Amendments were also made to the banking law, enabling the government under certain conditions to write down a banks shares to zero. This ensured that share capital really was written down to the extent that capital was lost.It was soon realised that Christiania Bank and Fokus Bank had lost their entire share capital. The share capital in Den norske Bank was written down by 90% according to losses. The banks needed more capital, but private investors were unwilling to invest. All three banks thus received a substantial capital infusion from the GBIF [which was an independent but government owned bank manager] at the end of 1991. Conditions were established regarding balance sheet restructuring/downsizing, cost cuts and other measures to improve results. Share capital was written down to cover estimated losses. In both Christiania Bank and Fokus Bank the share capital was written down to zero by government decision (after shareholders had refused to do so). The existing shareholders thus did not receive anything for their shares, and the GBIF became the sole owner of the two banks. The boards and the top management were replaced. The banks received further capital support from the GBIF in 1992.
Friday, January 23, 2009
Scandinavian bank nationalisation and due process
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Great posts on the way to nationalise banks. Just a note to tell you that shareholders of Den norske Bank also lost all their holdings, as the remaining 10% were wiped out by further losses in 1992. In 1991 the government injected subordinate capital, so the private 10% were wiped out completely by 1992 losses. Its all in the report.
Thanks for a great blog.
I knew DNB was further reduced by the 1992 injections and the old share capital was wiped out. But there was an intermediate private capital that was retained.
The report skims this and just says:
"New reported losses in 1992 further reduced the value
of the old share capital to zero, leaving the government as the dominant owner
of the biggest bank in Norway and as the sole owner of both Christiania and
Note that the government was not the SOLE OWNER of the biggest bank (DNB). It was the sole owner of Christiana and Fokus.
But yes - the process even for that second write down was clear.
My details here are mostly from memory of a long and pleasant conversation I had with the CEO of DNB many years later. He lived through it.
Moreten - I chased back your identity - and you are Norwegian and write a finance blog.
Your memory of this stuff is probably good compared to mine. I am just a semi-retired Australian who has been to Norway just once (though admittedly to spend time with the CFO of DNB - the bank in question).
Yes you are right. But your take on Scandinavian banking is far superior to mine.
Sorry my blog is in Norwegian, so not sure you can get much from it.
By the way, the Norwegian regulator (Kredittilsynet) has repetedly been in the media assuring us of the health of Norwegian banks. Analysts however, have some concern about eg. DnBs exposure to shipping, Baltics etc. Time will tell.
John, I got a question... if govt nationalise by adding capital what would happen to unsecured senior debt holders? ... Another point I would like to make is that RBS was nationalised ( partly ) due to lack of shareholders subscribing to the rights issue... should that not be considered a 'process' and not a theft..
Morten - can you please email me. I am interested in someone who can interpret the local tea-leaves on DNB Nor.
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