Monday, 9 February 2009

Nordea... The Lost Principles


About time to write about Nordea, don't you think?

Investment

A bank reputation is mainly funded in trust, trust between the client and its customers. However, lately, it seems that customers are being put on the front line and used as cash machine.

The story is simple, Nordea advertises a Fund, a Money Market Fund which investment model, in principle, is in the safest possible grade.

Imagine, I'm the Nordea fund manager, My name is "Smiley B". Now, here is the customer, let's call him "Lamb Da". So "Lamb" want to give his lifetime deposit to "Smiley", X euro saved throught hard and real work (no "ponzy" bonus here), and trusting that person.
"Smiley" give "Lamb" all the insurance that his money is safe and will get some safe return on it.

Now, Smiley, take that money and lend it on the market, either by purchasing Government Bonds or similar type of very safe investment vehicule (that's the whole idea of the money market fund).

You see, If "Smiley" lend X euro for a specific period to a government, he will get X+Y back, obviously Y will be a small percentage of X (2%-5%). That should be guarantied by the fund.

So you cannot lose, even if interest rates fall, you just wait for maturity to get back your capital and with it some interest.

So "Lamb" is happy since he doesn't want to speculate in the market and is happy to lend his money to government or equivalent that can use his money wisely since he doesn't need it during that period of time.

In Nordea, the reality is diffenrent Since it turns out that in our case, "Smiley" is a crook, and our "lamb" being cooked by the Crook.

A picture is worth 100o words or a billions "Crooks", so let's look at some chart:

Evidence #1 : Money Manager Fund, or "Money Losing Machine"


The red curve is the benchmark, which is here JP Morgan equivalent Fund. As you can see JP Morgan fund has evolved as it should be, a linear progression.

The Nordea Money Manager Fund is a Total Disaster!. Now, how can you trust a Bank that show such performance, especially when you start to discover the goal of such fund (short term lending, they take your money and lend it at fix rate, so in theory you cannot lose money, at worse you don't gain).

From Nordea's mouth :

"The fund is a money market fund with a relatively low exposure to interest-rate risk. A rise in short-term interest rates may temporarily decrease the NAV per fund unit...The fund is suitable for short-term investments: the recommended minimum investment period is 3-6 months."

Evidence #2 : "there is no such thing as a free lunch"


They persist and sign, as currently it is still showing that the fund is a very low risk...Common, the FSA (Financial Supervision Authority), are you sleeping? otherwise soon they should rename themselves as "Financial Super-No-Vision Authority"... Here you can clearly see in action the total failure of the regulatory system. Most probably they were spending their time watching Opera or listening at katainen daily positive speeches on YLE 1, who knows?

For reminder:
"In Finland, the fund management operations and companies are supervised by the Finnish Financial Supervision" , coming again from the mouth of the lion, excuse me.., Nordea?

Evidence #3: "let the lion speak"...

Here is what the "acting" fund manager, as during such situation, you better be seen as acting instead as being the one in charge. (For complete "smooth" talk)

"The year was bleak for money market investors, and the sharp rise in the credit risk premiums for bank bonds crushed the yield on floating rate bonds in particular.

When the investment bank Lehman Brothers went bankrupt, several investors redeemed their units in the fund and we had to sell some of the bonds in our portfolio on a non-existent market.

We have avoided bankruptcy transactions, though
."

Epilogue:

To have such losses, they might have invested in Lehman or Madoff. In reality we will never know the truth, unless the FSA publicly gives the explanation.

Note as well, that the chart above show clearly that problems started sometime in late 2007.

The conspiracy case:
In the worst case, Nordea used the opportunity to draw funds from the Money Manager Fund, and relating it to the difficult market. That we won't know if it's plausible or not and neither I'm saying that it is the scenario explaining such disastrous performance.

The Non Funny Part:
They have avoided bankruptcy transactions, maybe we should be thankful for that...it's really worrying...

Lesson Never Learned:
Lesson learned for customer, do not trust your smiley banker. Instead investigate and make them sign paper if they promise that it is 100% safe, since later you might be able to sue them and get your money back...though I'm not a lawyer. The other alternative, is each time you open a fund with Nordea, bring a lawyer with you.

Last, read any bank contract small prints as well as the big prints and even maybe take the banker finger prints, just in case....

Disclaimer: Whatever is said above is wrong and does not represent the thinking or the position of the writer. Most probably this article was written by a hacker and was published unintentionally. It is strongly known that Nordea is a great and trusted bank. The view express in this article and in the comments made following this unententionnaly published article, do no represent its authors. Anything forgotten in this disclaimer can be added any seconds. By reading this article you are abiding yourself to this disclaimer.

23 comments:

Rui said...

My pension fund suffer heavy loss !!!

I put 1700 Euro, now only 1100 left. And I have choosen the safest option, Saasta 75 !!!

Now I am very pissed, I am going to stop paying !!!

HousingFinland said...

Rui,

Wow, what a loss! it's almost the price of your car :->.

Not only you lost some money because the market corrected, but on top of that you paid, through commission, a fund manager for making losses...

Their model is wrong: commission should be linked to gain and put to zero if losses is reached...if they are not happy about that, then just don't put your money in a losing money machine!

HousingFinland said...

This morning Nordea announced that they were issuing some "right offering"... at the same time Sampo has been buying them :
"SAMPO HAS COMMITTED TO APPROXIMATELY 25 PERCENT OF NORDEA'S 2.5 BILLION EURO RIGHTS ISSUE"

Are we going to see Sampo and Nordea Merging at some point? I understand that both company are navigating in troubled water (whatever is their past performance as we are now looking in the medium term, next two years where correction of housing market in the nordic region will reach its peak, same with unemployment).

Sampo+Nordea = one of the biggest Nordic bank...that will make sense, no?

Billpete002 said...

If they did invest poorly (as we bears would like to think) they might bleed like Bank of America after that merged.

Then you end up with a company that is "too big to fail" and all the governments (regardless of the people's opinions) will dump money into them.

It's a win/win for the bankers they got amazing short term bonuses and then get to be bailed out by the government.

And even if the government puts tons of regulations on the bailed out banks - just like all laws, the market will find a way to abuse/navigate around them.

I just don't see why we don't let them fall take a world of pain for a brief time and new stronger companies would emerge, making the job market, and ultimately the country stronger.

I suppose though this is a terrible platform to run on (a good reason the Libertarian party never wins in the US)...

Rui said...

What is recession ???

http://www.foxnews.com/story/0,2933,487827,00.html

HousingFinland said...

@Bill

What will be the alternative if governments were not intervening and were allowing banks to fall...Unprecedented bankrupties, GDP collapse, social unrest with the rise of racism...a trouble period similar to the 30's - 40's.

They have no choice even if it means less growth ahead.

They slept, made mistakes, didn't held correctly the position given to them since they allowed unprecedented credit growth, the cause root of all the problems...

You see, if we had continued that way it would not have been the financial market that would have reminded us of those excesses but instead the climate change and destruction of our environment that you have stopped us from continuing in that direction.


@Rui
This is powder in the eyes...It was a mean to trap people into this bear market rally that occurred in the past few weeks.So telling that China domestic demand is strong , so everything is fine to encourage people into investing, average people I meant...but it's not, and the professional knows it since they are cutting jobs and preserving their capital...

The worst case scenario,is that If the US goes into a deep recession, China will go, without any doubt, into a strong depression and social unrest ...

Now who is buying those cars? the farmers? I heard millions are returning back to the country side amid rising factory closure.

Another sign of China economy collapsing, is through the proxy economy surrounding China: Japan, Taiwan, Korea etc.. their production and export is on free fall (and the word is soft here).

Not even talking about the Baltic Dry Index, Looks like there is too many ships than good to transport so the price collapsed by almost 90%.

Rui said...

China can not rely on export for growth any more. This phase is over.

Now phase two:

Domestic consumption create growth, and pull the whole world out of recession. Now it is good time develop domestic market since the raw material is very cheap, cost of import is very low.

Anonymous said...

The Finnish Financial Supervisory Authority have now requested that banks provide information on a monthly basis as:

"The present quarterly and semi-annual reporting frequencies used in regulatory reporting have proven insufficient to maintain an up-to-date picture in exceptional circumstances"


Link:
http://www.finanssivalvonta.fi/eng/


"Island Crow"

HousingFinland said...

Thanks "island crow",

But what was needed was a pro active FSA,not a reactive one.

Bankers and related business here and around the world have filled their pocket in the same way robbers will break a bank in daylight...the FSA closed his eyes.

So either they were naive into thinking that we had a new financial order...in the same way in the turn of the millenium during the tech bubble, specialist were talking up about the new economy (while selling and pocketing massive stock options and the same time the "poor" people in the street were asked to participate and promised high returns into buying overvalued stock)...

Today it's similar but different area: housing, Credit bubble and people asked to buy assets they can't really afford (with in mind how the economy will be in the next 10 years, Euphoric economy,continuous GDP growth in the 5% handle is gone...)and get heavy debt for 30 years...that is and that was crazy!

Anonymous said...

Upon emigrating from Finland I moved euros to Nordea Euro MM Fund touted to be extremely safe as the article points out. In 4 months starting July08 i watched it go down by ~4% before bailing out and moving the funds out of country to invest in a real asset, not paper money. Asked for a reply from Timo XXX, the fund manager, as to why such a "safe" investment tanked and the index did not and got a canned answer part of which appeared in the asuntokupla article.

With more time, more firepower, a better Finnish language ability and if I were still residing in Finland I would love to make a holy stink about it. In fact, I'd still like to if I could find others to join in.

Meanwhile the dollar inexplicably holds its value as the US govt creates trillions of dollars. Amazing. All the talking heads are saying "Deflation" so you might want to prepare yourself for some hyperinflation.





Who knows where the economy is going and te future viability of all fiat currencies, but gold and silver will never fail to hold most of its value as proven over some 5000 years or more.

Anonymous said...

I hate Nordea anyway.

HousingFinland said...

"Meanwhile the dollar inexplicably holds"

investors are repatriating their investment they made, partly from emerging market. Institution are deleveraging...when this process finish, the dollar MIGHT take a hit depending on how bad the others are (Europe economy is deteriorating and very fast, not even talking about emerging markets)...

I do not believe in hyperinflation, at least in my time horizon - 2 years - since the credit bubble is so big that deflation is the only force in action.

In 2 years we can talk about what will happen, but now no worries about inflation... Let's not fight the battle of tomorrow...people tried last year and they burned themselves...

A.T. said...

on the moment you had wrote this post, it was official news about Nordea and Madoff

CORRECTED-(OFFICIAL)-Nordea pension clients have Madoff exposure
12.15.08, 06:14 AM EST


" 'This does not affect Nordea but rather the pension clients,' Nordea spokeswoman Helena Ostman said. "

Madame Ostman surely knows how to keep customers pleased and attracted. Wish I had better banker than Nordea but others are so similar that choice is rather illusory - same mediocrity here and there, just slight variation...

A.T. said...

on a second thought, few years later - do you think that JP Chase is doing same good now in 2012 as they had been drawn on your graph in 2009? It is important to see bigger picture when it comes to money in long term - it might be helpful to note that choice in Finland is absent, and even getting out to global market won't help much. It doesn't make Nordea any cleaner just adds more clarity into ol'good "caveat emptor" wrt to general money market business.

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