Identifier
Created
Classification
Origin
09COPENHAGEN50
2009-01-23 10:36:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Copenhagen
Cable title:  

DENMARK'S 'DON'T CALL IT A BANK BAILOUT' BANK

Tags:  ECON EFIN DA 
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VZCZCXRO3448
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHCP #0050/01 0231036
ZNR UUUUU ZZH
P 231036Z JAN 09
FM AMEMBASSY COPENHAGEN
TO RUEHC/SECSTATE WASHDC PRIORITY 4737
INFO RUCNMEM/EU MEMBER STATES
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 COPENHAGEN 000050 

SENSITIVE
SIPDIS

DEPT FOR EEB/IFD/OMA AND EEB/EPPD.
TREASURY FOR VIMAL ATUKORALA

E.O. 12958: N/A
TAGS: ECON EFIN DA
SUBJECT: DENMARK'S 'DON'T CALL IT A BANK BAILOUT' BANK
BAILOUT PLAN

REF: A. 08 COPENHAGEN 540 (BANK SAFETY NET PACKAGE)

B. COPENHAGEN 24 (DANISH ECONOMY TREADS WATER)

UNCLAS SECTION 01 OF 02 COPENHAGEN 000050

SENSITIVE
SIPDIS

DEPT FOR EEB/IFD/OMA AND EEB/EPPD.
TREASURY FOR VIMAL ATUKORALA

E.O. 12958: N/A
TAGS: ECON EFIN DA
SUBJECT: DENMARK'S 'DON'T CALL IT A BANK BAILOUT' BANK
BAILOUT PLAN

REF: A. 08 COPENHAGEN 540 (BANK SAFETY NET PACKAGE)

B. COPENHAGEN 24 (DANISH ECONOMY TREADS WATER)


1. (SBU) Summary. Moving to shore up the Danish banking
sector for the second time in less than four months, the
Danish government unveiled on January 18 a 100 billion
kroner (nearly USD 18 billion) "credit package" plan
designed ostensibly to spur increased bank lending and
alleviate Denmark's ongoing credit crunch. Under the terms
of the plan, under-capitalized banks and mortgage companies
can borrow public money on relatively easy terms to pump up
their cash reserves and allow more active lending
practices. Senior government officials have been at pains
to cast the "credit package" as a liquidity injection
designed to facilitate credit rather than a bailout of
troubled banks, a claim that may be sorely tested in the
coming weeks as banks release fourth-quarter 2008 financial
statements that are likely to be covered in red ink. While
the "credit package" has broad political support
(implementing legislation will likely be passed next week)
and drew fairly positive reviews from the business sector,
some observers claim it did not go far enough and predict
that a far more costly economic stimulus package will be
needed in the coming months. End Summary.


2. (SBU) After weeks of preliminary discussion and several
days of direct wrangling with opposition party leaders,
Finance Minister Lars Lokke Rasmussen announced January 18
that the government would make available 100 billion Danish
kroner (a bit less than USD 18 billion) to Danish financial
institutions "so that businesses and citizens do not get
caught in a credit squeeze where they cannot obtain loans
for viable projects." Under the terms of the
government-labeled "credit package" plan, banks can borrow
public funds at rates between 9 and 11 percent (roughly the
same as current inter-bank lending rates) in order to
increase hybrid capital to comply with a Danish government
12 percent hybrid capitalization requirement. According to
a press statement released by the government, participating
banks and mortgage companies must agree that "the capital
is granted with the objective of creating room in the
bank's lending to counteract a credit squeeze" and must
submit semi-annual public reports on their lending

practices.


3. (SBU) Finance Minister Rasmussen, heir apparent to the
ruling Liberal Party's leadership post and a contender to
eventually succeed Anders Fogh Rasmussen as Prime Minister,
told the press that the package was supported by all
parties and that implementing legislation would be
"fast-tracked" for parliamentary approval. A parliamentary
legislative staffer told us the bill would likely be
enacted next week. The plan marks the second time in the
past four months that the Danish government has moved on a
Sunday (a rare occurrence, as the Danish work week is 37
and one-half hours and Danes guard their weekends even more
zealously than most Americans) to shore up the Danish
banking system, and it follows an October 2008
government-labeled "bank safety net" package whereby the
government and banks jointly provided unlimited guarantees
on all bank deposits (Ref A).


4. (SBU) In the weeks leading up to the agreement, Prime
Minister Rasmussen and his economic team insisted
repeatedly that the package would not be a bank bailout
scheme, a point emphasized by the Finance Minister when
announcing the agreement, but rather a means to facilitate
increased lending to companies and individuals. Financial
industry insiders are not convinced, however. Citigroup
Denmark Managing Director Mark Luscombe told us he doubts
the "credit package" will lead to much if any increased
lending, adding that the root of Denmark's current economic
woes is not a credit squeeze but rather an
under-capitalized financial sector awash with a growing
number of non-performing assets. Luscombe, who is also
Chairman of the American Chamber of Commerce in Denmark,
thought it highly possible that Denmark's experience with
the "credit package" will mirror that of the U.S. late last
year when a massive infusion of USG funds into troubled
American financial institutions led to virtually no change
in bank lending practices.


5. (SBU) Jan Olsen, a senior executive of Danske Bank,
Denmark's largest bank with roughly one-third market share,
expressed a similar view, noting that injections of public
funds will not prompt banks to change their approach to
lending money for which banks and not the government are

COPENHAGEN 00000050 002 OF 002


ultimately responsible. Both he and Luscombe characterized
as political spin the government's dogged insistence that
the package is not a bank bailout plan, and predicted that
the true nature of the package would become even more
apparent in the coming weeks when Denmark's banks release
fourth-quarter 2008 financial reports that will likely
detail glaring if not catastrophic losses. Other financial
observers claim that the "credit package" did not go far
enough and that a far more expensive and comprehensive
economic stimulus package is all but inevitable in the
coming months. For his part, Finance Minister Rasmussen
conceded that a stimulus plan may well be needed if Denmark
continues to experience an "economic tsunami."
CAIN