(Updates with raised industry support in 11th paragraph.)
Dec. 2 (Bloomberg) -- Eksportfinans ASA’s biggest owners had been working on a rescue plan before the Norwegian government stunned them with its decision to wind down the unit in an uncoordinated move that rattled markets as far as Japan.
DNB ASA, Nordea Bank AB and Danske Bank A/S, which together own about 70 percent of Eksportfinans, were working on a plan to recapitalize the lender to allow it to meet stricter regulatory standards. Those plans came to nothing when the government, which owns 15 percent, on Nov. 18 announced its decision to create a direct lending facility for exporters and deny Eksportfinans permanent exemption from the capital rules.
“My understanding was that until the very last hour, more or less, that these discussions were constructive,” Geir Bergvoll, chairman of Eksportfinans, said yesterday in a phone interview. “I was on my way to work on Friday morning when I received a text on my mobile phone saying that the government had invited for a press conference one hour later to present the solution we now all know about.”
Since then, bond owners holding $35 billion have seen their investments slump. Eksportfinans, created to help Norwegian companies expand abroad, had its credit rating cut seven steps to junk on Nov. 22 by Moody’s Investors Service. The government’s decision, which also triggered a five-step downgrade by Standard & Poor’s to BBB+ on Nov. 25, sent tremors across credit markets as far as Japan as investors tried to assess the risk of losses. DNB, Norway’s largest bank, and AAA state-owned lender Kommunalbanken AS also saw their bonds fall.
The yield on Eksportfinans’ benchmark 4.75 percent 1 billion-euro note due in June 2013 surged to a record high of 9.58 percent on Nov. 30, up from 1.66 percent on Nov. 21. The yield fell for a second consecutive session today, sliding 0.44 percentage point to 8.13 percent as of 12:45 p.m. in Oslo.
Eksportfinans is 40 percent owned by DNB, 23.21 percent by Nordea, the largest Nordic lender, and 8.09 percent by Danske Bank in Copenhagen. Other owners include a number of smaller Norwegian banks as well as BNP Paribas SA, which holds 0.03 percent.
Bergvoll, who is also an executive at DNB, said the Finance Ministry in October indicated it would prefer Eksportfinans’ owners to provide more capital. Sigurd Carlsen, head of planning and development group risk management at Nordea, said he was only made aware of the government plans to wind down the unit the day of the announcement even as his bank “and some of the other owners were working on a plan to inject capital.”
DNB’s spokesman Thomas Midteide and Danske Bank’s treasurer Steen Blaafalk also said they also weren’t informed.
Blaafalk said the owners, including the government, were in talks. “The actual measure that the government decided to take its full support out came as a surprise in the middle of the process,” he said.
The government’s announcement came at an 8:30 a.m. press conference, hosted by Prime Minister Jens Stoltenberg and Trade and Industry Minister Trond Giske. They announced the government would support its export industry with as much as 30 billion kroner ($5.2 billion) in direct loans, administered by Eksportfinans until July. After that, a new state unit will be created to run the facility.
The government today increased that support to 40 billion kroner, according to a government bill. The bill said that “insider” issues prevented it from consulting Eksportfinans before the decision on Nov. 18.
Norway, which has a $530 billion fund built from oil wealth backstopping its economy, has so far been shielded from the contagion spreading from Europe’s debt crisis. The nation boasts the world’s biggest budget surplus of any AAA state and Europe’s lowest jobless rate.
Giske said in an interview on Nov. 30 that he “disagrees” with the Moody’s downgrade, and that the lender “has never been more supported by the state.”
He told newspaper Dagens Naeringsliv in an article published yesterday that the government decided not to coordinate its plans with other shareholders because the move was market sensitive. Giske wasn’t immediately available to comment on the decision, Anne Cecilie Lund, a ministry spokeswoman said today by phone.
Yields on bonds from DNB, which is 34 percent owned by the government, have surged since the government’s announcement and the subsequent downgrades. The yield on DNB’s benchmark 4.5 percent 2014 note jumped about 0.66 percentage point last week to 3.16 percent, and has since eased to about 3 percent. The yield on Kommunalbanken’s $1 billion bond due in October 2014 has risen 0.25 percentage point to about 1.34 percent since last week, a record high.
Giske on Nov. 30 said that the government’s facility will probably be able to provide loans to exporters at similar terms. “There’s no possibility of subsidizing a new institution but, of course, the Norwegian government has a very good rating and so a state-owned bank would probably get the best rating of all banks.”
Eksportfinans, which had 205 billion kroner ($35 billion) in debt as of Sept. 30, will reduce that to 41 billion kroner by 2017, the company said in a presentation on Nov. 27. Its 120 billion-krone book of loans will dwindle to 21 billion kroner by the end of 2017, it predicted.
“This company is absolutely 100 percent rock solid,” said Bergvoll. “Also in a situation where we wind down the company, which will be a situation that will be handled over a number of years -- five to 10 years at least. According to our best assessment the company will be increasingly solid and very well liquid over such a period.”
--With assistance by Adam Ewing in Stockholm and Josiane Kremer and Stephen Treloar in Oslo. Editors: Jonas Bergman, Tasneem Brogger.
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