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Document Type

Case Study

Case Series

Broad-Based Asset Management Programs

JEL Codes

G01, G28

Abstract

With the liberalization of the Swedish banking system in the 1980s, there was a rapid credit expansion, and real estate prices soared. When the Swedish economy began to weaken, real estate prices began to decline, and finance companies faced difficulties. Swedish banks were not insulated from financial pressures, and Nordbanken, a majority state-owned bank, declared large credit losses in 1990. The Swedish government’s response was initially ad hoc and targeted to specific banks, but in 1992, the government announced an open-ended guarantee of all bank liabilities. The crisis response also included a bank restructuring program and the establishment of targeted asset management companies (AMCs) to manage bad assets from two banks. In 1993, the government took over Securum, which had been established as an internal bad bank subsidiary of Nordbanken. Another government-owned entity, Retriva, took over bad assets from Gota Bank in 1994, and Securum and Retriva merged in 1996. In total, Securum and Retriva acquired SEK 112 billion (USD 871 million) in assets at a reduced book value of SEK 66 billion, reflecting substantial write-downs. The government funded Securum and Retriva with equity capital totaling SEK 28 billion and guaranteed loans totaling SEK 14 billion. Securum immediately focused on preserving asset value, with most debtor companies undergoing bankruptcy while Securum took over the underlying collateral. Real estate assets comprised the majority of Securum’s portfolio. To manage and dispose of assets, Securum and Retriva established specialized subsidiary units for real estate, industrial companies, and foreign holdings. When it closed in 1997, Securum had disposed of 98% of its portfolio of assets and utilized private sales and initial public offerings to dispose of property portfolios. Securum wound down earlier than anticipated, after five years of operations, and is considered to be an example of the successful use of an AMC to manage bad debt a successful example of an AMC.

Date Revised

2021-06-30

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