Bloomberg ran an article in which the writer seem to be confused as to why Danske Bank should backtrack from their previous position of not wanting to borrow from the Central Bank.
Now we enter the realm of speculation – but they are not that sophisticated.
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I think you should look towards collateral. The Danish Central Bank
advances credit against 3 types of collateral:
1) Sovereign bonds, but as they are in hard demand they are not easy to come by.
2) Real estate mortgages; but NOT issued by the same bank.
3) “Good loans”, but that involves opening the books to the Central Bank.
We know that Danske Bank loaned – on the similar ECB facility – 41
bio. DKK (admitted in Danish papers). The Danish CB has an interest
rate of 0.7% and ECB charges 1.0%.
So it must be the collateral put up that offer the better ECB terms.
In all likelihood Danske Bank has put up own real estate bonds as
collateral to the ECB.
Now why will they all of a sudden this willingness to borrow (15 bio.
DKK) from the Danish CB?
The change might very well be the collateral. A guess – and it is a
guess – is that the bonds put up are from another mortgage bank than
The amount makes BRF the most likely candidate.
BRF is mortgage banking wise about 1/4 of Realkredit Danmark.
By other indications BRF is in more serious trouble than the other
mortgage bank – have severe difficulty selling their bonds – even to
The Danish Central Bank has a firm policy of NOT supporting home
owners – especially if it is at the expense of the currency. So it
must be the financial stability that could be a motive.
Again guessing: It could be a ploy to prevent BRF from going under –
which would not be in the interest of neither Danske Bank nor the
So try this one on for size: Danske Bank buys a hunk of BRF’s trash
variable interest real estate mortgage bonds and borrows the money in
the CB AND offers said BRF bonds as collateral?
Danske Bank is thus paid the spread of 0.1%’ish for their service:
“from a purely commercial point of view”.
It is a theory that is – if not supported with the available facts –
then not in conflict with them.