Norway probes big investment losses by four towns
OSLO, Nov 21 (Reuters) - The Norwegian government has launched probes into highly-geared and ultimately loss-making U.S. investments made by Norwegian towns and the brokerage that sold them, the Finance Ministry said on Wednesday.
The ministry said the probes focus on four municipalities that may have overstepped risk limits by investing 4 billion crowns ($739 million) in debt products and associated leverage schemes and whether risks were adequately presented by seller Terra Gruppen.
The four municipalities are Rana, Narvik, Hemnes and Hattfjelldal in northern Norway.
"We have asked Norway's Financial Supervisory Authority to look into the activities of Terra, which had to inform the buyers of the risks of this complex investment," Finance Ministry spokesman Anders Lande said.
The investments have lost as much as 50 percent of their value after this summer's global credit crunch sent leverage costs soaring along with the price of short-term financing.
Structured municipal portfolio fund-linked notes put together by U.S. banking giant Citigroup (C.N) were marketed and sold in Norway by the brokerage arm of Terra, a financial group owned by Norwegian savings banks.
"We regret that (the towns) have come into this situation but we have not misled anyone," Terra spokesman Sigurd Ulven told Reuters.
He added that Terra, Citigroup and the towns were working on unspecified "alternative solutions" to help the investors.
Citigroup said it was confident that risks were disclosed.
"Citi is confident that the risks of investing in the notes were described in the materials provided to Terra Securities, and we have been in regular contact with Terra Securities regarding the current situation with respect to the notes," Citi Norway said in a statement to Reuters.
"Like all securities there are risks of investing in the notes, including that they may rise or fall in value," it said.
The notes, which were based on debt issued by U.S. cities and states, had high credit ratings.
To boost returns the investments were leveraged by short-term loans taken out by the four towns.
The credit crunch, which stoked turmoil on global financial markets from August, squeezed short-term liquidity and boosted financing costs, triggering heavy losses for the municipalities.
"In our opinion Terra has not given us enough information about the risks or trigger-points before our decision," Inge Myrvoll, who was the mayor of Rana when it bought the notes, told Reuters. He stepped down after elections in September.
NO SAFETY NET
To satisfy margin requirements on the leveraged assets the towns have been obliged to make further payments on their investments. The government has so far refused to offer financial assistance to them.
"The government cannot be a safety net for failed investments by Norwegian municipalities," Finance Minister Kristin Halvorsen told reporters on Wednesday.
Norway's government is also checking if towns violated rules by borrowing nearly 90 percent of the capital for the investment. It is not clear if other municipalities had bought similar notes.
"I want a full overview of the case and have asked the regional administrative officer... to consider whether the four municipalities have done anything illegal," Regional Development Minister Magnhild Meltveit Kleppa told daily Aftenposten.
Norwegian media has quoted municipal officials as saying they were not properly informed about the risks.
(Additional reporting by Aasa Christine Stoltz)
