This week, various Swedish banks have moved swiftly to raise additional capital from both private and public sources.
Swedbank AB, one of Sweden’s largest banks, announced yesterday that it would raise a total of SEK 12.4 billion (approximately $1.56 billion) through a new issue of preference shares with preferential subscription rights for existing shareholders. The capital increase will enhance Swedbank’s Tier 1 ratio from 8.7% to 10.5%, and core Tier 1 ratio from 7.4% to 9.2%.
The general terms of the share issue include the following:
- One new preference share issued for every two existing ordinary shares, at a subscription price of SEK 48 per share;
- An annual preferential non-cumulative dividend of SEK 4.80 (approximately $6.04) per share (10% of the subscription price);
- Automatic conversion of the preference shares into ordinary shares in 2013, or earlier at the request of the holder in February and August of each year, beginning in August 2009.
Swedbank’s Board Chairman Carl Eric Stalberg stated, “It is important to stress that Swedbank is a profitable bank with sound capitalisation, however, we believe it is in the best interest of all stakeholders to take proactive and decisive action in this volatile and uncertain market environment.” As such, he said that Swedbank believes it prudent to work with an “additional buffer over its existing capital ratio targets,” in order to improve its competitive position.
Investment bank Carnegie AB announced earlier today, and Sveriges Riksbank, Sweden’s central bank, confirmed, that the Riksbank was increasing the liquidity assistance provided to Carnegie to a maximum of SEK 5 billion (approximately $630 million). This announcement came only one day after Carnegie had announced, and Riksbank had confirmed, that the Riksbank would grant Carnegie’s request for a SEK 1 billion (approximately $126 million) liquidity bridge loan as a result of Carnegie’s temporary difficulties in gaining access to liquidity due to increased collateral requirements and the unavailability of borrowing against securities. Carnegie also stated that, in order to secure additional medium-term financing, it intended to join Sweden’s guarantee scheme, which was announced earlier this month as part of Sweden’s financial stability plan. While the Riksbank continues to maintain that Carnegie is solvent, it stated in a memorandum that Carnegie’s financing situation has become so strained that it risks failure in meeting its payment obligations. In considering whether to make the loan, Riksbank determined that a Carnegie default could potentially lead to serious disruption of the country’s financial system and could undermine confidence in the payment system. While more detailed terms of the loans have not been published, Riksbank confirmed that the loan will be priced at its recently cut repo rate of 3.75% plus 150 basis points. Carnegie also announced yesterday that it had retained Goldman Sachs International as its financial advisor in evaluating strategic alternatives for the company. Additionally, according to Carnegie, the Swedish Financial Supervisory Authority (FSA) had sent a letter to Carnegie regarding the FSA’s investigation into Carnegie’s potential deficiencies in internal management and control and in the handling of large credit exposures.