Last week Danske Bank A/S (OMX: DANSKE) mortgage unit Realkredit Danmark said it will stop paying Moody's Investors Service for credit rates. Danske Bank says Moody’s does not understand Denmark’s mortgage bonds. Danske Bank said the same thing about Basel Committee on Banking Supervision and says this lack of knowledge is hurting Denmark’s covered bond market. Denmark is also trying to get Basel’s liquidity requirements eased.
Moody’s says Realkredit need to raise 32.5 Billion DKK to maintain AAA rating. It would seem so far that Realkredit’s AAA rating is safe on S&P, so this is the service they plan to maintain and possibly approach Fitch as well. The topic about financial institutions paying rating agencies and then quitting upon downgrade threats and all the perverse incentives that may follow (and the evidence there already is on the role of rating agencies in the financial crisis) is another can of worms.
Denmark’s mortgage industry is oldest and third largest of them all and has had very good performance. Historically long term fixed rate contracts have been the backbone. As of late there has been a shift toward ARM (Adjustable Rate Mortgage) loans. Danish market shares certain similarities with the US market but has traditionally been more tightly regulated.
Moody’s concern is about the risk with rollover debt in ARM loans. It also feels the traditional State support is lessening. Of course the bank bankruptcies in Denmark do not help. You can read up on the Danish Mortgage Industry on Wikipedia, which also links to studies on the matter. Moody’s most recent update on Danske Bank is available here.
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