2008-11-14
Dnr 2008/1780
Unofficial translation (Swedish version to prevail)
The sequence of events in the handling of Carnegie
In light of the fact that conflicting information has been published in the media
concerning the sequence of events in connection with the Swedish National
Debt Office (the “Debt Office”) having taken over the ownership of Carnegie
Investment Bank AB (“Carnegie”) and Max Matthiessen Holding AB (“Max
Matthiessen”), the Debt Office considers it appropriate to provide a brief
description of the various steps which occurred in the handling of this matter.
Any further questions may be addressed to the following persons:
Daniel Barr, Acting Head of the Bank Support Department, + 46 8 613 46 94
Marja Lång, Head of Communications and Public Affairs, + 46 8 613 46 54
Background
On 26 October 2008, Carnegie entered into a loan agreement with the Riksbank,
Sweden’s central bank, whereupon the Riksbank granted a loan of SEK 1 billion
to Carnegie. The decision to provide Carnegie with liquidity support was taken in
light of the fact that Carnegie was an important institution within the Swedish
financial system.
On 28 October 2008, the Riksbank decided to grant a further loan of SEK 1.4
billion to Carnegie as well as a credit facility of SEK 5 billion. The credit facility
was uncommitted but, rather, solely constituted the basis for the Riksbank’s
future handling of the matter.
Carnegie provided security for the loans pursuant to the loan agreements and
pursuant to a pledge agreement dated 26 October 2008. The security included
certain bond loans, all the shares in Carnegie’s wholly-owned subsidiaries
Carnegie Bank A/S and Banque Carnegie Luxembourg S.A. as well as certain
loans from Carnegie to the aforementioned subsidiaries.
In addition to the security from Carnegie, Carnegie’s parent company, D.
Carnegie & Co AB (the “Parent Company”) also provided security to the
Riksbank for Carnegie’s loans in accordance with a separate pledge agreement
dated 26 October 2008. This security included all of the shares in Carnegie and
all of the shares in Max Matthiessen.
On 29 October 2008, the Government Support to Credit Institutions Act
(“Support Act”) (2008:814) was passed. The Debt Office is the Supporting
Authority pursuant to the Support Act.
At the same time, a review of Carnegie’s operations was being conducted by the
Swedish Financial Supervisory Authority. In conjunction with the consultations
that are required to take place between the Debt Office, the Riksbank and the
Financial Supervisory Authority pursuant to the rules and regulations governing
government support to credit institutions (see, for example, Chapter 12, section
3 of Ordinance (2007:1447) containing instructions for the Swedish National
Debt Office), it became clear that there was a risk that the Financial Supervisory
Authority would revoke Carnegie’s licence to conduct banking and securities
operations. The Financial Supervisory Authority also stated that a decision on
this issue would be communicated following the Financial Supervisory
Authority’s board meeting on 10 November 2008.
The Debt Office as Supporting Authority
In its capacity as the supporting authority, the Debt Office consulted with the
Riksbank and the Financial Supervisory Authority pursuant to the rules and
regulations for government support to credit institutions.
The Debt Office noted that at law the revocation of Carnegie’s licence would
have entailed the dissolution of Carnegie’s business operations. Such dissolution
would, for the same reasons underlying the Riksbank’s decision to grant liquidity
support, entail a risk of severe disruption to the financial system and would
probably entail significant loss of value. It was also evident from the discussions
held with the Riksbank that in the event the Financial Supervisory Authority
revoked Carnegie’s licence, the Riksbank could revoke the liquidity support
which would be highly likely to result in Carnegie being placed in insolvent
liquidation. In addition, other creditors would probably demand repayment of
loans in the event the licence was revoked. Accordingly, in the interests of
financial stability it was of the utmost importance that the measures taken would
result in the situation at Carnegie being handled without liquidity support from
the Riksbank.
The Debt Office considered several solutions within the framework of the
instruments available pursuant to the Support Act. One alternative was to allow
the process leading up to liquidation to run its course, and that the State would
safeguard the stability of the financial system by providing guarantees to
creditors worthy of protection against losses in conjunction with the liquidation.
However, a drawn-out liquidation process was deemed to lead to the values in
Carnegie falling rapidly. In such event, the State would be forced to bear
considerable costs for the guarantees provided. This contradicted the Debt
Office’s mandate pursuant to the Support Act, since the Debt Office is obliged
to minimise the State’s costs for support to credit institutions.
A second alternative was that the State would provide a capital contribution in
the form of preference shares in the Parent Company. However, this alternative
was adjudged to be associated with a high level of risk. Firstly, approval of the
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general meeting was required and the adoption of any resolution to that effect
would lie several weeks in the future since the Parent Company is listed. Second,
there was a significant risk that the State would not have been able to claw-back
its contribution. Carnegie is a company where both the managed assets and the
employees of the undertaking can easily move to a competitor. In such event, the
value of the shares would have fallen rapidly. Accordingly, a more long-term
holding would probably not have been advantageous from the State’s point of
view. Thus, the second alternative also appeared to be incompatible with the
Debt Office’s mandate of minimising the State’s costs.
On the basis of these fundamental prerequisites and considerations, a support
loan appeared to be the most appropriate alternative. Accordingly, the Debt
Office produced draft agreements which were adapted to the requirements of
the Support Act for the purpose of granting a support loan to Carnegie which
entailed the repayment of Carnegie’s loan to the Riksbank. The agreements
would also facilitate a change in ownership of Carnegie through the transfer of
pledged assets if this was necessary considering the purpose of securing financial
stability and the Debt Office’s mandate of minimising the State’s costs. A
process of confirmation was also initiated with the Government pending a
decision concerning support measures.
Carnegie’s attempt to find an alternative solution
The Parent Company had engaged an investment bank for the purpose of
identifying a structural solution 1 for the Parent Company, Carnegie and Max
Matthiessen. Within the framework for the ongoing discussions between the
Debt Office, the Riksbank and the Financial Supervisory Authority, such a
solution might have entailed the non-revocation of Carnegie’s licence although
that would have depended on the manner in which the solution was formulated.
The decision was to be made at the Financial Supervisory Authority’s board
meeting on 10 November. The Debt Office followed this process carefully in
order to assess whether support measures would come into question or not.
On Thursday, 6 November, Carnegie presented the situation for, among others,
the Debt Office. In light of the uncertainty whether a satisfactory structural
solution could be attained before the Financial Supervisory Authority took its
decision concerning the licence issue, a discussion was initiated between the
Debt Office and Carnegie concerning the entry into a loan agreement which
afforded the Debt Office the possibility of replacing the Riksbank as lender.
1
”Structural solution” means, in this context, a bid for the entire Parent Company, the sale of all or
parts of Carnegie or Max Matthiessen, new issues of shares, mergers, or other combinations thereof
and similar structures.
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Final negotiations concerning the agreements were held on the weekend of the
8–9 November. Carnegie gave a presentation of the structural solutions to the
Debt Office and the Riksbank on the evening of 9 November. On the morning
of 10 November, the Parent Company announced that it had presented an action
plan to the Financial Supervisory Authority, the Riksbank and the Debt Office.
In addition, the Parent Company stated that the action plan was based on the
assumption that Carnegie would retain its licence.
Events of 10 November
In conjunction with the Government’s meeting held at 8 a.m., the Government
decided to authorise the Debt Office to enter into an agreement with Carnegie
for the purpose of facilitating Carnegie’s repayment of the Riksbank’s loan in the
event that the Financial Supervisory Authority decided to revoke Carnegie’s
licence and to divest the holding of shares which may arise as a consequence of
the loan agreement and the security provided therefor.
At 10 a.m., an agreement concerning a support loan was entered into between
the Debt Office and Carnegie. The loan agreement pertained to a loan of
SEK 2.4 billion, i.e. the equivalent of the loan which the Riksbank had granted to
Carnegie, with an optional increase to SEK 5 billion in accordance with the
Government’s decision. Under the loan agreement, in conjunction with the
disbursement of the loan, the Debt Office would take over all the security which
Carnegie and the Parent Company had provided for Carnegie’s liability to the
Riksbank.
The Financial Supervisory Authority’s board meeting commenced at 11 a.m.
Shortly before 1 p.m., the Debt Office was informed by the Financial
Supervisory Authority that it was highly likely that the Financial Supervisory
Authority would revoke Carnegie’s licence. The structural solution and the action
plan which had been presented were deemed to be insufficient. Accordingly, the
Debt Office made preparations in order to grant Carnegie a support loan
pursuant to the Government’s decision.
At 2.30 p.m., the Financial Supervisory Authority informed Carnegie that it had
decided to revoke Carnegie’s licence and that this decision was to be made public
at 3 p.m. The Debt Office and the Riksbank received the same information.
At 2.31 p.m., the Debt Office granted its loan to Carnegie through the Debt
Office disbursing an amount equal to the Riksbank’s claim against Carnegie.
Carnegie’s loan from the Riksbank was thereby repaid. At that juncture, the
utilised credit from the Riksbank to Carnegie amounted to SEK 2.4 billion plus
interest and compensation for some of the Riksbank’s costs associated with the
loan. In conjunction with the payment of the loan from the Debt Office, the
security provided was transferred from the Riksbank to the Debt Office in
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accordance with an approval granted by the Parent Company and Carnegie
earlier that day. A new pledge agreement was entered into between the Debt
Office and the Parent Company concerning the shares in Carnegie and Max
Matthiessen.
At 3 p.m., the Financial Supervisory Authority announced its decision to revoke
Carnegie’s licence to conduct banking operations as well as all licences to
conduct securities operations.
During the minutes after 3 p.m., the Debt Office informed the Parent Company
that the pledge of the shares in Carnegie and Max Matthiessen was exercised by
the Debt Office having taken over the title to the shares pursuant to the pledge
agreement and with reference to the fact that the Financial Supervisory Authority
had announced its decision to revoke Carnegie’s licence. In the same notification,
the Debt Office instructed Carnegie and Max Matthiessen to enter the Debt
Office as the owner of all shares in the companies’ share ledger.
At 3.10 p.m., the Financial Supervisory Authority announced that the decision
taken earlier to revoke Carnegie’s licence had been reviewed in light of the fact
that the Debt Office had taken control of Carnegie. Through an amendment to
the earlier decision, the Financial Supervisory Authority issued a warning instead.
Brief information on the content of the pledge agreement
The following is also evident from the press release issued by the Parent
Company on 11 November 2008 with regard to the pledged shares in Carnegie
and Max Matthiessen. In the event the Debt Office takes over the title to the
pledged shares, the Debt Office shall value the shares according to the
conditions prevailing at the time of the transfer of title. The aforesaid accords
with the applicable legal principles governing the enforcement of security and the
practices of, e.g., banks and other lenders in the private sector. The valuation
should be carried out expeditiously and by a well-reputed valuation institute such
as a bank, investment bank, securities company or accountant. The Parent
Company shall be granted access to the final valuation report.
If the Parent Company does not accept the Debt Office’s valuation, the Parent
Company is entitled to refer the valuation issue to the review board as
established pursuant to the Support Act.
When the valuation is finally approved (by the Parent Company giving notice
that the Debt Office’s valuation is approved or through the decision of the
review board), the Debt Office is to pay an amount equivalent to the difference
between the determined valuation and the sum of the obligations to which the
pledge pertains (among other things, the loan receivable of SEK 2.4 billion) if
the valuation is higher than the sum of the obligations. Otherwise, i.e. if the
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determined valuation is less than the sum of the obligations, the Debt Office is
under no obligation to pay any amount to the Parent Company.
Following the events of 10 November, the Debt Office has initiated a valuation
of the shares in Carnegie and Max Matthiessen in accordance with the pledge
agreement.
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