Swedish Banks Shun Government Plan, Riling Ministers, Companies

By Niklas Magnusson

Nov. 20 (Bloomberg) -- Nordea AB, Svenska Handelsbanken AB and SEB AB, Sweden's biggest banks, are drawing fire from government officials for shunning the state's plan to bolster the financial system by guaranteeing their debt.

The three banks, which dodged the worst of the global credit crisis, have yet to use the program, announced Oct. 20. Finance Minister Anders Borg, who meets the banks today, has threatened ``harsher'' terms to get them to go along. Financial Markets Minister Mats Odell has called the banks ``free-riders.''

The lack of participation in the 1.5 trillion-krona ($187 billion) guarantee plan breaks with a Swedish tradition of consensus policies, where companies, trade unions and politicians typically cooperate. While banks say the plan may give the state too much clout over their strategy, politicians and business executives contend the program will make banks more willing to lend, thereby helping companies and stimulating economic growth.

``If the banks do not participate voluntarily and cannot show that they can create liquidity in the system themselves, then the government must force the banks to join the system,'' said Anna-Stina Nordmark Nilsson, the chief executive officer of Foeretagarna, which represents 70,000 Swedish entrepreneurs.

Borg this week cut his target for Swedish economic growth for a second time in three months, forecasting a contracting economy and higher unemployment next year in a worst-case scenario. Sweden's economy grew at the slowest pace in more than 11 years in the second quarter, and Borg said Nov. 17 that the financial crisis in Sweden is the worst since the early 1990s.

State Pledge

The Swedish plan pledges state guarantees in return for a fee. Banks who sign up also have to freeze salaries for top management and temporarily suspend executive bonuses. Only Swedbank AB, Sweden's largest bank by branches, so far agreed to join. Avanza Bank became the first to say it does not plan to participate.

``It would be good for the economy if we got a better functioning interbank market,'' said Cecilia Hermansson, chief economist at Swedbank. ``Recessions are always a question of magnitude and if the rates on the interbank markets do not decline, the economy will be damaged.''

The banks are evaluating the cost of the program and also what power the state may wield over their growth plans if they join. Nordea has already been forced to join Denmark's stability program, in which banks fund the rescue-package, and is also evaluating a system in Finland, and therefore needs to look at the total costs of the plans, spokeswoman Helena Oestman said.

Analyzing Details

``Another point we have is the consequences of the restrictions involved in the Swedish plan regarding growth and expansion,'' Oestman said. ``It needs to be made clear what kind of viewpoints the state may have on this and if it may interfere with matters such as growth and consolidation.''

SEB is still analyzing details of the plan and will announce its decision once that evaluation has been concluded, spokeswoman Katja Margell said. Handelsbanken, which has said it's evaluating the plan, wasn't immediately available to comment.

Swedish banks have had their brush with government intervention before. In the early 1990s, Sweden guaranteed bank obligations against losses and established a $14 billion restructuring fund to provide failing banks with capital in return for equity. In addition to taking over Nordbanken AB, which today is part of Nordea, the government created a ``bad bank'' that bought troubled assets at a discount, while leaving financial institutions to manage their more-liquid holdings.

The Swedish government owns 19.9 percent of Nordea.

Hesitant

Today, the bank's hesitance to embrace government aid is increasingly frustrating executives at mid-sized Swedish companies, who typically rely on bank credit to finance operations. Car dealer Bilia AB and oil company PA Resources AB raised capital from shareholders to limit their dependence on bank loans as lenders become reluctant to lend.

``The whole credit market is strained and bond loans are completely out of the question,'' PA Resources spokeswoman Ann- Kristin Littorin said. ``We wanted more alternatives than just to rely on one -- borrowing money from the banks.''

Finance Minister Borg fanned public discontent with banks this month by urging Swedes to call their local bank and demand that lower interest rates are passed on to mortgage holders. Sweden's Riksbank cut the key lending rate twice last month.

Banks in other European countries have been more willing to participate in state-engineered plans. In Denmark, some 130 banks will finance a 35 billion kroner ($5.9 billion) bill, which provides a state guarantee on deposits and interbank lending. France's six largest retail banks got 10.5 billion euros of funds by selling subordinated debt to the state.

In Germany, banks were initially hesitant to embrace a 500 billion-euro bank-rescue plan on concerns of being stigmatized. Now state-owned banks including Bayerische Landesbank, as well as Commerzbank AG have announced plans to seek government aid. Deutsche Bank AG, Germany's biggest bank, doesn't plan to tap the package, saying it has sufficient funds.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net