Government agrees on “gigantic” support package for corporate finance

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The ministerial committee on economic policy announced a number of new decisions on Tuesday on helping corporate finance.
     The state is to offer banks operating in Finland guarantees and capital. It will also have its pension funds invest in corporate bonds, offer companies billions in financial support through Finnvera, and provide partial financing for the construction of thousands of new homes through the credit institution Municipality Finance.
     
The state is promising about EUR 60 billion in guarantees, loans, and investments, and is expecting a boost of EUR 45 billion in corporate financing.
     Key government ministers appeared enthusiastic on Tuesday. Prime Minister Matti Vanhanen (Centre) called the decisions “massive, even gigantic”. Minister of Finance Jyrki Katainen (Nat. Coalition Party) felt that this was a “rather solid and substantial whole”.
     The largest sums of money are in the bank support package, which is aimed at securing the continuity of corporate credit.
     Parliament has already approved guarantees of EUR 40 billion for helping banks raise capital. The conditions for the guarantees were set on Tuesday. The guarantees are subject to fees, according to guidelines set by the European Central Bank. There are also other conditions.
     Principles that are set for state-owned companies are to be applied in setting salaries for bank directors. Bonuses paid as incentives may be no more than 40 per cent of the basic salary, and the value of performance-based shares can be no higher than that of the paid salary. There is an overall negative view toward stock options.
     
The same restrictions apply to the capitalisation of banks. The method chosen is a three-year capital loan, with a relatively high interest rate of 9.3 per cent. If a bank is unable to pay the interest, it is precluded from paying dividends. If the interest is not paid over two years, the state gets to appoint two members onto the bank’s board of directors.
     The state also hopes to get some return on its capital credit. Banks who accept the boost must commit themselves to maintaining the financing of households and small and medium-sized businesses, which Vanhanen saw as the “blood circulation” of the national economy.
     Minister of Economic Affairs Mauri Pekkarinen (Centre Party) used a different metaphor. He said that new cyclical loans and guarantees, which are to be offered to small and medium sized companies through Finnvera, are “a road spanning a canyon for viable companies”.
     
Decisions for the financing of exports and the small and medium-sized business sector largely follow the recommendations of Antti Tanskanen, who was appointed by the Ministry of Employment and the Economy to draw up recommendations to help the Finnish economy through the current difficulties.
     A true innovation in the model was a model for financing production of new housing, put forward by Minister of Housing Jan Vapaavuori (Nat. Coalition Party). The state is taking part in a share issue of Municipality Finance with an injection of EUR 20 million.
     The move gives leverage for financing of as much as EUR 2 billion, allowing for the construction of about 20,000 apartments. However, Municipal Finance has not yet decided if it will launch a share issue.


Previously in HS International Edition:
  State Pension Fund ready to invest hundreds of millions into corporate bonds (9.1.2008)

Links:
  Finnvera
  Municipal Finance

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