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Swedish investment bank in freefall

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Swedish investment bank in freefall
16:00 CET+01:00
Shares in Sweden's Carnegie investment bank shed more than half their value on Monday following news that the bank was under investigation by financial authorities and had received an emergency loan from the Riksbank.

Shortly after 11:30am on Monday, Carnegie shares were trading at 10.90 kronor ($1.34), down 62 percent from an opening share price of 29.00 kronor.

The fall comes following a 34 percent drop in Carnegie shares on Friday.

The day began with an announcement that the Riksbank had offered Carnegie one billion kronor ($124 million) in special liquidity assistance.

Shortly thereafter, Carnegie also reported that it was under investigation by Finansinspektionen (the Swedish Financial Supervisory Authority) for deficits in internal management following the company's announcement last week that it lost 500 billion kronor in the third quarter.

The bank later issued a statement that Carnegie's board had hired Goldman Sachs to "evaluate strategic alternatives for the company".

The Riksbank loan is designed to help Carnegie overcome short-term liquidity problems, although both the Riksbank and Finansinspektionen deem the bank to be solvent.

“Conditions in the bank sector have recently made it difficult for Carnegie to finance its payments. The bank has suffered liquidity problems. Given the currently prevailing anxiety, the Riksbank has decided to grant liquidity assistance to Carnegie to reduce the risk of a serious disruption to the financial system,” said Riksbank governor Stefan Ingves in a statement.

As an investment bank, Carnegie does not have access to financing from the Riksbank through the repurchase agreements available to traditional savings banks.

As a result, the bank acquires much of its short-term financing on the interbank market, which itself is suffering from liquidity constraints.

“Like many other banks we have been granted short term financing from the Riksbank. Our core operation has shown strength and resilience and I am confident that our strategic decision to return to our core business of investment banking advisory and commission driven services will give us lower risk profile and better funding”, said Carnegie CEO Mikael Ericson in a statement.

The Riksbank loan is being offered against collateral and will be available until further notice.

The loan is granted by a clause in the Riksbank's governing legislation which allows it to grant credit to banks on special terms for the purpose of supporting liquidity under exceptional circumstances.

Also on Monday, Carnegie reported that it received notice from Finansinspektionen that the agency plans to investigate the bank regarding possible deficits in internal management and control, related to Carnegie's handling of large credit exposures.

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