State Pension Fund ready to invest hundreds of millions into corporate bonds

Tanskanen puts forward proposals to ease credit crunch

Antti Tanskanen

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The State Pension Fund is seen as the best source of relief for financing problems being experienced by large Finnish companies. Under a proposal by renowned economist Antti Tanskanen, who carries the honorary title of Minister, the pension fund should buy corporate bonds, or commercial papers of large companies.
      In Tanskanen’s view, such a move would ease the plight of smaller companies, as more bank financing would become available to them.
     
Tanskanen was commissioned by the Ministry of Employment and the Economy to draw up recommendations to help the Finnish economy through the current difficulties. On Thursday he submitted his report to the Minister of Economic Affairs, Mauri Pekkarinen (Centre).
      Both Tanskanen and Pekkarinen emphasised that the proposals would not necessarily impose massive expenditure on the state. However, the proposal that the state-owned financing company Finvera provide additional guarantees is expected to bring between EUR 40-45 million in credit and guarantee losses.
      In Tanskanen’s view, the state could even make a profit, if things go very well.
     
Tanskanen sees the Sate Pension Fund as a kind of “fire brigade waiting for authorisation to go”. It has invested in corporate bonds before. There is no need for detailed studies of the companies involved, because the State Pension Fund is already familiar with the few dozen large Finnish companies in question.
      In many countries, such as the United States, it is the central bank which buys corporate bonds. Tanskanen notes that this is not possible in Finland, because the Bank of Finland is part of the central bank system of the Euro zone.
      “It is important now to act fast”, Tanskanen emphasised. The State Pension fund is ready to do this, says the fund’s managing director Timo Löyttyniemi.
      “We can invest hundreds of millions of euros very quickly”, Löyttyniemi says.
     
The proposal by Tanskanen, a former banker, is undoubtedly good news for banks. He says: “healthy Finnish banks should not be burdened by conditions of such guarantees, which are justifiable only with respect to banks that have fallen into trouble.”
      Parliament has already approved guarantees of EUR 50 billion for banks’ capital acquisition, and the government is still considering the conditions that should be applied.
      Tanskanen feels that the increase in banks’ capital, which is only now under preparation, should be based on capital loans. He feels that it should not involve an increase in state ownership in banks, which has been used in a number of European bank support decisions, “because the banks don’t want it”. The state has set aside EUR 4 billion for this.
      Tanskanen also proposes that the percentage of state capital loans of the banks’s primary capital could be raised from the current 15 per cent to 35 per cent. The change would improve the banks’ capital adequacy, and boost their ability to grant credit.


Links:
  State Pension Fund
  Finnvera

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