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Bad Banking in Nordbanken

Since 1990, more than 60,000 financially sound companies have had their credit cut off, which has so far put more than 400,000 people in Sweden out of work.

In the wake of the cancellations, there are now lawsuits in the Swedish courts worth more than 15 billion kronor (2.14 billion dollars). That figure is for just one of the banks; the majority of the lawsuits have been brought against Nordbanken, whose largest shareholder is the Swedish state.

Thousands of Swedish companies are now taking part in the fight against the banks via the Internet. Against Nordbanken, a foundation has been created to get to the bottom of the bank's breaches of Swedish and European banking laws.

The disputes began in the beginning of the 1990s when the banks cancelled more and more credits in order to maintain their capital adequacy ratio.

The development of the disputes is described in two articles which were published in the Swedish financial daily Finans Tidningen.

Swindle of the Century
In Sweden, it is permitted to make idiotic and illegal business deals with money that belongs to taxpayers, companies, shareholders and the public without getting punished, writes entrepreneur Mats Lönnerblad.

When the capital market began deregulating about ten years ago, the banks were "free to move full-speed ahead" in their money-lending operations, according to Swedish author Ulla Reinius' clever description, in her book Staalbadet, of the events that led to Sweden's financial crisis. The book, a commissioned piece, is a very biassed account in favour of Nordbanken and should be regarded as such.

But Ulla Reinius tells only half of the truth. Sweden knew at the time that internationally-adapted capital adequacy regulations were on their way. In July 1988, the Committee on Banking Regulations and Supervisory Practices (the Cooke Committee) had already presented its joint capital adequacy regulations for international banking operations, which the Swedish banks were obliged to follow.

But the Swedish banks "moved full-speed ahead" and did not heed the signs of what was to come. Gota Bank and Nordbanken also took advantage of the opportunity and exaggerated their own financial results, prior to Gota's cleverly staged options sale to SPP in September 1990 and Nordbanken's merger with PK Bank in June 1990. Also fooled were the buyers of Gota Bank and Nordbanken, of course.

As a businessman and writer, I do not really identify with Ulla Reinius' description of the financial crisis. Reinius' book focuses on those who had to "clean up" the financial mess and "suffered" from the crisis, while in this article I intend to describe what caused the crisis.

In connection with the sale of Gota, Proventus was on the ball. The small company was completely dependent on the sale of Gota. Miraculously, the company had managed to loan enough money for a large Gota shareholding in, among other places, Germany. But with the threat of bankruptcy hanging over them if the deal did not go through, Proventus' owners were on the ball and spared no cost when it came to "destroying" the bank's results so that they could sell their "acquisition" at as high a price as possible.

In September 1990, Gota masterfully managed to sell its shares for the unbelievable sum of 4.75 billion kronor (678.5 million dollars). An enormous amount of money considering that the already "exaggerated banking operation" in Gota at this time was worth zero kronor! The buyer was SPP's Krister Hertzen, who was the president of SPP at the time, and SPP chairman Ingemar Mundebo, who still holds the same post (!).

But SPP was lucky, because at the time, an insurance company was not allowed to own a bank. The solution was that SPP paid 4.75 billion kronor in cash for the option to buy Gota.

When the totally unsuspecting SPP employees discovered that the company had bought a "pig in a poke", SPP was able to take its purchase over to Trygg Hansa AB. In November that same year, SPP's board therefore recommended a merger with Trygg Hansa's operations, to create the bourse-listed Trygg Hansa SPP Holding AB. For SPP's very relieved board, this meant that they would be paid in full for their acquisition of Gota through shares in Trygg Hansa AB.

The ones left holding the "Old Maid" in the Gota case were the Trygg Hansa AB shareholders, who were completely fooled into believing that Gota's actual worth was 4.75 billion kronor, when in fact it was zero kronor at the time!

Those that were tricked in connection with the acquisition of the bank Nordbanken were, similarly, the shareholders in PK Bank, who also had to pay a high price (5.9 billion kronor, or 842 million dollars) for their mistake -- also buying a bank whose real worth was nought at the time. And PK Bank did not have anyone to sell it off on. It was in the beginning of December 1989 that PK Bank's board, under the "competent" chairmanship of Tony Hagström, decided to submit a "fantasy bid" for the acquisition of all of Nordbanken's shares and convertible debentures.

But the then-president of PK Bank, Christer Zetterberg, made yet another mistake -- he had no money to buy Nordbanken with, which didn't seem to concern him at all! It was this that forced the bank to request its first capital injection from the state for the unbelievable sum of five billion kronor (714 million dollars) once the deal was sealed.

The conditions of the sale included a cash repayment of 300 kronor (43 dollars) for each Nordbanken share, representing a 50-percent premium (!) on the share price listing just before the offer. At the time, the "goodwill value" of the Nordbanken acquisition was estimated at 2.5 billion kronor (357 million dollars).

And so, it was through ownership changes and "exaggerations" that both Gota and Nordbanken became worth buying and could be sold for an amount that the banks did not have and that had never existed. But the banks' true value was hidden at the time of the sales and those that fell for the swindle of the century were the unsuspecting employees at SPP and then the equally unsuspecting employees at Trygg Hansa AB. As well as the employees at PK Bank, who neither knew about the capital adequacy ratio requirements at the bank nor what was in the cash-box.

And last but not least, all the private and company customers at these banks that unjustly had all their credits withdrawn at the time!

My own personal conclusion about the financial crisis is thus that it is permitted to make the most idiotic and illegal business deals using money that belongs to taxpayers, companies, shareholders and the public without getting punished. Instead, the actors are rewarded with unimaginable profits and golden handshakes!

Meanwhile, those who are punished are the public and the bank's shareholders and customers, who are completely powerless in this type of situation, because neither politicians nor courts react to what has happened -- and what could easily happen again -- in Sweden. This despite the fact that we in Sweden are currently experiencing the country's biggest financial and unemployment crisis since the end of World War II.

Mats Lönnerblad

The Final Result of the Crisis
In today's debate piece, entrepreneur Mats Lönnerblad continues his article "The Swindle of the Century".

"The case will not be decided this century," bourse journalist Sven-Ivan Sundqvist wrote in a January 5 article in the Swedish daily Dagens Nyheter, entitled "Penser Against Nordbanken". But I think he is wrong.

The need for "accountability" is now appearing in the Swedish courts, because as it turned out, Gota Bank, PK Bank and Nordbanken had been insolvent since 1990, before all acquisitions and mergers took place. This fact is not widely known, because both Nordbanken and Swedish politicians in the Bank Support Authority tried their best to keep it quiet.

Not even Ulla Reinius seems to be aware of the situation, because it is not discussed in her book Staalbadet. Instead, Nordbanken has managed to pass off the bank's guilt on Erik Penser and all of the bank customers who had their credit cancelled.

Not only did the owners of Nordbanken and Gota Bank exaggerate their financial results in order to sell shares at as high a price as possible, the loans were also a problem.

The owners of Gota Bank also sold part of its property holding in an extremely unprofitable fashion, which further decreased the bank's share value and went without mention in the annual report. In addition, the money was lent out to financial institutes with poor -- and even non-existent -- security, and to a large number of real estate companies operating at a loss.

When you loan money to real estate companies, you can not loan based on "future appreciation", as Nordbanken and many of the other banks did at the time. The direct profit is the factor that governs loan possibilities. But this procedural "illegality" has still not resulted in any legal consequences for those involved in bank management or bank employees at either Gota Bank, PK Bank or Nordbanken, which I find very strange.

For every loan, it is easy to determine afterwards whether the return was positive or negative. If the return is negative, the responsible bank employee is guilty of misconduct. The same trick makes it unnecessary for companies' credit to be withdrawn. If the customer has followed regulations and promptly paid interest and amortisations, then there is no reason for credit to be cancelled.

If the bank nonetheless thinks that security "in their opinion" has been weakened, one need only request a quarterly report before adopting the drastic measure of withdrawing credit. But it is this protection mechanism that is missing in Sweden.

The real reason that Gota Bank, PK Bank and Nordbanken began cancelling their customers' credit in 1989 was that they no longer had any capital adequacy ratio. The financial reports that were submitted to the Swedish Financial Inspection Committee during this period are pure falsifications.

When PK Bank submitted a bid on all Nordbanken shares and convertible debentures in December 1989, management did not take into consideration the Banking Inspection Committee's 1987 announcement that banks would face future capital adequacy ratio regulations amounting to a 30-percent increase of the capital base. PK never could have afforded to acquire Nordbanken.

But instead of strenghtening the capital base, it was thinned out even further.

The capital adequacy ratio requirements were not considered by the then-head of the Banking Inspection Committee, Anders Sahlén, who was fired for his sloppiness and forced to move to Washington, at the government's expense, for several years before returning to Sweden as the new chairman of the Swedish Export Credits Guarantee Board.

The presidents and board members of the banks, who are ultimately responsible for the banks' capital adequacy ratios, did not take responsibility during this period either, because the banks had been obliged to start saving instead of spending since 1987. Once the banks' untenable position was discovered, credit was cancelled left and right.

As a result, those responsible in the banks and Banking Inspection Committee are now facing hefty lawsuits in court. For Nordbanken and PK Bank alone, some 18.4 billion kronor (2.55 billion dollars) are unaccounted for as of Febraury 1, 1990. However, this time it will not be the state but the shareholders and bank customers who will sue for damages once the ongoing private investigation is complete.

The documents regarding Gota Bank, PK Bank and Nordbanken that have been handed over to the Banking Inspection Committee at the time seem to be, according to the documents I have seen, incomplete and misleading. It is these banks that investigators are now examining. Other banks have been "cleaned up" at the shareholders' expense.

Neither did the Banking Inspection Committee react in time to the fact that new capital adequacy ratio regulations were ignored, as Gota Bank, PK Bank and Nordbanken were all allowed to reduce their capital base and raise dividends during the years 1987-1989, proving that the Banking Inspection Committee's "supervision" did not work.

Sven-Ingvar Sundqvist need no longer worry about the "aftercare" of Nordbanken. The bank will be held accountable in court for its sins and the court will be required to find out what transpired before 1990. What took place after 1990 has already been described very meritoriusly by Ulla Reinius in her book, which also proved to be a great help in the continuing investigation. But perhaps not in the way Reinius and Nordbanken had planned.

Mats Lönnerblad

Case 1 - Erik Penser/Nordbanken

Nordbanken could be forced to pay-out SEK. 3.5 billion in damages to Erik Penser.

Thunell´s handwritten changes Nobel.
Hand written changes to an original Morgan Stanley estimate of Nobel Industries lowered the value of Nobel with up to SEK. 3.9 bilion. The "adjusted" estimate was presented at the Nordbanken board meeting August 23, 1991, at a time when the bank was about to take over Erik Penser´s assets. Nobel Industries owner, Erik Penser, was forced by Nordbanken to leave his companies after the meeting. Nordbanken subsequently became the main share holder of Nobel.

Nordbanken has written to the Stockholm district court where Erik Penser´s company Yggdrasil has sued Nordbanken that the hand written changes were made by the bank´s Vice President at the time, Lars Thunell, now managing director of Tygg-Hansa. Mr. Thunell would not comment on the charges on Friday. (DI) 19/10/1996

Case 2 - Mats Lönnerblad/Nordbanken

Nordbanken could be forced to pay-out SEK. 30 million in damages to Mats Lönnerblad.

Businessman Challenges Gotabank(Nordbanken).
When Nordbanken cut off the credit for businessman Mats Lönnerblad, bankruptcy became inevitable and eight employees lost their jobs. A Swedish court of appeals is now considering on Gotabank(Nordbanken) for SEK. 30 million. If he is successful the case could effect the way in which banks determine credit-worthiness.

"I am going to make my case a precedent for other companies in the same situation," Lönnerblad said.

The businessman, who operates a video firm and ad agency, lost his lawsuit in District Court but appealed the case to the Court of Appeals. "I won´t give up until I have reached the Swedish Supreme court." he asserted. (DI) 22/10/1992


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