VZCZCXRO3448
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHCP #0050/01 0231036
ZNR UUUUU ZZH
P 231036Z JAN 09
FM AMEMBASSY COPENHAGEN
TO RUEHC/SECSTATE WASHDC PRIORITY 4737
INFO RUCNMEM/EU MEMBER STATES
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 COPENHAGEN 000050 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EEB/IFD/OMA AND EEB/EPPD. 
TREASURY FOR VIMAL ATUKORALA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN DA
SUBJECT: DENMARK'S 'DON'T CALL IT A BANK BAILOUT' BANK 
BAILOUT PLAN 
 
REF: A. 08 COPENHAGEN 540 (BANK SAFETY NET PACKAGE) 
     ¶B. COPENHAGEN 24 (DANISH ECONOMY TREADS WATER) 
 
¶1. (SBU) Summary. Moving to shore up the Danish banking 
sector for the second time in less than four months, the 
Danish government unveiled on January 18 a 100 billion 
kroner (nearly USD 18 billion) "credit package" plan 
designed ostensibly to spur increased bank lending and 
alleviate Denmark's ongoing credit crunch.  Under the terms 
of the plan, under-capitalized banks and mortgage companies 
can borrow public money on relatively easy terms to pump up 
their cash reserves and allow more active lending 
practices.  Senior government officials have been at pains 
to cast the "credit package" as a liquidity injection 
designed to facilitate credit rather than a bailout of 
troubled banks, a claim that may be sorely tested in the 
coming weeks as banks release fourth-quarter 2008 financial 
statements that are likely to be covered in red ink.  While 
the "credit package" has broad political support 
(implementing legislation will likely be passed next week) 
and drew fairly positive reviews from the business sector, 
some observers claim it did not go far enough and predict 
that a far more costly economic stimulus package will be 
needed in the coming months.  End Summary. 
 
¶2. (SBU) After weeks of preliminary discussion and several 
days of direct wrangling with opposition party leaders, 
Finance Minister Lars Lokke Rasmussen announced January 18 
that the government would make available 100 billion Danish 
kroner (a bit less than USD 18 billion) to Danish financial 
institutions "so that businesses and citizens do not get 
caught in a credit squeeze where they cannot obtain loans 
for viable projects."  Under the terms of the 
government-labeled "credit package" plan, banks can borrow 
public funds at rates between 9 and 11 percent (roughly the 
same as current inter-bank lending rates) in order to 
increase hybrid capital to comply with a Danish government 
12 percent hybrid capitalization requirement.  According to 
a press statement released by the government, participating 
banks and mortgage companies must agree that "the capital 
is granted with the objective of creating room in the 
bank's lending to counteract a credit squeeze" and must 
submit semi-annual public reports on their lending 
practices. 
 
¶3. (SBU) Finance Minister Rasmussen, heir apparent to the 
ruling Liberal Party's leadership post and a contender to 
eventually succeed Anders Fogh Rasmussen as Prime Minister, 
told the press that the package was supported by all 
parties and that implementing legislation would be 
"fast-tracked" for parliamentary approval.  A parliamentary 
legislative staffer told us the bill would likely be 
enacted next week.  The plan marks the second time in the 
past four months that the Danish government has moved on a 
Sunday (a rare occurrence, as the Danish work week is 37 
and one-half hours and Danes guard their weekends even more 
zealously than most Americans) to shore up the Danish 
banking system, and it follows an October 2008 
government-labeled "bank safety net" package whereby the 
government and banks jointly provided unlimited guarantees 
on all bank deposits (Ref A). 
 
¶4. (SBU) In the weeks leading up to the agreement, Prime 
Minister Rasmussen and his economic team insisted 
repeatedly that the package would not be a bank bailout 
scheme, a point emphasized by the Finance Minister when 
announcing the agreement, but rather a means to facilitate 
increased lending to companies and individuals.  Financial 
industry insiders are not convinced, however.  Citigroup 
Denmark Managing Director Mark Luscombe told us he doubts 
the "credit package" will lead to much if any increased 
lending, adding that the root of Denmark's current economic 
woes is not a credit squeeze but rather an 
under-capitalized financial sector awash with a growing 
number of non-performing assets.  Luscombe, who is also 
Chairman of the American Chamber of Commerce in Denmark, 
thought it highly possible that Denmark's experience with 
the "credit package" will mirror that of the U.S. late last 
year when a massive infusion of USG funds into troubled 
American financial institutions led to virtually no change 
in bank lending practices. 
 
¶5. (SBU) Jan Olsen, a senior executive of Danske Bank, 
Denmark's largest bank with roughly one-third market share, 
expressed a similar view, noting that injections of public 
funds will not prompt banks to change their approach to 
lending money for which banks and not the government are 
 
COPENHAGEN 00000050  002 OF 002 
 
 
ultimately responsible.  Both he and Luscombe characterized 
as political spin the government's dogged insistence that 
the package is not a bank bailout plan, and predicted that 
the true nature of the package would become even more 
apparent in the coming weeks when Denmark's banks release 
fourth-quarter 2008 financial reports that will likely 
detail glaring if not catastrophic losses.  Other financial 
observers claim that the "credit package" did not go far 
enough and that a far more expensive and comprehensive 
economic stimulus package is all but inevitable in the 
coming months.  For his part, Finance Minister Rasmussen 
conceded that a stimulus plan may well be needed if Denmark 
continues to experience an "economic tsunami." 
CAIN