Carnegie takes over HQ Bank

Investment bank Carnegie has signed a deal to take over crisis-hit sector colleague HQ Bank, with payment amounting to 268 million kronor ($36.8 million) to settle employee stock options and client obligations.

• HQ Bank close to deal: liquidator (1 Sep 10)
• HQ appeals revoked banking license (31 Aug 10)
• Uncertain future after bank liquidation (30 Aug 10)

The deal, reportedly signed late on Thursday evening, was confirmed in statements issued by both Carnegie and HQ on Friday morning.

"The takeover of HQ Bank means that the bank's liquidity and client obligations are immediately secured, that the workforce can be kept intact and that the operations can be quickly resumed," Carnegie CEO and president Frans Lindelöw said in a statement.

"This is a transaction that will benefit both clients and employees."

Sweden's Financial Supervisory Authority (Finansinspektionen - FI), "has approved Carnegie Investment Bank's purchase of HQ Bank and HQ Funds," the agency said in a statement, insisting the sale would help secure funds belonging to the beleaguered bank's approximately 20,000 depositors.

The agency stressed however that HQ for the time being officially remained in liquidation.

Carnegie meanwhile said the operations of HQ Bank, which manages about 60 billion kronor, would be integrated into its own and that HQ Fonder (funds) would become a subsidiary, adding that all of HQ's some 300 employees would move over to Carnegie.

"The merged company becomes the Nordic region's clearly leading independent investment bank," Carnegie said in a statement, adding that it would guarantee HQ Bank's liquidity and its clients' deposited funds.

As part of the deal, Carnegie will buy all issued shares in HQ Bank for 268 million kronor, which corresponds to outstanding convertible bonds held by the bank's employees that, if HQ had declared bankruptcy, would have become worthless.

"Payment is in the form of a promissory note to HQ AB, pledged to the benefit of holders of the personnel convertibles," Carnegie said.

Carnegie said it would also buy all issued shares in HQ Fonder from investment company Öresund for 850 million kronor, allowing it to convert the shares to its own.

Following the transaction, Carnegie said its total equity, on a pro forma basis, stood at 2.7 billion kronor.

HQ's equity, also according to pro forma calculation would amount to "approximately 60 million kronor, comprising mainly of available cash and short-term receivables," HQ said.

Carnegie, which was taken over by Sweden's National Debt Office in late 2008 after the authorities threatened to withdraw its operating licence over risky dealings, had tried to purchase HQ on Sunday, a day after all that bank's licences were revoked for breach of banking regulations.

FI had however stopped Carnegie's initial plan to buy HQ, and the bank was on Monday forced into involuntary liquidation.

HQ, currently headed by liquidator Bioern Riese, has remained closed all week after cautioning that "opening the bank without having found (a new buyer) has been calculated to lead to such liquidity pressure that the bank would not be able to meet it."

Despite fears of a run on the bank, the decision to lock in customers'
money met harsh criticism.

Late Thursday however, HQ announced it planned to open for business again starting Monday.

Trading of the bank's shares was halted on Tuesday, after its share price plummeted nearly 84 percent during a single day of trading on the Stockholm stock exchange a day earlier.