Danish taxpayers face extra bill for saving banking system from 2008 collapse

COPENHAGEN (Reuters) - Danish taxpayers face a much higher bill than previously estimated for saving the country’s banks from bankruptcy during the financial crisis of 2008, central bank data shows.

The extra cost of interest payments on long-term government bonds has not previously been accounted for and could put pressure on the ruling Liberal Party that was also in power in 2008 to shed more light on the bailout.

With the government in urgent need to access capital markets in the autumn of 2008 to support several big private banks in severe liquidity problems, including the country's largest financial institution Danske Bank DANSKE.CO, it gave in to demands from the country's pension and insurance industry to issue bonds with 30-year maturity.

Interest payments on the bonds amount to 163 billion Danish crowns ($24.51 billion) through to 2039, or an annual bill of 5.6 billion crowns, according to Denmark’s central bank.

That is equivalent to each Danish household paying close to 3,000 Danish crowns ($451) in interest per year.

The costs caught the Social Democrats, the country’s biggest party and main opposition to the Liberal government, by surprise.

“We have not been informed about the economic effects of issuing government bonds with a maturity of 30 years,” said the party’s finance spokesman and former Minister of Taxation, Benny Engelbrecht.

“It comes as a surprise to us that these securities should have such far-reaching consequences for the country’s finances. We will raise this issue with the Minister of Finance,” he said.

The Ministry of Business and Growth didn’t take the interest payments into consideration, when it in March said the state had so far earned a profit of about 18 billion crowns from initiatives to bail out the country’s banks following the financial crisis.

The ministry said payments were not a specific part of an initiative to save the banking sector, but declined to elaborate on why it hadn’t previously accounted for the costs.

Before September 2008, the Danish government had preferred issuing government bonds with a maturity of ten years or less, a cheaper option for the AAA-rated economy than bonds with longer maturity.

However, it sold 30-year bonds with a 4.5 percent yield worth 87.6 billion crowns in late-2008 to pension funds that restructured their portfolios from foreign to domestic securities.

At present the outstanding debt in these 30 year government bonds are 125,6 billion crowns, the bank said.

Had the payments been included, the state would have seen a loss of 26.5 billion crowns, according to Reuters calculations.

Reporting by Erik Matzen; editing by Jacob Gronholt-Pedersen and Ralph Boulton