The Swedish Corporate Real Estate Crisis [2022 to ?]

[John Hjorth]

International Monetary Fund - Svetlana Vtyurina and Rhiannon Sowerbutts - Selected Issues Paper [March 23 2023] : Sweden’s Corporate Vulnerabilities: A Focus on Commercial Real Estate: SWEDEN.

 

We have - since interest rates have started to crawling up, and inflation has arrived, both, many places on the world - had discussions of the implications and ramifications for investing in general and for banking  and real estate in the General Discussion Forum. Those discussions have mainly focused on North America conditions, I think.

 

There are issues in other parts of the world, too. Here, I try to focus on Corporate Real Estate in Sweden, while I assess for now Danish Corporate Real Estate cooling a lot, it it's not in distress, I think, while things are turning really bad nowadays in Sweden.

 

Danish banks are in general in good shape, I think, while I have nu clue what the near future will bring for banks involved in financing of Swedish Corporate Real Estate. I think it appears bad - really bad.

 

For staters, here is a chart from the 2022 Annual Report for Castellum AB [CAST.STO] :

Please combine the information in that chart with the information in the following chart from the above mentioned report by IMF :

 

Please note the last chart is from 2021, and thus not totally up to date. But more importantly, note the errors about listed/non-listed for Fabege, Wihlborgs, Diös, Catena & Hufvudstaden all been listed [, also in 2021].

 

To me, it's almost  as a yarn wrench of all kinds af cross holdings. Key persons on the weak side are Ilija Batljan [SBB], Rutger Arnhult [Castellum] & Erik Selin [Balder]. Mentioned here in the order I personally think they will loose their shirt in this mess, because their individual personal and private holding companies / entities are also levered to the sky.

 

How much capital [understood as equity] is there in this "total system* when RE prices are their way down, also considering nneded write-downs on cross holdings?

 

All have basically been applying same financing strategy, cheap bond financing [unsecured] based on rating, combined with bank financing where the properties are collateral for the banks, now the companies are getting downgraded to junk on their bond issues, making bond refinancing  on maturing oustanding bonds impossible, so there are like likely only a few options left, getting on their knee in the banks the most immediate option.

 

This game unfolding now involves hundreds of billions of capitalization in SEK, and I think it has the potential go really bad, worse than the GFC.

 

I think we have just left denial sentiment on the way headed into to entering panick mode.

 

 

Edited May 31, 2023 by John Hjorth
Spelling

[Spekulatius]

Is there any investment angle or is it just about the fun watching a slow motion train wreck from the sidelines?

[John Hjorth]

So far, It just pop corn & wacthing from the sidelines. It very educational. But I would like to own more RE in the Nordics.

 

I consider SBB, Castellum & Balder all uninvestable at the moment. I consider the financial design of these companies flawed.

 

My guess is that SBB will be forced to file for backruptcy [financial recontruction] monday morning. SBB hasen't any properties, that to me to have future economic potential.

 

Both Castellum and Balder own properties that I would like to partcipate in for the long term. But both need to get their fundamentals right.

 

Wihlborgs and Fabege I consider interesting, too.

 

I consider it a game of monopoly for now, where the players able to play from a position of strength are Paulsson / Backahill AB and Fredrik Lundberg / Lundbergföretagen AB.

 

I think all the larger banks in Nordics : Danske Bank, Nordea, Swedbank, SEB, Svenska Handelsbanken and DNB are involved in the risks in this mess.

 

An interesting catch / angle on this is that Fredrik Lundberg is among the Swedish RE tycoons and at the same time a material degree of control over Svenska Handelsbanken [Vice Chairman of the bank], a large personal shareholder in the bank [for years now he has been buying SHB shares for his received didends from L.E.  Lundbergföretagen AB - typically in lots of 500,000 shares per day], L.E. Lundbergföretagen is itself a material SHB shareholder, too, and L. E. Lundbergföretagen is the controlling shareholder of Industrivärden AB, which is also a large SHB shareholder.

 

I think the Lundberg sphere could easily ramp up an acquisition capacity of SEK 20 - 30 B in total in Hufvudstaden, which is a 100+ years old geriatric with low leverage and a lot of deferred taxes and in Lundbergs Fastigheter, which is almost free of external debt, for both of them, combined.

 

Personally I'm already involved here by holding of LUND_B.STO & SHB_A.STO for now almost a decade.

 

Backahill AB is one of the most impressive privately held family owned holding companies in the nordics, that I have ever looked at, cenetered about swedish real estate in many dimensions with an actual equity [adjusted for hidden reserves] in the area of SEK 20 B as per YE 2021.

 

I've been basically extremely inactive for a long period now, doing basically nothing, just nibbling SCHO.CPH now and then for dividends recieved.

 

So I'll have to let something go, to engage here, if I decide to.

 

We are not at panick, nor capitulation, in this complex situation here yet, I think.

 

Let's see how things evolves.

[Spekulatius]

@John Hjorth I dont think most of us are interested in owning Swedish properties Holdco's. The more interesting question for me is how this real estate mess is going to bleed into the broader Swedish economy, especially the banking sector.

Edited June 1, 2023 by Spekulatius

[John Hjorth]

An understandable stance of yours , which I certainly respect, @Spekulatius,

 

The development pipelines in each of these Swedish suckers will be postponed, stalled, mothballed or cancelled, because of lack of access to financing, thereby hitting the Swedish construction sector hard [in a *classic* way in a downturn], and spread into the general Swedish economy from there.

 

The SEK is very low ATM compared to EUR [and DKK, pegged to EUR], which will help exporting Swedish industrials short term. I do not follow Swedish macro, though, and thus not able to comment further.

 

The banks are in a priviged position as creditor, because they have the real estate as collateral for now. While the holders of the bonds that are getting downgraded to non-investment grade are unsecured, causing refinancing getting difficult or directly impossible. These bond holders want their money back and out of this mess asap. So all these companies are on their knees in the banks for financing to substitute the bond debt coming due. So the banks have a firm grip in the long end of the tow, with thumbs up/down de facto decision power in every single refinancing case for maturing bond debt. No part of this mountain of debt, be it to banks or to bondholders, is on non-recourse terms.

 

We just need one bank or one bondholder per company of these companies in distress losing patience and temper, and the whole thing starts coming down in a huge *kapow!* like a demolished collapsing tower.

 

If the banks have done their homework in each case individually while lending in the first place, they will likely be relatively fine, I think, and the bond holders ending as the bagholders, together with some shareholders. I have no idea of who are holding all these bonds, and thereby who will be hit.

 

I consider the market cycle downturn as unavoidable by now, I feel confident a fire sale will take place, alone SBB is a big mouthful even for the Swedish market, but lets see. The more violent it may become, the bigger will the opportunities be, the faster it will over and the more violent the swing-back of the pendulum to the better will be.

 

Edit :

 

I really feel that the Swedish FSA [called "Finansinspektionen"] has failed here since this has come so far. It would never happen by now on this side of Øresund [, meaning here in Denmark].

 

Here, credit hasen't been low hanging fruit since the GFC. The Danish FSA [called "Finanstilsynet"] has been really brutal from to time - if you weren't the one getting beaten up, you were an observer, making sure to get in line, by looking at examples made of others.

Edited June 2, 2023 by John Hjorth

[Luca]

Perhaps this enables us to buy some quality swedish companies for a cheaper price at some point  @John Hjorth thank you for sharing!

[John Hjorth]

Yes & thanks, @Luca,

 

That's the purpose of the topic. I'm also feeling quite confident now, that it is a pure play RE bubble that is about to burst.

 

- - - o 0 o - - -

 

I think yesterday, we passed denial mode on the way downhill, so next will be panick setting in.

 

Sveriges Riksbank [June 1^st 2023]: The risks in the financial system have increased.

 

Here is the public response from Rutger Arnhult [who is in severe problems with his M2, Castellum [partly solved by now though] and Corem :

 

SvD [June 1^st 2023] : Arnhult defies Thedéen - continues with dividends.

 

In short : Rutger Arnhult does not give a damn!

 

The same day that he has been asked by the head of  Sveriges Riksbank to slash dividends, take in more capital and sell properties.  I suppose he will not be asked kindly again after that. To me this behavior just demonstrates total lack of situational awareness. 

 

It's certainly getting really entertaining now!

 

- - - o 0 o - - -

 

Edit #1:

 

I also yesterday looked at some things related to Balder and the city Göteborg, that indicates that sound reason, business related motives [among them motives to generate profits] aren't the basis for decision making any longer some places in the sector, meaning (towers = tulips). I will share that information later.

 

- - - - o 0 o - - -

 

Edit #2:

 

Bloomberg [June 1^st and 2^nd 2023] : SBB Attracts Brookfield Interest in Bid to Rescue Landlord.

 

- - - o 0 o - - -

 

Edit #3:

 

Backdrop for Edit #2 :

 

SBB Press Release [November 30^th 2022] : SBB sells a 49% stake in its social infrastructure portfolio for public education to Brookfield for SEK 9.2 billion in cash with an additional earn-out of up to SEK 1.2 billion in cash.

 

- - - o 0 o - - - 

 

Edit #4:

 

From the press release from Sveriges Riksbank above :

 

Quote

... The Riksbank has long noted the risks associated with the property sector in Sweden. Property companies are now under pressure from the higher interest rates, partly because their funding costs are increasing and partly because the value of their properties is falling. Several companies have large borrowing needs. The Riksbank considers it important that companies continue to strengthen their balance sheets. The banks also have an important role to play, both by maintaining the supply of credit to viable companies and within the framework of their lending, by requiring property companies to take measures to reduce their financial risks. ...

 

I have never in my life seen anything like this in the Nordics. This will include follow-up by the Swedish FSA ["Finansinspektionen"] at the banks. "The party" has just begun. I say poor bond holders and shareholders in those legal entities, that get the verdict "non-viable".

 

All that said, I personally think it's the right thing to do, as acting head of Sveriges Riksbank to stop the folly and to instate systematic damage control based on factbased realism, sound reason and professional assessments.

 

- - - o 0 o - - -

 

Edit #5:

 

SBB Press Release [June 2^th 2023] : Leiv Synnes replaces Ilija Batljan as CEO of SBB.

 

[Pretty impressive velocity today here, I would say!]

Edited June 2, 2023 by John Hjorth

[Spekulatius]

Nobody outside Sweden gives a hoot if those real estate business go to zero. I personally don't think they are suitable investments anyways if you are US based because of dividend taxation alone. This part of the story ends here for me.

 

The more interesting question is about stability of the financial system and I think we have been there before in Sweden in the early 90's. As I recall, the Sweden basically had their own local version of what would become the GFC that we had in the US from 2002-2007, with mortgage shams, house flipping and securitization gone bad. This housing boom in Sweden from the mid 80's to the mid 90's was also caused by deregulation, lower interest rates and eventually animal spirits. So my guess is that this could end pretty much the same way.

 

I think the Swedish banks got nationalized in the later 90's but not sure. Seems to me like a generational thing going on in Sweden.

[formthirteen]

1 hour ago, Spekulatius said:

I think the Swedish banks got nationalized in the later 90's but not sure. Seems to me like a generational thing going on in Sweden.

 

The average length of a mortgage term in Sweden used to be around 140 years in 2016.

 

This is not an article from The Onion or Babylon Bee:
Sweden cuts maximum mortgage term to 105 years (the average is 140)

https://www.telegraph.co.uk/personal-banking/mortgages/sweden-cuts-maximum-mortgage-term-to-105-years-the-average-is-14/

 

Quote

Swedish banks were quoted in the local press as opposing the move.

"It isn't good for the finances of households as it will make mortgages more expensive and the terms not as good. And it isn't good for financial stability," the head of Swedish Bankers' Association was reported to say.

 

 

I'm afraid it's technically incorrect anyways. You still don't have to pay more than the interest, if you have 50% or less left on your loan and your bank doesn't mind unlimited-length mortgages.

 

I'm sure the houses are just built differently in Sweden...

 

 

Quote

House Prices Don't Care Where The Money Comes From

 

https://www.forbes.com/sites/johnwake/2019/03/30/new-study-of-old-real-estate-bubbles-1582-1810-finds-two-surprising-similarities-with-modern-booms/

Edited June 2, 2023 by formthirteen

[John Hjorth]

1 hour ago, formthirteen said:

 

The average length of a mortgage term in Sweden used to be around 140 years in 2016.

 

This is not an article from The Onion or Babylon Bee:
Sweden cuts maximum mortgage term to 105 years (the average is 140)

https://www.telegraph.co.uk/personal-banking/mortgages/sweden-cuts-maximum-mortgage-term-to-105-years-the-average-is-14/ ...

 

@formthirteen,

 

Why do you even qoute a source like The Telegraph and / or the like, when you have the financials [Annual Reports] for all these Swedish RE suckers available as a fact at your finger tips, describing just about everything related to the debt - maturity profile of the long term debt, roll over / refinancing risk, hedging of currency risk, interest rate risk, hedging of that  and such?

 

- Please grab the Annual Report 2022 for i.e. SBB, Castellum or Balder and take a look for your self how the financing has been set up and engineered. Rest assured it is to me about three persons with certain personally disorders with regard attitude towards OPM, combined with megalomania, who haven't been stopped in time by incompetent, or dumb ,or both bankers [and greedy? - with regard to banking business volume].

 

None of those three persons appear to have any clue about the concept of risks related to the debt involved in what they are doing, and it is to me personally likely, that they also don't care. [Bon appetite!].

 

There is no language barrier here for you, just approach each individual website, upper right corner you can switch to English language, and there will a pdf file available for you in English also of the last Annual Report. 

Edited June 2, 2023 by John Hjorth
Added a smiley to @formthirteen at the end

[SharperDingaan]

You might find it useful to look at Iceland ... the Iceland financial crises was 2008-2011

https://guidetoiceland.is/history-culture/how-to-purchase-property-in-iceland-a-homeowner-s-guide

https://tradingeconomics.com/iceland/housing-index

 

The index shows a level of roughly 225 through the financial crises; today it is about 700. 3.11x over 11 years .... seem familiar?

The guide makes the point that it's hard to buy real estate in Iceland unless you have Icelandic connections, and that most of the price rise is attributable to Icelanders working abroad buying their 2nd home in Iceland. The familiar leave, make your money elsewhere, and return to a fully renovated and paid off house in a low cost of living community ... the more you need a nearby hospital, airport, infrastructure, etc. the more you pay ..... seem familiar ?

 

House prices only fall if mortgagees can no longer cover the cost, everyone has to sell, and all at the same time. Very, very unlikely in Iceland as prices are held up by repatriation dollars and relatively few with mortgages. It might look a little different in Sweden, but it is hard to see it being much different than Iceland. 

 

Just keep an eye on how many residents you see walking around with options/investment textbooks.

It doesn't work out too well !!

 

SD

 

 

[John Hjorth]

1 hour ago, SharperDingaan said:

... House prices only fall if mortgagees can no longer cover the cost, everyone has to sell, and all at the same time. Very, very unlikely in Iceland as prices are held up by repatriation dollars and relatively few with mortgages. It might look a little different in Sweden, but it is hard to see it being much different than Iceland. 

 

Just keep an eye on how many residents you see walking around with options/investment textbooks.

It doesn't work out too well !!

 

SD

 

 - 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.

[Spekulatius]

1 hour ago, John Hjorth said:

 

 - 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.

Iceland in 2008 was a small economy that became a hedge fund hotel and the excesses basically destroyed their banking system and economy. They basically had to totally reboot (without bailout) and got out of the calamity pretty quickly. Real estate was not at the core of the Iceland crisis.

I think the 90's Swedish Real estate crash is the script here, not Iceland in 2008. Same country, same actors, same root cause, just 30 years later.

Edited June 2, 2023 by Spekulatius

[John Hjorth]

6 hours ago, Spekulatius said:

Nobody outside Sweden gives a hoot if those real estate business go to zero. I personally don't think they are suitable investments anyways if you are US based because of dividend taxation alone. This part of the story ends here for me. ...

 

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. 

[maplevalue]

Thanks for sharing this with us. I put this in the pile of financial imbalances that built up over a time period of very low interest rates. Rates have not even gone up that much and some big cracks starting to appear!

 

[SharperDingaan]

The Iceland reference was to highlight some key facts .....

 

What happened in Iceland was very bad; however Icelanders are hard asses, and told their creditors to f*** *** with their demands. This is what we will pay, take it or leave it; your choice. Hissy fits and 'dire' threats all over; yet a decade later ? it's still the same major banks, and house prices are 3x higher than they were. Sh1te happens, there is disruption, but it doesn't really change anything.

 

Each nation has its own peculiarities. Iceland has that large pool of expat 2nd home purchasers. Sweden has that 140 year+ mortgage amortization and 'structured' loans - whatever issues we have today can be relieved at a higher cost in a later term. Identical to the Icelandic this is what we can pay, take it or leave it; inclusive of the hissy fit - it would just execute differently in a Sweden than in a Iceland.

 

Of course, not great if you own shares in a major Swedish bank. But if even the major Icelandic banks did not go under despite a much worse disruption, would it not also be reasonable to expect much the same of the major Swedish banks? And .... if an enterprising lad had puts on those banks  and had borrowed in Krone against a Swedish property to invest in US T-Bills  ... wouldn't this disruption be an opportunity ? Possibly measured as ownership of an additional property !!

 

Then look at the land of high mountains and chocolate ....

Lots of disruption, used to be two big banks, then there was one ... now maybe its back to two? (meet the new boss, same as the old boss!). Most would have to conclude that this is the norm, not the exception. And if so .... Sweden is an opportunity!

 

Different strokes.

 

SD  

 

Edited June 3, 2023 by SharperDingaan

[John Hjorth]

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.

Edited June 3, 2023 by John Hjorth

[John Hjorth]

19 hours ago, maplevalue said:

Thanks for sharing this with us. I put this in the pile of financial imbalances that built up over a time period of very low interest rates. Rates have not even gone up that much and some big cracks starting to appear!

 

 

 

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.

[John Hjorth]

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 2^nd 2023 : 5.275.

 

Equity YE 2021, ref. above : SEK 4.584 B, minus 

Reduction equity January 1^st 2022 - June 2^nd 2023 : [SEK 3.072 * [66.42 - 5.275]/66.42] = SEK 2.828 B, equal to

Equity June 2^nd 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

Edited June 3, 2023 by John Hjorth

[SharperDingaan]

Agreed, there is nothing like witnessing sheriff auctions; to drive home the importance of always having your downside covered. The upside is that you also become very good at exploiting the positive side of risk, and it has served us very well.

 

Sadly we're already committed to UBS/CS, and will be in there for at least the next year as the various spin-offs go to market. Pretty sure we're going to do very well; if only because the Marx Brothers need to clear the egg of their faces, and can only do it by 'guaranteeing' very successful spin-offs. We have saved tens of thousands of jobs in our banking industry, we have the strongest banks in the entire world, 'swiss finish', etc., etc. ......

 

You might want to keep more cash on hand; check the guaranteed deposit maximums in Sweden, move funds around to get under them; and invest in some long dated puts. When things happen they will happen fast, and most likely over a weekend. Given the chocolate makers poor experience expect to wake up to the Riksbank as a majority partner, and a healthy option gain. Could pay off a mortgage   

 

Take care.

 

SD

 

 

[alwaysinvert]

This is an equity and bond market crisis so far. I doubt that even in SBB -- which has been on the blow-up radar at least since the Viceroy short report in Feb 2022 -- the banks will incur any great losses.

 

All the big RE companies were pushed out into first the domestic bond market and then later the Eurobond market after the financial crisis. By increasing the risk-weighting for commercial real estate for the banks, the RE owners were pushed towards bond financing. This move then went into overdrive when QE accelerated and made unsecured bonds, with the help of the central banks, significantly *cheaper* financing than asset-backed bank loans. Meaning, the companies with *more* bond financing and an IG rating had a cost advantage against those who were more conservative and stayed with banks. The IG rating put some limits on the borrowings measured as LTV and also some kind of ICR restriction, but these have been skirted by JV deals, class D shares and hybrid bonds in some cases.

The large bond proportion is now the major source of the woes of the larger entities, since rolling the bonds now is either impossible (SBB) or prohibitively expensive (Castellum, Balder). Castellum just addressed the issue with a giant rights offering, and thus will keep their IG rating. They are now backed by the super-liquid mogul Roger Akelius, who top-ticked the market in late 2021 when he sold all his European resis in a giant deal. State-backed RE companies such as Vasakronan, Hemsö, etc, also still have smooth access to bond market financing and are readying themselves to buy.

 

Anyway, unless vacancies start rising badly, I don't think this will even touch the banking system much. And that's by design. 

 

In the 90s a lot of the RE wasn't really cash-flowing, and rates went to 18%. This time, the issue is mainly that the yield gap has closed for the lowest yielding assets. As long as rates don't move up substantially more, things will be handled with equity infusions or unsecured debt-to-equity swaps. 

 

Also, if we compare the underlying CRE market in Sweden vs say NYC, it couldn't be more different. The vacancy levels are in different universes and they have thus far barely budged upwards from ultra-low levels. The resi market also by and large (while I certainly am not keen on it for other reasons) has capped rents, meaning that except for not yet fully-let new stock which come out at significantly higher rent levels, there won't be any issues with vacancies there either. Especially since immigration of 1% per year, mostly from low-income countries, keeps up demand for the dilapidated stock. Also, remember that only just shy of 30% rent and that a huge proportion of that stock is publicly owned and rent-regulated, while large subsets of the people who live there also get their income from... government handouts. So there isn't even a major cash-flow risk from employment going down. So, while there is major trouble on the financing side across the different subsectors, a lot of foreigners come in with preconceptions that might not exactly gel with the reality on the ground.

 

As for the mortgage length, this is another one of those things that are less crazy from a financial stability POV than you might think. Just look at how low the ultimate credit losses were in the 90s and even more so in 2008. Why? It's almost impossible to default on a private loan and it follows the individual, not the asset. Even unsecured consumer loans have relatively low default rates in the Nordics. The system is just completely different than the US.

 

Have we had a housing/RE bubble? Sure. Will it cause major credit losses? Not likely, unless rates keep moving higher quickly. 

[John Hjorth]

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.

Edited June 3, 2023 by John Hjorth

[DooDiligence]

Kind of related. Here's a couple of nice privately owned Swedish business.

The 1st one is Apple-ish in their product design & marketing.

 

https://teenage.engineering

 

https://www.elektron.se/us/

 

I can attest to the amazing performance of both companies products.

I don't often use the word amazing but damn...

[John Hjorth]

1 hour ago, alwaysinvert said:

... Have we had a housing/RE bubble? Sure. Will it cause major credit losses? Not likely, unless rates keep moving higher quickly. 

 

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!].

Edited June 3, 2023 by John Hjorth

[Spekulatius]

@alwaysinvert Thanks for the fantastic background on the Swedish real estate crisis (if it’s even that). Seems quite similar to what is happening in Germany. It’s mostly an issue with valuation and financing due to rising interest rates. Vonovia $VNE.DE  (German real estate co) has a debt to EBITDA of ~16x which seems similar to Castellum 14x. It very high but both have no issue with the asset themselves with virtually all the real estate occupied (Vonovia is at 97.5% occupation) and rising rents, some of which are rent controlled too. VNE also has most financing done via unsecured bonds because they are investment grade.

 

So, what is happening in Sweden plays out in many countries in Europe almost the same way, I think.