The general conditions for financial business are undergoing significant changes. The future international capital and liquidity rules have not been adopted yet, but in a number of respects the market has already started to apply the expected requirements as market standards.
The Nykredit Group plays a major role in the Danish financial market having contact with more than 1.1m retail and commercial customers. The Group accounts for 29% of total lending in Denmark.
Nykredit is financially robust with equity totalling DKK 55.7bn. The Group is meeting its budget and expectations for 2011, which include lower impairment losses. However, to maintain a continued unequivocal stability of our operations to the benefit of our customers we must duly adapt our operations to the future business conditions, which are already taking shape.
Elements of these conditions are:
• The ratings of Danish financial companies have been reduced or are under review by Moody's for possible downgrade – including Danish mortgage lenders and Nykredit
• Moody's has recently published an adjustment to the assessment of the refinancing risk relating to adjustable-rate mortgages (ARMs), which significantly raises the level of additional collateral required to maintain a rating
• Nykredit's own rating is particularly affected by the pending case with the Danish Competition Authority and the National Consumer Agency, which has so far prevented Nykredit Realkredit from making a necessary rise in the administration margins paid by retail customers
• According to the Danish central bank, the additional collateral requirements for covered bonds (SDOs) in case of property price declines may in times of financial market turmoil lead to difficulty in selling the junior covered bonds which fund the additional collateral.
With a view to adapting Nykredit's operations to this development already now and ensuring Nykredit's financial sustainability, thus securing customers' access to credit on an ongoing basis, Nykredit's management has decided to prepare the implementation of the following initiatives:
1. Funding of ARMs by way of bonds issued out of a special capital centre in order that these bonds may be given an independent, and possibly lower, rating leading to lower overcollateralisation requirements as a result of Moody's announcement
2. Introduction of two-tier mortgaging also for retail customers in H1/2012, so that part of mortgage loans – probably up to a 60% LTV ratio – will continue to be granted in compliance with the rules governing SDOs, while the top part of mortgage loans up to an 80% LTV ratio will be granted according to the rules governing the traditional mortgage bonds (ROs). This will reduce the additional collateral requirement in case of declining property prices. Nykredit launched two-tier mortgaging for commercial loans in 2009
3. Nykredit will from H1/2012 grant retail mortgages through Totalkredit in line with Totalkredit's partner banks
4. The price of existing and new Totalkredit loans will be raised to generally ensure the best rating for Nykredit. Prices are expected to be raised as at 1 April 2012, reflecting the higher cost of mortgage lending. Totalkredit is not subject to the prohibition of the Danish Competition Authority and the National Consumer Agency against higher administration margins for retail customers
5. The future price structure will mirror the risk relating to the loan type in question. ARMs and interest-only loans will be marginally more expensive than fixed-rate loans. The terms and conditions will be announced in detail later.
The planning of the changes in terms and conditions – as well as in IT systems – will be implemented in the coming months.
Contacts:
Peter Engberg Jensen, Group Chief Executive, or Nels Petersen, Head of Corporate Communications, tel +45 44 55 14 70 or +45 20 22 22 72.
Press briefing
Today, Tuesday 21 June at 11.00 CET, Nykredit will brief the press on the above matter. The meeting will be held at Nykredit's headquarters, Kalvebod Brygge 1-3, Copenhagen. Peter Engberg Jensen, Group Chief Executive, and Søren Holm, Group Managing Director, will attend the meeting.
