John Hjorth

Swedish Affairs World [ June 7th 2023] : S&P lowers SBB rating once again.

All the helpful explanary posts to @benchmark to help to explain this are as such are totally correct as far as I can see. From an accounting perspective it roots a bit deeper, though, wich may perhaps provide some further conceptual clarity. About 800 years ago, it was not the normal course of business to pay bills [costs] of a business with a share in the same business, and stock markets as such did not exist. Wikipedia : Double entry bookkeeping. The wonderfull thing here is that this system - now about 800 old - has proved to be timeless in this regard. Principle of entry of a cash salary of USD 10,000 to a ledger : Debit - Salaries [in the P/L] - USD 10,000 Credit - Cash [in the B/S] - USD 10,000 For a SBC it goes like this : Debit - salaries [in the P/L] - USD 10,000 Credit - Equity [in the B/S] - USD 10,000, Which also explains the cash flow statement adjustments needed in the cash flow statement mentioned above by @Spekulatius and @gfp.

Saw this from a guy in Swedish #fintwit - awesome description of the sentiment in Stockholm about this mess!

The situation for SBB is now tightening : Bloomberg [June 5th 2023] : A Default Warning From Creditors Preceded SBB CEO’s Exit. Letter sent by law firm Cleary points out covenant breach, Creditors say open to talks if they conclude by end of June.

Thank you for a great post here, @realassetsvalue!, It is a very solid basis for discussion of several issues and dimensions in this whole situation that is on my mind and that also I want to discuss. So I will remember it and get back to it in this topic. - - - o 0 o - - - I do not really remember to have read any of your earlier posts here on CoBF, btw, which really puzzles me, considering the number of post of yours. Then I looked at the date of registration, and then I did remember [!] I was sick like a I don't what in that period of time. I have 7 weeks starting two weeks earlier from whjich actuallly can't remember anything [where at the point in time two weeks earlier we both here in the household buttomed out, my better half panicking because she thought her final hour was approachjing fast! So here also a very belated welcome to CoBF to you, @realassetsvalue!

Exactly, gilmour [ @alwaysinvert], Those are some good and material points. It's important to note that the above here uploaded Annual Report for Erik Selins holding company is *history*, because the balance sheet date is now 17 months ago, and likely a lot happens when this is about an entrenant and very transactional guy like these gents. My eyes also caught the enourmous short term bank debt as stated for the time back then. Mr. Selin must have solved it in a for the bank[s] sactisfactory manner, or the company would have been defunct by now - which I can confirm that it isen't. Soon an update on this will be available.

Attached is the latest available Annual Report [2021] for Erik Selins personal and private holding company, called Erik Seling Fastigheter AB. In short, it's levered up to the gills. Erik Selin Fastigheter AB - Annual Report 2021 - 20230603.pdf

@Spekulatius, thanks, I actually respect the "Church Tower principle" instated here in Denmark for regional banks here in Denmark, projected to Real Estate investments, too [, meaning : "Don't get involved in things you can't see from your local church tower!"] - There is a lot of inner logic and sound reason to it. For me, the case is that Denmark is actually pretty small in that respect, and most of the Danish listed CRE companies have some issues, just not to directly call them crap or sh**cos, that I personally would not touch with a long pole. There is however one - one! - exemption, though. The company name is Jeudan A/S. Website : www.jeudan.dk. And I have owned it for a long time. I have posted a bit about it long time ago here on CoBF, and I sensed no interest at all, so I haven't opened a topic about it here on CoBF, also because there is a language barrier here. Language barrier, untill I actually really checked and tried again today. Attached is a machine translation of the Annual Report 2022 for Jeudan A/S provided for free by using Google Translate, from Danish to English. I have checked the first few pages, It actually looks right to me, a bit to my surprise, I must say. [Awesome!, actually!] Somebody on the other side of Öresund from here could learn a thing or two just by studying what this company has been doing with its financing, just not to say : A lot! The incumbent CFO is not exactly a financial illiterate, I would say. That goes for his now retired predecessor, too. Basically all the financing is based on non-callable [unless default] 30 years long mortage loans on annuity basis with variable interest rates, with several different periods before interest update/renewal/roll-over. On top of that there has been put interest rate swaps in place - close to the rock buttom! - to eliminate I think about 90% of all interest risk on the 30 years non-callable financing for the next 10 years! This company can ride out and endure a vacanacy rate in the area of 50 percent without even having to discussing anything with its banks. Now try to compare that to the margins of safety at its Swedish colleages. There is no comparison. I'm such a happy camper here, with a Berkshire-like return here, without any worries at all. I have never read anything from the company that has disappointed me. It's so easy!, and that is perhaps also an indicator to the direction of the *problem* for me here, which actually is me! I'm simply bored as heck, there is no hurdle for me to just buy more, or in stead of just enjoying the ride, and focusing on somehing else, not in Sweden, and "without hair". Jeudan AS - Annual Report 2022 - Machine translated by Google Translate from Dansih to English - 20230604.pdf

That did not provide the information asked for to this "Dumb Dane" you communicate with over the the pond and the internet, you piano & guitar playing redneck. I'm not amused at all! Please see : Wikipedia : Die Dummen Dänen [Manner of speaking]. I hope all is well with you and yours, Jeff! [ @DooDiligence ]

Is this just funny for me as a citizen in Nothern Europe, or is it me who haven't any clue of the layers in American humor, so that it is actually extremely funny for you, too, my fellow American CoBF members?

When people ask me if I have any money, I grab to the inside of the pockets in my trousers, turning them inside out, not saying anything. In most cases, I'm then left alone for my self. If people then actually proceed - despite that - and ask me what I'm doing [in the meaning : "for a living"], my aswer is simply "nothing". Wikipedia : The Law of Jante. I simply have no real and serious money available, anytime - my experience from 2020 taught me that, as chiseled into a stone. Basically fully invested - all the time. If I had panicked by being down ~35% within a period of approx. a month from late February 2020 to approx. the middle of March 2020 - by selling anything -, I would have screwed up just soo dearly! Our investment bank Nordnet Bank AB is Swedish [listed in Stockholm, btw.] - we are customers in the Danish branch, subject to Danish laws, supervision by both the Swedish and Danish FSA, with both Danish and Swedish "FDIC" coverage [here, in Danish, it's called "indskydergarantiordningen"]. So for me, it's actually just a matter of one click to make some cash avaiable, after execution of the selling order the cash is available immidiately. I'm then charged for one or two days days interest related to clearing of [allowed] going above my credit line for margin, which is zero. That's it. I'm not interested in SBB at all as an investment. To me, it's a turd built by an empty suit with a Ph.D. degree. I spend time on this whole complex, and work on it, in the hope to get the opportunity to grab some Swedish CRE with quality, that is mispriced because of the general sentiment, to hold for the long haul. I may fail on this, at least then I've got to know a few interesting companies to engage with on another day, based on the Kjoules I'm spending on it now. - - - o 0 o - - - Yeah, it's frustrating here to be a mere mortal market participant, while having a sense of that a lot is going on behind the curtains in this complex, especially over this weekend. There is nothing to do, other than waiting for some press realease without even knowing from where before market opening here at 9:00 AM tomorrow my local time.

Here are screenshots of sheets of The Norwegian Pension fund global holdings of Swedish listed commercial real estate companies : 1. Sorted by exposure in NOK : 2. Sorted by percentage of holding in each separate entity : This is a miniscule exposure, compared to the investment capacity of the fund. It could easily engage here, I think. The fund is materially underinvested in real estate [direct ownership of properties - all outside Norway [not to overheat anything domestic ... - what a luxury constraint, btw.] Naturally somebody must be sitting in Bankplattssen, Oslo, looking to the E/SE about what is going on at and among those obvious poor neighbours, short of cash [at least some them!], that speak exactly as weird as all those filthy rich Norwegians! [, but still a bit different.] - - - o 0 o - - - Supplementary calculation and data : Size of Norwegian Pension Fund Global according to front webpage : NOK 15.4 B T [<-!], Norwegian population according to World Stats as of today : 5,544,607. Thus every Norwegian newborn child born today is equipped with a pension account - at birth! - of : NOK 15.4 T * [1 / [5,544,607 +1]] = NOK 2,777,473 - and counting!

We actually alreday have discussion topic for Vonovia in the Investment Ideas forum : I remember that I back then [2018] cooled a lot after looking at the financing. It reminded me of what has happened to GGP. And now see how Brookfield has fared with x3 averaging down in such stuff [GGP 39% -> GGP 100% -> Taking BPY private]. In that topic there is link to a paper analyzing what went wrong for GGP in the first place. And ref. the information posted by @Spekulatius, has business conditions for Vonovia since worsened materially.

@Luca In taxable accounts : 15% withheld by our investment bank. The bank is Swedish [Nordnet] and sends the withheld tax money to the Swedish IRS. By my yearly tax return I get credit for the Swedish tax witheld by the bank. The bank is by Danish tax law liable to report both the divdidends and the taxes withheld directly to the Danish IRS without my participation at all, so those fields in my tax return are automaticly filled in my webinterface to the Danish IRS, I only have to check the numbers, and there have only been few errors during the years, typically under splits, spin-offs and such. So while under the calculation of my taxable global dividend income according to Danish rules, I get credit for dividend taxes paid in Sweden, converted in numbers from SEK to DKK. It's simply soo pleasant to deal with, and no hazzle. And as you can understand from the above, there is no tax leakage here for me. [Tax on dividends here is 27% / 42% on a progessive scale]. In tax deferred accounts : Also 15% withheld with the same mecanism for moneyflow and information to the Danish IRS as described above. Here, we are subject to tax deferred accounts consisting of a 15.3% tax on dividends, realized gains and unrealized gains. Just for the humor in it, it's called PAL-tax. Naturally it varies wildly year by year and is now the by far largest tax in our household. The tax is paid by funds in the account on Januar 15th for prior year. The bank takes out the tax of the account on that date without any notification, so the cash has to be available on exactly that date, or the process is like a margin call. Never tried that though so far. It's a dreadfull experience after a good year to mess around with this and selling stocks in the first two weeks of the new year. I simply hate it. I'm a slow starter at that time of the year, because it's dark as a hellhole outside here when I get up, likely also cold, rainy and windy, and when we reach the midlle of week 1, it all starts with correctional attitude towards my behavior, because I haven't really started doing anything, so I get asked to stop reading whatever I'm reading or to log off CoBF to fix the taxes for the Lady of House. So no tax leakage here, too. - - - o 0 o - - - To understand the Swedish taxation of these investment holding companies you need to study a pure play of where no investment is included in a normal line-by-line consolidation. Industrivärden AB is such case to look at to understand it. It provides a degree of tax free compounding I as a Dane can't anywhere else.

Elaboration on what @Spekulatius posted on CRE in Europe more in general : Bloomberg [June 3rd 2023] : A New Wave of Real Estate Pain Is Coming After European Rout.

Perhaps as a reference to the post above by @alwaysinvert : I'm in the camp, that believes interest rates will gradually over time come down going forward, and the actually quite high inflation ATM will gradually find a lower level [, but what do I know about that? : Exactly the same as you do : Nothing!].

Fantastic background primer above from a native Swedish CoBF member, who I know for a fact [Substack posts] has followed closely over a longer period how this has evolved over time, especially related to Rutger Arnhult and the companies in his personal sphere. Thank you, @alwaysinvert, and trevlig helg. Edit: As alluded to by both @Spekulatius and @alwaysinvert: Wikipedia : Sveriges Riksbank [Somehow, I managed in the first place to type "Sveriges Riskbank", but got it fixed ] What a brutal history over time to get to something that actually seems to work! - Absolute crazy to think about!, & Wikipedia : Sweden financial crisis 1990–1994.

Now back to IB and his privatly held personal holding company. Annual report 2021 attached, so far the latest available. [Please note : Public information, if you know to get it in your hands - I'm not a criminal person!] There is a language barrier here for the majority of the CoBF members, I think, - you will have to live with that, if interested here. Please refer to the chart in the starting post in this topic with the "yarn wrench". This is the company owned by IB, which holds a large stake in SBB. According to note 14 we see a book value [market price] of the companys shareholding in SBB of SEK 3.072 B at YE2021. A quick, dirty and brutal calculation gives us : Market price SBB B shares YE 2021: SEK 66.42 / share. [It's likely unlisted A shares - I don't give a damn - You can put what ever premium on those A shares you see fit, it does not matter for the conclusion below.] Market price SBB B shares Friday June 2nd 2023 : 5.275. Equity YE 2021, ref. above : SEK 4.584 B, minus Reduction equity January 1st 2022 - June 2nd 2023 : [SEK 3.072 * [66.42 - 5.275]/66.42] = SEK 2.828 B, equal to Equity June 2nd 2023 = SEK 1.756 B. So now - this company - paribus ceteris, give or take - has an equity of SEK 1.756 B with no dividends in sight from its largest holding - in SBB -, and a public listed bond debt of SEK 1.182 B to serve, total debt in the area of SEK 1.6 B. Please give me a break - it's a zombie - dead man walking, just waiting for the final neck shot from a bank, so the banks can get in a control position for the fate of SBB. - - - o 0 o - - - According to note 23 has IB provided a loan to the company of SEK 92 M. IB was not born with a silver spoon in mouth. He is an immigrant of modest origin, with a former career as politican in Sweden. That does not provide a fat wallet to lend own private holding entity that kind of money. A major part of it he must personally owe to someone. - - - o 0 o - - - So, no matter which death criterion you may apply [brain death or permanent cardiac arrest], IB him self, personally, is already dead, too. Ilija Batljkan Invest AB - bokslut-2021-12.pdf

It is so true, @maplevalue, Bad financial planning and execution, combined with a financial strategy without any margin of safety. It was doomed to go bad.

Yeah, that was a harsh round for the Icelandic population, @SharperDingaan, I still remember reading about Icelandic households in default on their morgages, where families weren't evicted from their homes, because reposessions did not make any economic sense, because there were no buyers on auctions. Husbands and wifes were struggling every day to get food on the table for the kids. Absolutely heartbreaking reading. [Meaning : Worst for the men, I think : Mothers with no food in the fridge for the kids aren't exactly a pleasure for the husband : "Do something - now! - or I'm all "crossed legs" for you as a wife!"] A bit like what you have told here on CoBF about what you have experienced in Canada under oil bubble burts as a fairly young oil engineer [oil bug] back in those days for you. Just soo wild. [ I will never forget what you have told us about that and how it has shaped you.] Wikipedia : 2008–2011 Icelandic financial crisis. - - - o 0 o - - - This Swedish hickup is likely a pleasant breeze compared to that. Not that bad.

I a firm believer in it. It seems to be able to fix everything, it even appears to be able to fix the development pipelines in the Swedish Real Estate Sector for the contractors, when the Swedish corporate real estate companies have problems with access to [further] liquidity in the banks or the bond market. [J/K] [Voted 1995.]

Touché!

Yes, perhaps, @Spekulatius, for you? Please at least leave some room for discussion among others with interests not similar to yours, without you feeling obliged to have an on CoBF expressed opinion here on CoBF on everyting discussed here on CoBF, without you doing any real work on facts discussed here on CoBF [, while it's at the same time evident to me, by your posts in this topic, that you haven't] , nor providing any new facts or investment related assessments by your posts in this topic, thank you.

- It's almost killing me! Yes, the Icelandic financial crisis back then was bad, really bad. Not anywhere similar to what is at discussion about what's going on in Sweden by now, I think.

@mattee2264, Please remember, this is about the marginal buyer [, in the meaning : not you, nor for that sake me, if we are discarding those prices]. In short, they don't matter that much, if you don't feel inclined to engage.