Christiana Bank Carries On In FX Despite Insolvency

Christiana Bank was able to continue trading with most of its interbank counterparties despite a declaration that the bank was technically insolvent on October 14, according to London chief dealer Neil Oddy. The Norwegian government intervened to prop up the bank, guaranteeing its transactions, which reassured most of Christiana's counterparties, says Oddy. "We have quite a few friends around in London, a lot of longstanding relationships," he says.

After some initial hesitation on Monday when trading in the bank's shares on the Oslo stock exchange was suspended, the major British clearing banks and American banks resumed trading with Christiana, he says. "Only the Japanese banks have been stubborn," he adds, and have cut their lines with the bank. Many banks reacted to a Reuters item about the share suspension by refusing to deal with the bank, he says, but after Oddy pointed out the government guarantee, they were willing to pick up again. "Essentially, they'd be refusing the Norge Bank," he points out. In the forwards market, however, the bank is not doing much business at the moment, he admits.

Christiana, Norway's second largest bank, was forced by a portfolio review to conclude that its loan losses had entirely eaten up its capital and to inform Oslo bourse officials that the bank's private share capital was now worthless. In the first half, Christiana posted a net loss of NKr1.2 billion, compared to a NKr128 million profit for the same period in 1990. A leaked report in the Norwegian press said that the third quarter results, not yet announced, would show a net loss of NKr1.2 billion. Effectively, the Norwegian central bank now owns Christiana after a massive injection of capital three weeks ago. At that point, says Oddy, several banks did reduce credit lines with Christiana.

Christiana president Borger Lenth has announced a program to cut bank costs by some 15 percent. Oddy expects these cuts to affect treasury operations in Oslo and Luxembourg more than in London, he says. "They will definitely be cutting staff in Oslo, but I don't think in London," he comments, adding that so far, he is not worried about his own job or expecting major staff losses because of the news.