Finland May Get Bank Shares as Collateral, Urpilainen Says

Finnish Finance Minister Jutta Urpilainen
Jutta Urpilainen, Finland's finance minister. Photographer: Henrik Kettunen/Bloomberg

Finland is in talks to get shares in Spanish banks in exchange for the Nordic country’s contribution to a bailout agreed last month, Finance Minister Jutta Urpilainen said.

“We’ve discussed the option of bank shares,” Urpilainen said in an interview on state-owned broadcaster YLE TV1 yesterday. “There are several different alternatives and it’s still impossible to say what the concrete model for collateral will be.”

Finland wants the collateral in exchange for loans to Spain paid from Europe’s temporary rescue fund to shield its taxpayers from losses. Urpilainen only has a few weeks in which to strike a deal as the first installment of Spain’s rescue is due to be paid this month. Euro-area finance ministers this week decided Spain will get the first 30 billion euros ($36.7 billion) in July.

“The collateral talks with Spain are ongoing and the timetable is challenging,” Urpilainen said.

Spain’s 10-year bonds rose today, pushing the yield on the securities down 7 basis points to 6.509 percent. Similar-maturity notes out of Finland also gained, with the yield dropping 2.6 basis points to 1.477 percent. One basis point is 0.01 percentage point.

Other euro members “have no alternative but to accept” Finland’s collateral demand, she said. “Finland participates only on the condition that it gets collateral.”

Greek Lessons

The Nordic country, one of only four AAA rated nations left in the euro area, threatened to hamper efforts to provide a second bailout for Greece last year by insisting on collateral. Finland was the only nation to win security in exchange for loans from the temporary fund, or the European Financial Stability Facility, a vehicle that doesn’t give its creditors preferred status. Talks with Greece took more than two months.

“We’ve gained more experience and so these negotiations should be easier than the talks with Greece,” Urpilainen said. “In the Greek talks, we spent months with external experts honing the deal and I’d like to take advantage of all that work in these negotiations, if at all possible.”

In last year’s collateral model, the countries agreed that sovereign bonds will be transferred from Greek banks to a trustee, which will sell them and invest the proceeds in bonds with high credit grades and maturities of 15 to 30 years. Finland has received 570 million euros of the total 925 million euros so far, Urpilainen said.

Seeking Assurances

The minister is seeking assurances for about 40 percent of the loan Finland guarantees for Spain, an amount that is based on a risk assessment by Standard & Poor’s, Urpilainen said. Finland’s share of the Spanish bailout is about 2 percent.

Voters in Finland, which kept its deficit within the European Union’s 3 percent threshold even as its economy contracted 8.5 percent in 2009, rewarded groups critical of Europe’s rescue mechanism in April 2011 elections, when the anti-euro “The Finns” party become the nation’s third-largest.

“Finland’s stance is strict and that’s understandable given Finland has complied with all jointly agreed rules,” Urpilainen said.

Top Rating

Inside the euro area, Finland shares its top credit rating with Germany, Luxembourg and the Netherlands. The other countries in the monetary union are Austria, Belgium, Cyprus, Estonia, France, Greece, Ireland, Italy, Malta, Portugal, Slovakia, Slovenia and Spain.

Finland has already paid for the privilege of receiving collateral after agreeing to forgo any profits the EFSF may generate. Finland also agreed to make its contribution to the permanent European Stability Mechanism up front as a condition for receiving collateral.

The ESM’s preferred creditor status and the rules on private-sector burden sharing in the event of default mean the fund is less likely to incur losses, Urpilainen has said.

Even so, European Union leaders agreed to forgo priority status in Spain’s bailout. Finland is contesting the wording of that agreement, saying some payments from the ESM may protect taxpayer-funded contributions. Finland has also said it expects collateral in exchange for any aid commitments that don’t give it preferred creditor status.

Negotiations with Spain must end this month, Urpilainen said.

“The talks are still very much unfinished and it’s impossible to say when a result might be reached,” Urpilainen said. “There is no light yet at the end of the tunnel.”

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