Tag Archives: Eastern Europe

Norway's PM Worried About Greek Debt (Not The Norwegian 40bn Exposure)

Norway‘s Prime Minister Jens Stoltenberg is worried that the debt crisis in Eastern Europe will spread throughout the region, end might even hit Norway at some point. Separately, a survey show that Norwegian banks and insurance companies has a total exposure to the PIIGS of nearly NOK 40 billion.

“The financial crisis has become a job crisis, and a debt crisis. Both are serious. “

Jens Stoltenberg

According to Prime Minister Jens Stoltenberg the debt crisis in southern Europe may also hit Norway at st some point. “The financial crisis has become a job crisis, and a debt crisis.  Both are serious,” he says to the Norwegian newspaper Aftenposten.

“Half of what we produce is sold abroad. When any of our neighboring countries have such large debt problems, it is clear that it can affect the international economy and our ability to sell abroad,” Mr. Stoltenberg says.

“What is serious is that some of these states can be forced to tighten their fiscal policies in a period of rising unemployment and with need to increase demand. But the international financial markets may force them to make large cutbacks at some point that will reinforce the decline in their economy.”

Giving new loans to members of the euro zone will be popular among the creditors to Greece, and  European taxpayers will have to share the risk with the Greeks.

But Norway – not being a member of the European Union – this won’t be an issue, Stoltenberg reassures, and makes it clear that the Norwegian government is not considering a contribution to the European bailout package.

“It has not been an issue. Norway contributed to Island, were we felt we had a special responsibility.”

“Insignificant Exposure”

Norwegian regulators have published a statement Monday, saying that Norwegian financial institutions have low exposure to the debt problems of the so called PIIGS countries – Portugal, Ireland, Italy, Greece and Spain.

The national Finance Authority has made a survey of Norwegian financial institutions ‘exposure based on the institutions’ annual reports to the audit.

“Overall, the exposure is small. None of the institutions have  exposures of significance against Greece,” the Norwegian “Finanstilsynet” writes in their statement.

For banks and other financial institutions,  exposure to PIIGS countries only accounted for 0.12 percent of total assets at the end of 2009, according to the survey.

Exposure is greatest against Greece, but only amount to 0.09 percent of total assets. These are mainly loans to Greek shipowners, which is little influenced by domestic factors in Greece, the Financial Authority says.

For life insurance companies, the total exposure to PIIGS countries are somewhat higher – 4.0 percent of total assets.

Against Greece, the Norwegian life insurance companies short exposure is 0.11 percent of total assets is invested in Greek securities.

Life insurance companies have the greatest exposure to the Italy with NOK 12.6 billion, or 1.6 percent of total assets, mainly in bonds.

Totally, the pension funds have a risk exposure of NOK 1.9 billion against the PIIGS countries, which accounts for 1.1 percent of total assets.

Pension funds have the greatest exposure to Spain of 0.9 billion, which accounts for 0.5 percent of total assets.

In addition to direct exposure, the life insurance companies and pension funds have invested in mutual funds registered in PIIGS countries.

However, according to “Finanstilsynet” there is no direct exposure to the country through these investments.

Is 40 billion insignificant?

The Norwegian regulators have published figures that show that banks, credit companies and insurance firms has a total exposure to til PIIGS countries of NOK 40 billion.

This is based on the on-balance sheets of the mother companies in Norway as reported at the end of 2009.

Branches abroad, and new loans or possible off-balance investments, is not taken into account.

Banks and credit companies: NOK 5,43 billon

Life insurance companies: NOK 32, 588 billion

Pension Funds:NOK 1,849 billion

Grand total of (know) Norwegian exposure to the PIIGS countries: NOK 39, 867 billion.

But, hey, what’s 40 billion here and there when Norway’s  sovereign fund is worth over 2000 billion?

Oh, wait a minute!

What’s the Norwegian Oil Funds exposure here?

I’ll have to get back to you….


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Fitch Expects More European Sovereign Downgrades

Fitch writes in its newly released report on sovereign debt that the rating agency expects downwards rating pressure to continue in Europe through 2010. The survey show that the downgrade/upgrade ratio last year turned negative for the first time since 2002, and for some local governments the tax revenue shrunk by 20 percent.

“Fitch expects higher overall deficits to continue into 2010, and in some cases this will be at the operating balance level.”

Fitch Ratings

The global recession left a lasting impact on sovereign nations as well as local and regional authorities, faced with shrinking revenues and bulging deficits. As a result, the international public finance downgrade to upgrade ratio turned negative in 2009, with downgrades outpacing upgrades by 1.6 to 1, Fitch Ratings writes in the newly released  “International Public Finance 2009 Transition and Default Study”.

Last time the downgrade/upgrade ratio was negative, was in 2002, the report shows:

“The global recession left a lasting impact on sovereign nations as well as local and regional authorities, faced with shrinking revenues and bulging deficits. Despite these recent economic difficulties, the rate of downgrades among Fitch-rated international public finance issuers remained relatively modest in 2009, edging lower to 4.2% from 5.2% in 2008. Upgrades however contracted to 2.6% from 8.7% a year earlier. As a result, the international public finance downgrade to upgrade ratio turned negative in 2009, with downgrades outpacing upgrades by 1.6 to 1, up from positive results of 0.6 to 1 recorded a year earlier,” Fitch writes in the report.

The Pressure Is On Europe

Fitch’s international public finance coverage is weighted heavily with European issuers and therefore the sector’s outlook as discussed in the survey is greatly influenced by Fitch’s expectations for Europe.

Fitch believes downward rating pressure will continue in Europe in 2010, either through rating downgrades for those entities  that the agency considers to have long-term structural problems, or through continued revisions of Rating Outlooks to Negative.

“These are mainly sub-nationals that have a greater reliance on fiscal revenue related to economic activity in their territory, such as personal income tax, corporate income tax, or value-added tax; or taxes related to property transactions, such as stamp duty. The continued weak economic environment will result at best in a modest rise in tax revenue compared with 2008, or at worst in a decline, as experienced by a number of sub-nationals in 2009 ⎯ some registering declines in tax revenue of up to 20%.”

“In addition, capital expenditures will remain high as these entities adopt anti-cyclical measures to boost economic activity, in parallel with policies adopted by various central governments. Therefore, Fitch expects higher overall deficits to continue into 2010, and in some cases this will be at the operating balance level, as some sub-nationals have found it difficult to rein in operating expenditures.”

Geographically, Europe not only accounted for the preponderance of assigned international public finance ratings, but also for all Fitch’ rating actions in 2009.

Western and Eastern Europe split downgrades with a total of four each, while the eastern half of Europe alone captured all five upgrades for the year.

“Ukraine recorded the most downgrades with three, the result of the country’s sovereign downgrade in November; the cities of Kyiv, Odessa, and Kharkov received downgrades to ‘B−’ from ‘B+’. On the upside, two Turkish issuers, the Metropolitan Municipality of Istanbul and Toplu Konut Idaresi Baskanligi moved up the rating scale to ‘BB+’ from ‘BB−’, again on a sovereign rating action, this time the upgrade for Turkey (‘BB+’).”

No Defaults, Yet

Fitch Ratings recorded no defaults on public debt in 2009.

The last default of Fitch rated international public finances was in 2007.

Here’s the rating agency’s official default list:

Republic of Sakha (Yakutia): The republic defaulted on domestic bonds, August 1998.

City of Odessa: The city of Odessa failed to repay its UAH61 million municipal bond and interest (UAH30 million), June 1998.

City of Buenos Aires: The city missed an interest payment on its euro medium-term note program (EMTNs), May 2002.

Province of Buenos Aires: The province defaulted on debt-service payments of its EMTNs in the amount of USD25.5 million, January 2002.

Province of Santiago del Estero: The province defaulted on debt-service payments due on provincial consolidated debt, February 2002.

Province of Tucuman: The province defaulted on debt-service payments due on provincial consolidated debt, February 2002.

Province of Mendoza: The province missed a bond interest payment of USD12.5 million, March 2002.

Province of San Juan: The province missed a bond interest payment of USD5.035 million on its 13.25% federally guaranteed bonds, July 2002.

City of Taranto: The city missed a debt installment repayment, January 2007.

Here’s a copy of the full report: “International Public Finance 2009 Transition and Default Study”

Related by the Econotwist:

G7-Countries In Deep Trouble

Force The Rich!

MoonTalk: Sovereign Debt – Just Take The Punch?

MoonTalk: Want To Buy A Greek Island?

MoonTalk: Sovereign Debt – The Only Solution?

Fitch: Global Sentiment Improving but European Concerns Persist

Traders Short Record Amount of Euro

Greece: From Bad To Worse?

The Arab World – Downgraded

All Eyes On Ukraine

Michael Milken Warns Against Sovereign Debt

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DnB NOR Net Profit Reduced By 33%

The leading Norwegian bank, DnB NOR, reports a net profit of NOK 6,1bn, a 33% decrease compared to the 2008 result of NOK 9,2bn. Individual write downs at the Baltic operations increased to NOK 3,3bn last year, up from 2,1bn in 2008.

“It is too early to say whether the improvement represents a lasting trend.”


“2009 was a turbulent and demanding year characterized by financial turmoil and a period of contraction both in Norway and internationally. However, the economic situation gradually improved during the second half of the year,” DnB NOR writes in its 2009 report.

The “improvement” seen by DnB NOR is mainly an increase in pre-tax operating profits before write-downs of 11,4%, that comes from cutting cost, reducing staff and increasing the costs for the banks customers.

However, the banking group recorded a significant increase in write-downs on loans, from NOK 3 509 million in 2008 to NOK 7 710 million in 2009, of which NOK 3 929 million related to operations in DnB NORD.

The Danish registered DnB NORD is owned 51% by DnB NOR, but operates mainly in the Baltic states and in Eastern Europe.

The losses at DnB NORD represent over 50% of the Norwegian banking groups total losses.

DnB NORD’s loan portfolio on average represented no more than 7% of the group’s total loan portfolio.

“The serious international economic downturn thus had a material negative effect on the banking group’s financial performance, not least in the Baltic region.”

“Due to the difficult economic conditions which affected parts of the banking group’s operations, it was necessary to record total impairment losses for goodwill of NOK 730 million relating to operations in DnB NORD and Sweden in the income statement.”

Excluding DnB NORD, individual write-downs totalled NOK 2 719 million in 2009, up by NOK 1 218 million from 2008. The level of write downs was relatively stable through 2009, according to the report.

This is what the DnB NOR says about their Baltic operations:

“DnB NORD was strongly affected by the recession, recording a pre-tax operating loss of NOK 4 289 million, compared with a loss of NOK 605 million in 2008. DnB NORD’s financial performance was marked by a steep increase in write-downs on loans in consequence of the significant economic downturn in the Baltic region. Average lending in DnB NORD was NOK 83.6 billion in 2009, up 11.3 per cent from 2008, though there was a reduction in lending through the year. Net write-downs totaled NOK 3 929 million or 4.70 per cent of average lending in 2009, an increase from NOK 1 388 million or 1.85 per cent in 2008. DnB NORD expects the level of write-downs to remain relatively high in 2010. DnB NORD will focus on consolidating its operations, reducing losses and improving cost-efficiency. Impairment losses for goodwill relating to operations in the Baltic States of NOK 619 million and impairment losses of NOK 306 million relating to operations in Poland were recorded in 2009. For the DnB NOR Bank Group, impairment losses for goodwill relating to DnB NORD totaled NOK 529 million in 2009. At year-end 2009, it was clear that DnB NORD will require new capital during 2010. DnB NOR Bank will exercise its ownership role and honor its obligations by providing its proportional share of the capital required by DnB NORD.”

The Board of Directors of DnB NOR Bank decided at the end of 2009 to initiate an evaluation of the shareholder agreement with NORD/LB aiming for a possible purchase of their 49 per cent ownership interest in DnB NORD.

The process is expected to be finalized in the course of 2010.

Here’s the full report in English.

The 2009 figures were presented at a Capital Market Day, Thursday, but the market don’t seem overwhelmingly happy with what they was told.

The share price of DnB NOR has gained more than 150% over the last 12 months, but today the investors sent the stock down 1,46% at the Oslo Stock Exchange, dragging the benchmark index down 0,75%.

Related by the Econotwist:

Italy Charge Foreign Banks With Fraud

The Nordic Superbank Dream

DnB NOR’s Latest Fuck-Up

Standard and Poor’s: The Baltic Are Stabilizing

DnB NOR: “Comprehensive System Failure”

DnB NOR Except Penalties of NOK 26 million

How To Make A Rat Look Like A Puppy

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