The purpose of this study is to analyze the consequences of new regulation focusing on the effects of capital requirements and the capital floor introduced by the Basel Committee December 2017. In this study, our view will be focused on Nykredit, the largest European issuer of mortgage bonds, and their ability to coop with the new standards of risk weighted assets, both in present time and in the time of financial crisis. The background of the new recommendations of the Basel Committee is based on a general increase in risk appetite among financial institutions due to the latest positive development throughout the global economy with abnormal increases in assets prices including residential real estate. For some banks, the capital cushion has shown itself insufficient and this has led to either a recapitalization, a sale, or a collapse. For Banco Popular the insufficiency of capital due to high risk build up before the financial crisis led to a collapse in 2017 forcing the sale of the remaining assets to Banco Santander for one Euro. Because of good diversification, the financial crisis was not as significant in Denmark compared to southern European countries; however, the Basel Committee has refused to acknowledge the low risks on Danish mortgages due to the Danish model. The new standards force Nykredit to calculate the risk weighed assets by a standardized approach instead of internal rating-based approach. This transaction results in a great increase in the need of capital. Our analysis shows that the risk weighed assets will increase by 87 billion Danish crowns lifting the capital requirement to 62,8 billion Danish crowns. In their need of new capital, the board of Nykredit decided to work towards an IPO of the company, which were about to happen within 12-24 months. While preparing the company the board also negotiated with other investors for alternative financing. Since the annunciation, Nykredit improved their performance significantly making the institution more profitable resulting in higher asset prices. The result of the negotiations led to the partial sale of Nykredit to a group of 5 pension funds. In this study, we will elaborate the ups and downsides of the different solution models that were available with the consideration that the interest of the present owners, who are also customers, must be preserved.
|Educations||Graduate Diploma in Finance, (Diploma Programme) Final Thesis|
|Number of pages||97|