THE FORMER head of Sweden’s “bad bank” Securum has said bad banks work better when troubled lenders split into good and bad banks immediately rather than moving soured loans to a single entity such as in the case of the National Asset Management Agency (Nama).
Jan Kvarnström said Nama must move as quickly as possible to understand the loans it acquires and to protect the underlying properties to improve cashflow and immediately plan an exit strategy.
The bad bank should not focus on maximising profits but on minimising losses as some assets must be sold to prevent higher losses.
“The whole exercise is not to build an empire but to recover as much money as possible,” he said.
Mr Kvarnström ran Securum, the bad bank spun out of the nationalised lender, Nordbanken, the third largest bank in Sweden when the country’s banking sector collapsed in the early 1990s.
Securum, which had loans of about €7 billion, later merged with a second bad bank, Retriva, which was created out of another nationalised Swedish lender, Gota Bank.
The Swedish government recovered 80 per cent of loans from the two institutions’ bad banks but recouped substantially more from the sale of the lenders’ good banks.
Bad banks needed to be properly resourced to take control of bad assets quickly and “to stop the bleeding”, said Mr Kvarnström.
Securum had a staff of 500, while another bad bank he ran from 2002 to 2006, created from German bank Dresdner, had 400 staff to manage loans of €36 billion. Nama has a core staff of 40 which will rise to 80 this year.
The agency, which was set up last year to buy €81 billion in loans from five institutions, will manage the 100 biggest borrowers directly.
The remaining 1,400 will be managed by units within the institutions with supervising staff seconded from Nama.
“It could work. Everything boils down to leadership and how you structure it,” said Mr Kvarnström who spoke at a Nama conference hosted by Chartered Accountants Ireland in Dublin yesterday.
Good banks must be sustainable, he said, while bad banks must be well established and managed in order to minimise losses.
“It is pointless to have a bad bank when you have no good bank – Anglo Irish seems to be understanding this slowly,” he said. State-owned Anglo has proposed selling €36 billion in loans in Nama and dumping up to a further €24 billion into an internal bad bank, leaving a good bank with up to €15 billion in loans.
Securum foreclosed on many property-based borrowers shortly after it was set up, he said, as their equity was wiped out by the collapsing value of Swedish property.
“We were regarded as much more aggressive – bankers are usually kind guys who invite people to golf or the theatre – we forced clients to face facts and that they had lost their equity,” Mr Kvarnström said.
The bank set up a listed company to offload properties at the earliest opportunity, he said.
Transparency was “very important”, he said, as bad banks must communicate plans regularly to counter criticism about the high level of bankruptcies, its rules and payments made to managers.
