Bloomberg News

Eksportfinans Owners to Blame on Capital Deficit, Giske Says

December 28, 2011

(Updates with investor comment in 11th paragraph.)

Dec. 16 (Bloomberg) -- Eksportfinans ASA’s owners, which include some of Scandinavia’s biggest banks, are to blame for the lender’s failure to find the capital needed to avoid resolution, Trade Minister Trond Giske said.

Eksportfinans, whose planned wind-down puts at risk $35 billion in bonds, could have been saved if DNB ASA, Nordea Bank AB and Danske Bank A/S had shown more “willingness” to generate additional funds for the lender, Giske said in an interview in Oslo.

“It was difficult to get all of the partners in on a capitalization that would provide the size of the contracts that Eksportfinans has had the possibility to finance,” he said. “As we were informed, this was not the case that this kind of capitalization was possible or the willingness among all the owners wasn’t there to capitalize Eksportfinans to that extent.”

The government said last month it will dismantle Eksportfinans, created in 1962 to aid exporters, after rejecting the lender’s pleas to sidestep European capital rules limiting loans to single industries. Under the new regulations, Eksportfinans would have had to increase capital fivefold to reach previous levels, Per Tornqvist, a director at Standard & Poor’s, said in an e-mail today.

On Nov. 22, Moody’s Investors Service greeted the government’s decision with a seven-step downgrade to junk. S&P said Eksportfinans’ euro medium-term note program may already be in default. The government has since defended its decision, and derided the downgrades as “wrong.”

‘Better Solution’

“Our conclusion was that a sufficient solution through recapitalization was not reachable, at least at that time,” Giske said. “Of course we are also an owner in Eksportfinans and thus we are interested in the success of Eksportfinans.”

DNB, whose 40 percent stake in the lender makes it the biggest owner, declined to provide details of its capital talks with the government.

“We have confirmed earlier that we were in discussions regarding a capitalization plan, and that DNB was willing to raise more capital to solve the challenges in Eksportfinans,” spokesman Thomas Midteide said in an e-mail.

At Nordea, the second-biggest owner, the “perception is that we were part of constructive talks” on raising capital, said Sigurd Carlsen, head of planning and development group risk management at Nordea. “We were trying to find a better solution for the company given the changes in the regulatory environment. We had reasonably developed plans.”

Samurai Bonds

The ratings downgrades that followed the government’s decision to wind down Eksportfinans hit credit markets as far as Japan as bond investors who thought they held notes backed by a AAA sovereign awoke to find their securities were no longer investment grade. DNB, which is also Norway’s biggest bank and 34 percent owned by the state, shelved a 20 billion yen ($260 million) Samurai bond sale due for Dec. 8, as Japanese investors balked at the government’s decision, Midteide said.

“This has hurt Norway’s reputation internationally as you see from the rapidly rising funding costs for Norwegian financials internationally,” Espen Furnes, an Oslo-based fund manager at Storebrand Asset Management, which oversees $72 billion, said in an interview. “I was very surprised to see the news on Nov. 18. The perception until that point was that Eksportfinans de facto had Norwegian state backing.”

Fell Short

Yields on Eksportfinans’ 1 billion euro ($1.3 billion) June 2013 note soared to a record 9.58 percent on Nov. 30, compared with 1.66 percent on Nov. 21, before the Moody’s downgrade. Yields have since eased, and traded at 6.18 percent as of 11:32 a.m. in Oslo, the lowest since Nov. 22.

According to Knut Sunde, a director at the Federation of Norwegian Industry, “it was quite easy to conclude” that the capital proposals made by Eksportfinans’ board and owners fell short of what was needed to meet regulatory requirements.

Eksportfinans Chairman Geir Bergvoll has criticized the government, which holds 15 percent in the lender, for not coordinating the wind-down decision with the other owners. Its board learned the unit was being dismantled on the morning of Nov. 18, when the government announced the decision at a press conference.

Bergvoll said in an interview on Dec. 14 that the lender had tried to balance the needs of its customers and owners. “Apparently this was not good enough to satisfy at least the government,” he said. “We felt that was the point of how far we could stretch ourselves and still be able to deliver a decent return to owners in a situation where capital is scarce.”

The fallout of the government’s decision has had “an unfortunate effect in the market,” Nordea’s Carlsen said. “There has been a negative effect for the company. There has also been a negative effect for other issuers. I’m concerned with the situation and the effect this whole case has had for issuers in the Nordic markets.”

--Editors: Tasneem Brogger, Jonas Bergman.

To contact the reporter on this story: Josiane Kremer at Meera Bhatia in Oslo at;

To contact the editor responsible for this story: Jonas Bergman at

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