Rebuttal of Danske Bank’s Rebuttal

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Rebuttal of Danske Bank's RebuttalDanske Bank has issued a rebuttal from an earlier post of mine from Luxor Capital. The letter was removed at the request of Luxor, don’t ask me for it!

The issue made it into Denmark’s largest newspaper. Denmark CDSs have increased in price significantly, due partially to the coverage from several European newspapers.

I have no position in Danskeor any entity related to it.

Here is some of commentary from a well informed friend. The full article of Danske’s rebuttal can be found here- (use google translate if you dont understand Danish):

økonomidirektør Henrik Ramlau-Hansen fra Danske Bank. is pretty low on the totempole there – which means the “powers that were” are not going to dig themselves deeper in. And probably they are having some unpleasant meetings with the government and the National Bank. Busy, busy, busy.
»De danske myndigheder er meget opmærksomme på, at nogle banker er meget store i forhold til økonomien, og at det er meget vigtigt, at de banker ikke får problemer. Derfor lægger vi i Danske Bank vægt på at have en solid egenkapital«, siger økonomidirektør Henrik Ramlau-Hansen fra Danske Bank.
“The Danish authorities are very alert to the fact, that som banks are very large in relation to the economy, and it is very important, that said bank do not get problems.
That is why we in Danske Bank emphasise having solid equity.” he says.
Then the idiot goes on to say:
»Man skal være opmærksom på, at vi ikke kan tabe hele vores balance. Vi har sikkerhed for langt de fleste af vores udlån – i en stor del af dem har vi sikkerhed i huse. Derfor er det ikke usædvanligt at drive en bank af vores størrelse med en balance på 3.000 milliarder med en egenkapital på 100 milliarder«.
“You have to note, that we can’t loose our entire balance. We have security for by far the largest part of our lending – in a large part we have colatteral in houses. It is not unusual to run a bank of our size with a balance of 3.000 billion with an equity og 100 billion DKK”
1. Solid equity??
2. Not unusual? And THAT is not a problem?? Andrea Merkel and the EU begs to differ – vehemently!
3. The colatteral in houses. Well 80% of the purchase sum is borrowed in the building societies (known as realkreditinstitut – of which Danske Bank owns nr. 2 with a market share of 1/3 – last time i looked). The remaining 20% is bank loans.
When prices drop with 20% – as they already have done – Housing prices – then the banks security is long gone, and depends on the ability and willingness of the debtor to pay interest and instalment
Now willingness is not there – or debtors wouldn’t have opted for the variable interest with a delay in repayment of 10 years:
Real estate borrowings (the red part of the stacked curve – yellow is variable interest with repayment – green is fixed interest with no repayment – blue is old fashioned annuities).
Neither is the ability – unemployment is a much manipulated figure – so employment is relevant:Employment measured in full time jobs
We can see that employment drops slightly – BUT it is concentrated in the agegroups, that have a mortgage! (25-34 and 35-44).
Danske Bank buys their own real estate bonds, as nobody else will.
Han tror ikke, at Luxors analyse vil skade Danmark og Danske Bank. Den vil ikke blive taget seriøst, blandt andet fordi der er fejl i Luxors tal for, hvor stort Danske Banks udlån er, og hvor mange penge banken har i gældsplagede lande.
He doesn’t think Luxor analysis will damage Denmark and Danske Bank. Nobody will take it seriously, among other things because there are errors in Luxors figures for the size of Danske Banks lending, and how much money the bank has in debtridden countries.
1) That remains to be seen! But yes: The damage is already done by Danske Bank.
2) It is very difficult to get accurate figures on the real lending of Danske Bank, as the National Bank is not alltogether certain how many of the realestate bonds are in the possesion of the issuer (Exactly the problem You adresses with all their repo deals and other “funnies”) – the fact is that Nationalbanken WILL NOT accept own papers as colatteral. Secondly: How much of the bad debt in Danske Banks book has been converted to real estate bonds since 2009/10?
Flexible interest with no repayment is in essense a moratorium on defaulting debt!
If the creditor does not want either instalment nor interest – we are talking default and camouflaged default at that – which brings the entire balance sheet of Danske Bank into doubt.
3) The amount in debt ridden countries. Well that is a piece of string, as that depends on how much Danske Bank thinks it can afford to write off in a given year. But that is neither here nor there: The salient point is the exposure to the housing market – and the business market (where the same trick has been used: Converting defaulting debtor into mortgage debtors) with bankrupcies – is so huge, as to dwarf the national debt of most countries.

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