European inspection that shall survey the banks. The negotiations have just broken down and are to be resumed next week.’
The cause of the breakdown is still unclear. On today’s ECOFIN meeting in Brussels, the 27 ministers should have tried to agree on establishing a common Bank Inspection for the Euro-zone that would also be open to non-Euro countries. The preconditions for an agreement were estimated in advance to be fair – given a political will. Unanimity is required to pass the agreement.
JPMorgan’s Erdoes From Delivering Alpha: How The Pandemic Is Triggering Deglobalization
The more connected the world has become, the easier it has become for investors to look outside their home country to find alpha. However, the pandemic has resulted in a shift toward deglobalization. In an interview on CNBC's Delivering Alpha, JPMorgan Asset and Wealth Management CEO Mary Callahan Erdoes, Alibaba Executive Vice Chairman Joseph Tsai Read More
Among the bones of contention are drawing the line between the national inspection and the common European, and how large a bank has to be to be considered so vital to the entire financial system that it must come under the surveillance of the EU-inspection.
The Danish minister for economics, Margrethe Vestager, has the position, that Denmark is to achieve maximum influence on the design of the rules; but the Swedes are more skeptical. Neither Sweden nor Denmark are in the Euro-zone and as the Inspection is to be under the European Central Bank, the Swedish fear is that the non-Euro countries are going to be overruled in the inspection.
It was therefore uncertain whether the Swedish secretary of finance, Anders Borg, would be completely obstructive and veto.
The finance ministers shall meet again on December 12th – just before the EU-summit for heads of government December 13th and 14th.
The interesting point is here the Swedish position, which is perhaps best viewed in the context of the rescue of Scandinavian Airline System (SAS) last month where the main creditor was Nordea Bank AB (STO:NDA-SEK) that refused to extend the airline further credit, if the shareholders did not increase their capital. 50% of the shares in SAS are owned by the Scandinavian states in the relationship of (Denmark, Norway, Sweden 2:2:3). Nordea (and SEB for that matter – with Wallenberg holding approximately 5% of SAS shares in addition to own SEB) did not have confidence in the management’s will and ability to implement the proposed reforms – the chief obstacles was a 20% pay cut to all staff.
None of the states felt any inclination to raise their stake in the company as they had already a couple of years ago advanced more equity. It was the unanimous decision of the governments, that if Nordea Bank AB (STO:NDA-SEK) didn’t maintain the credit line, the airline would be declared bankrupt. That put pressure on the notoriously interminable management/union negotiations where the unions one by one gave in to Danish Minister of Finance Bjarne Corydon, who personally texted the Danish cabin-staff union (Yep, each nationality has their own union! Danes hanging on into double overtime) with the blunt message that if the cabin staff did bend, SAS would enter into receivership.
Secondly: Nordea Bank AB (STO:NDA-SEK) is not only the largest Swedish bank, but also the largest Finnish and second largest Danish bank (and third largest mortgage bank), so in the event of Sweden entering into an agreement, there is no doubt Nordea will come under the direct supervision of the European Bank Inspection under the ECB.
The jurisdiction issue is that the ECB would want to inspect all 6,000 odd banks in Europe according to Jörg Asmussen of the ECB. The German position is that the ECB would bite off more than they can chew, thus only the “systemic important” banks should come under the jurisdiction of a European Bank Inspection, according to German Finance Minister Wolfgang Schäuble.
Now Nordea is Europe’s 16th largest bank:
So they would come under European Bank Inspection due to size, multi-nationality, and conflict – they would be counted in by all three counts. So that issue is to be classified as a pretext. Much more to the core of the matter is that Nordea is 20% state owned – by the Swedish state that is. Opening the books to a European Bank inspection would automatically mean opening the Swedish state and CB to the ECB Bank Inspection.
A further reservation is that Nordea – as a bank would/will have to leave other countries as a bank – most certainly Finland, that IS a Euro-zone country. The process of leaving a country means that impairments have to be taken to the full – but still worse: After leaving the country the bank would still have to guarantee the loans in case of further deterioration of the credit quality. That would ultimately leaves the Swedish state as a major shareholder guaranteeing the Danish and Finnish real estate market f.i.
Danske Bank A/S (CPH:DANSKE) (PINK:DNSKY) has already suffered huge losses in Ireland from being kicked out. Ever since 2008, the annual report of Danske Bank has added new and sad pages to the Irish chapter. Indubitably the same never ending tragic (in the sense of an inherent flaw leading to ultimate perdition) saga would play out with Nordea castigating the Swedish state at every quarterly report.
It is worth noting that there has, in Denmark, been some criticism of the fact that the state did not demand shares in Danske Bank when it was rescued in 2009. The Prime Minister, Helle Thorning-Schmidt, has curtly dismissed the notion and clearly stated that she stands by her predecessor’s decision. She has reason to be content, considering the trouble her Swedish counterpart is in with a 20 year old bank rescue that has not been resolved in the mean time.
Margrethe Vestager is not so naive as not to recognize that disentangling – especially Danske Bank A/S (CPH:DANSKE) (PINK:DNSKY) – from other countries like Sweden (and the non-EU member Norway) will entail its share of bruising; but there is nothing more uplifting in misfortune than the disaster of others.