Tag Archives: DnB NOR

Major Security Problems at Baltic Bank Group

Documents discovered by EconoTwist’s confirms a major security problem at the Baltic Bank Group DnB NORD, owned by the Norwegian partly state-owned bank DnB NOR. According to a report by the Danish Financial Authority the Baltic bank group is lacking a sufficient IT security strategy, and do not meet the regulatory requirements for IT security in financial institutions. Other documents reveal a unique insight on how the US government are monitoring and controlling foreign bank activity.

DnB NOR Bank ASA New York Branch is prohibited from establishing, maintaining, administering, managing or engaging in a correspondent banking relationship, such as an account for or on behalf of all of the following entities:”

When DnB NORD was established in 2006, they were bragging about their new advanced, state-of-the-art,  technological solutions. Five years later the Financial Authority finds that there’s no fully implemented security policy, and that the Latvian-based bank group on several key business areas do not meet the regulatory requirements of IT security for financial institutions.

Now, that’s something you won’t find in the regular earnings reports from the Norwegian state controlled owner, DnB NOR.

The inspection was conducted by the Danish Financial Authority in October – December 2010, and the report is dated June 17. 2011.

Contrary to most reports of this kind, I have not been able to find an English version, but here’s the conclusions, translated from Danish:

  • “On inspection, the FSA its IT strategy and IT security policy, organizational issues, outsourcing, backup, contingency planning and systems development.”
  • “FSA’s assessment is that the bank in some areas do not meet the regulatory requirements for IT security for financial institutions.”
  • “The bank had not updated IT security and some key business times in relation to IT security is not fully implemented, the Bank has not secured a sufficient legal basis for controlling the main supplier and the reporting rate from this.
  • “The Bank also has a faulty IT security preparedness.”

And the Danish Financial Authority concludes:

“Based on the inspection, FSA have given the bank an order to undertake a risk assessment on the IT security area and prepare an IT security policy based on a current risk assessment. There are also given orders that the bank’s guidelines for outsourcing must follow the law in this area, and that the bank must develop an IT contingency plan.”

Now, let’s have a look at the English version of  the report:

No mention of the IT security problems. This reports the Danish Supervisory Authority examined the 13 largest credit exposures, and carries out spot checks on another 100 credit exposures to corporate- and retail customers.

Here’s the findings:

  • “In some cases we noted shortcomings in the calculation of the indication of impairment. In the opinion of the Supervisory Authority it had, however, no significant effect on the Group’s total impairment charges at the time of the inspection. Bank DnB NORD A/S has been ordered to strengthen the quality of the Lithuanian subsidiary bank’s impairment calculations.”
  • “Prior to the inspection the DnB NORD Group raised its solvency ratio to 13.2 percent. The increase was made as a consequence of discussions with the Supervisory Authority. The actual solvency is 13.5 percent.”
  • “The Supervisory Authority has instructed Bank DnB NORD A/S to have intensified focus on any changes in the financial situation in Lithuania or changes in the country’s legislation that might have influence on the Group’s impairment charges or solvency need.”
The US Instructions
Returning to the security issues:
The Baltic bank’s servers seem to be more or less wide open, and internal documents are available though a simple Google-search.
Below is some of the correspondence with US authorities, revealing the increasingly monitoring of, and control with, any foreign bank that directly or indirectly do business in the US, or with US corporations:
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The US Customer Identification Program:
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Special Measures
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Unlawful Internet Gambling

This is just some examples of the documents I’ve been able to pull out of the DnB NORD system. I’m about to look into the rest, and analyze the importance of these.

I’ll keep you posted!

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Norwegian Bank Claims To Be Victim of Conspiracy

This must be the most interesting news story coming out of Scandinavia this week: The Norwegian bank, DnB NOR, who’s been found guilty of selling toxic saving products to private investors, not revealing the real risk involved, is facing the court again after appealing the first ruling. In its defense, the bank now claim they are the victim of a witch-hunt, and that the allegations are a result of a conspiracy against the bank.

“The majority of facts is conspiratorial in disfavor of the Bank.”

Anders Ryssdal 

Claiming Conspiracy:: Anders Ryssdal (Wiersholm, law firm), Nils Gunnar Brattlie (DnB NOR Markets), lawyer Catherine Sandvig and lawyer Trond Bjerkan. (Photo: DN.no).

I guess it could be seen as a sign of desperation when DnB NOR’s lawyer writes in the appeal paper that the ruling by Oslo District Court in June last year is “conspiratorial in disfavor of the Bank,” and that the choice of words in the verdict shows that the court has decided to “get” the Bank. But it could also be a part of a sneaky strategy to derail the whole case.   

Well, if I was a lawyer defending DnB NOR, I think I would have chosen a completely different – less ridiculous – strategy.

But perhaps Norway’s main bank is running out of arguments.

However, as you all know, conspiracy theories are always impossible to prove – or reject.

And that’s probably what DnB NOR is aiming for; making it impossible for the Borgating Court of Appeal to reach another verdict in disfavor of the Bank.

It is the Norwegian business website, DN.no, who have gotten hold of the appeal papers.

According to the website, DnB NOR’s lawyer Anders Ryssdal at the law firm Wiersholm, writes:

“In general, is the majority of the court’s valuation of the evidence conspiratorial in disfavor of the Bank.” 

The bank’s lawyer also argues that the Oslo District Court have chosen to disregard more confident calculation made by other experts, including DnB NOR’s own.

According to the appeal papers, DnB NOR argues that the majority of judges at the Oslo District Court have revealed through their wording that they more or less had decided to “get” bank before they made the  ruling.

The court use words and expressions of an “odious character,” the bank-lawyer  writes, in order to create an impression of the DnB NOR’s products as “suspect.”

“Odious” means disgusting or cruel.

As an example of the conspiratorial, odious wording,  DnB NOR points to the District Court’s conclusion that says the Bank’s sale of these saving funds is to be considered as marketing of “suspicious products,” according to a “carefully thought out plan.”

11 Years of Outhauling

This case started in 2000, 11 years ago, when private investor Ivar Petter Røeggen placed all his savings in two of DnB NOR’s so-called structured funds, that according to the Bank was guaranteed a pay-off.

But five years later Mr. Røeggen had lost NOK 230.000 of his original investment of NOK 500.000.

And in 2006 – encouraged by the money magazine “DINE PENGER” – he files a complaint to the Norwegian Consumer Council claiming the Bank had made false promises, and withheld information about the real risk involved.

According to the calculations by the independent experts, there was a 60% chance of loosing money by investing in DnB NOR’s guaranteed structured funds.

The Norwegian saver requires that DnB NOR cover his losses.

Now, the snowball starts rolling:

In December 2007 the Consumer Council says in a hearing, held by the Norwegian Financial Authority that it should be prohibited to sell these structured products to non-professional investors.

This becomes the conclusion of hearing, and the recommendation later sent to the Norwegian finance ministry, in January 2008.

The finance ministry comply with the request and makes it into law, March 1. 2008.

In January 2009 the national Finance Board of Appeals agrees with Mr. Røeggen, but just a couple of hours after the announcement by the Board of Appeals, DnB NOR makes it clear that they will not comply with the decision.

In April 2009 the case opens at the Oslo District Court, who in June the same year comes to the same conclusion as the Consumer Council, the Financial Authority and the Finance Board of Appeals.

However, DnB NOR still refuse to accept this view, and appeals the verdict to a higher legal body – the Borgating Court of Appeal.

And here we are…

Of Fundamental Principle Importance

According to Norwegian mass media there are about 2.000 other private investors who have lost money by placing their savings in the same “guaranteed” funds as Ivar Petter Røeggen.

They are eagerly waiting for a final verdict – if Norway’s partly state-owned bank is forced to cover the losses of all these people, it could result in a double-digit billion loss for DnB NOR.

At least, that’s what the Norwegian media, authorities and politicians think.

The fact is; it could be a helluva lot more…

For some reason, they seem to forget that DnB NOR now is the sole owner of the Baltic bank DnB NORD.

Up until January 2011, the Norwegian bank owned the Baltic bank in a 50/50 relationship with the German bank NORD LB – one of Europe’s leading developers and suppliers of structured financial products.

Due to the shady cross-border activity over the last decade, no one knows excactly how many dissatisfied customers that might turn up if DnB NOR loses this case.

But it will definitively be more than 2.000…

International Focus

The law suit against DnB NOR is also being followed closely by the international banking community.

The consequences can be far more widespread than most people think.

In the meantime, global banks are scaling down on their dodgy dealing as fast as possible.

The British Financial Services Authority (FSA) has advised more financial groups to amend or withdraw adverts as it now begins to cracks down on misleading advertisements, according to the law firm Reynolds Porter Chamberlain.

It has been reported that there was a 32% increase in promotions withdrawn in 2010, compared to 2009.

The increase is reported to have continued in the first quarter of 2011, with 66 withdrawals compared to 50 in the same period in 2010.

It is said that the crackdown is ahead of new powers being given to its successor, the Financial Conduct Authority.

The Financial Times has described one of the withdrawn adverts for an investment fund as claiming a 30 per cent headline growth rate but with risk warnings buried in the small print.

Jonathan Davies, partner at RPC, says:

“There is a very competitive market for many financial products. This puts pressure on firms to make their offering stand out and it is very easy to fall foul of the rules. With the FSA clamping down and with new powers for its successor on the way, it is more important than ever for businesses to make sure their adverts are watertight.”

So, if DnB NOR gets another conviction in the Appeal Court over the next weeks, it may blow a big hole in the ballon for financial institutions all over the world.

Related by the EconoTwist’s:

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Look Out For US Factory Orders, Pending Home Sales

Earnings season is just about to open, so there is not much fuel in the US numbers released today. However they are important and could stir the market short term, according to Saxo Bank’s Wake Up Call.

“The new orders to inventories differential continues to deteriorate and has now turned negative for the first time in 19 months.”

Christian Tegllund


“We expect European markets to open roughly flat this morning on the back of Friday’s US session closing higher, while the futures over night have been trading lower,” Saxo strategist Christian Tegllund writes.

According to Saxo Bank, the numbers that will move markets today are coming from the US; pending home sales and factory orders.

“We expect in line with consensus a small decline in factory orders and pending home sales to fall on a month-on-month basis. We do not expect much market action on the back of this as such (it should be priced in). What should be noted is how the market will react to the news that bottom up analysts is now finally starting to revise their earnings forecasts for 2011 down. We have been saying that this process should be going on for a while now and finally it starts to take off.”

“However short term it will not have much effect as the earnings season is just around the corner, but if the first 2 weeks of earnings comes out disappointingly weak then this will have an accelerating negative effect on equity markets and you should expect an outright sell-off,” the strategist warns.

The earnings season is kicked off at 7th of October with – as usual – the Alcoa report.

Devil In The Detail

Saxo recommends to look for pending home sales today to give a clue about sales of existing homes.

The pending home sales is a solid indicator of existing home sales, since they record the same thing, but at different stages of the sales process.

Factory orders from the US will also be released today, and they are expected to show a decrease of 0.4% in August due to the 1.3% decline in durable goods orders.

Christian Tegllund

“Nondurable goods orders are, however, expected to increase MoM, which is why we and consensus are only looking for a small decline in orders,” Christian Tegllund says.

The ISM manufacturing index fell to 54.4 in line with expectations, which implies that the manufacturing sector in the US is still growing though at a slower pace.

“However, the devil is in the details and we will classify it as a report. First, the new orders index is down sharply to only 51.1 from 53.1 (it was at 65.7 just four months ago), which does not bode well for production in the coming months. Second, the new orders to inventories differential continues to deteriorate and has now turned negative (-5) for the first time in 19 months indicating that the inventory rebound is all but over and will soon start to become a drag on the economy.”

With the ISM manufacturing report putting in a average-to-weak performance, it was left to the income and spending report to save the report.

And save the day, it did – at first glance.

“Not only did consumption increase 0.4% MoM as expected, but income rose much more than we expected by 0.5% (exp.: 0.1%). This pushed the savings rate a tad higher to 5.8% from 5.7%,” the Saxo strategist points out.

Adding: “However, most of the new-found income came courtesy of Uncle Sam, which contributed 0.3%-points of the 0.5% increase through transfer payments. So the higher savings rate was due to the deficit-spending US government!”

“If we strip out inflation, income and spending increased 0.2% each in August. In other words, without transfer payments the change in income would have been negative on an inflation-adjusted basis.”

“So, with both the ISM manufacturing and the personal income and spending reports being rather poor, it was left to the weekly ECRI leading indicator to provide the good news of the day. The index rose to 122.5 from 122.1 a week ago and the year-on-year decline is now “only” 7.8%  -the YoY drop was more than 10% just three weeks ago,” Tegllund concludes.

Reality Is Resurfacing

“Earnings expectations for 2011 are now finally being downgraded by bottom up analysts and we have expected this for a while. But for now, contrary to the usual development when these are posted, this will have virtually no effect as we are close to the opening of the earnings season. We expect a strong-to-moderate earnings season and this could short term bring equities higher, before the necessary adjustment to macro economic reality is resurfacing,” Saxo Bank writes to its clients.

“With quarters of slow economic growth it is outright based on hope rather than facts that you can have +15% earnings growth as sales will obviously remain weak and margins are already in the higher end. Expect markets to range trade until the first earnings report hits the street and be cautious on deciding the direction of the equity market until the first week of earnings reports has passed,” the investment bank recommends.

“Then you should have enough data to make an informed decision,” strategist Christian Tegllund says.

Calendar

GMT Event Saxo Bank Consensus Previous
09:00 EC PPI MoM (AUG) 0.2% 0.2%
07:55 EC PPI YoY (AUG) 3.6% 4.0%
14:00 US Pending Home Sales MoM (AUG) 5.2%
14:00 US Factory Orders MoM (AUG) -0.3% 0.1%
14:00 US Pending Home Sales MoM (AUG) 5.2%
14:00 US Factory Orders MoM (AUG) -0.3% 0.1%

The Most Important

“The most important macro news this week is Friday’s payrolls numbers from the US. The August numbers represented a turning point in a series of bad US news, with employment falling less than expected. Now we expect three months in a row with decline to be replaced by a rise of 50 000 persons in September. Consensus is unchanged employment, but the spread in the estimates is wide,” Norwegian DnB NOR Markets write in their Morning Report.

“Thursday there are interest rate meetings in the UK and the ECB, where we expect neither interest rate changes nor announcements of new measures. There have been speculations of a new round of quantitative measures also in the UK, after MPC-member Posen recommending this in the minutes from the previous meeting, as well as in a speech last week. However, the minutes also did show members using a more hawkish tone than before,” economist Kjersti Haugland at DnB NOR Markets says.

DnB NOR Markets have Monday published the following buy recommendation of shares, listed at the Oslo Stock Exchange:

• Algeta
• Statoil
• BW Offshore
• BWG Homes
• Fred. Olsen Energy
• REC
• Norsk Hydro
• Questerre

Here’ the full analysis (Norwegian only)

Here’s a copy of the Morning Report – in English.

Good Luck !

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