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Nykredit’s commitment regarding its administration margin

23. juni 2010

he Danish Competition Council has on 23 June 2010 decided that the commitment proposed by Nykredit in 2003 to reduce its administration margins to 0.50 percent has no time limit and is still to be complied with. The commitment was proposed in connection with the merger between Nykredit and Totalkredit.

In October 2003 the Competition Council approved a merger between the two Danish mortgage lenders Nykredit A/S (Nykredit) and Totalkredit A/S (Totalkredit). As a condition for the approval Nykredit proposed a series of commitments including a commitment (# 5) which implied a reduction of the administration margin for private customers to 0.50 percent for new mortgage loans at maximum mortgage ratio.

On 23 February 2010 Nykredit announced an increase in administration margins for loans to new and existing private customers. At the Competition Authority's request, Nykredit has explained the announced increase in administration margins in relation to the commitment proposed in 2003. Nykredit is of the opinion that an increase in margins does not contravene the 2003 commitment.

By an interpretation of the wording of commitment #5 it is the Competition Council's assessment that the commitment is not time limited and will still apply. In the assessment the Council finds in particular:

  • That the actual wording of commitment #5 on a reduction of administration margins does not contain any time limit or reference to other periods in general.
  • That several of the other commitments include time restrictions or deadlines for their maturity.
  • That the wording of the Competition Council's decision from 2003 shows that the commitment was set to counter the price increases that the merger otherwise was expected to result in. Hence, commitment #5 was not only linked up on the effects of the cooperation agreements between Nykredit and the banks that formerly owned Totalkredit, but also on the impact of the increased concentration, i.e. the change in market structure. Also for that reason commitment #5 is not considered to be time limited.

Although the wording of the commitment by the Competition Council's view is clear, the council has also assessed the commitments legislative history and other circumstances. In this part of the assessment the Council finds: 

  • Regarding the wording of the merger decision in general – that is, beyond the wording of the commitment itself – there is nothing that decisively indicates that the commitment is limited or unlimited in time. 
  • Nykredit has claimed that there was a common understanding that commitment #5 was time limited. However, this is not reflected in any of the commitment draft proposals, which Nykredit forwarded to the Competition Authority before the Council’s decision in 2003. 
  • That the Competition Authority after the decision in 2003 has not spoken in a way that can be taken as an indication that the authority itself should be of the opinion that commitment #5 was fulfilled by 15 October 2003 or in 2005.
  • That an application of general legal principles for interpretation of agreements leads to the conclusion, that commitment #5 can not be considered as being limited in time.

In conclusion, it is the Competition Council's assessment that Nykredit’s commitment #5 regarding a reduction of the administrative margin has no time limit and is still to be complied with.

Depending on the circumstances and with regard to the character of commitment #5 and the time that has elapsed since the commitment was proposed, the Competition Authority has announced that the Authority will assess whether the facts, including the market and regulatory conditions, have changed to such an extent since 2003, that the commitment should be amended or repealed. This assessment is still pending.

The Competition Council’s decision was appealed by Nykredit to the Competition Appeals Tribunal. On 2 December 2010 the Competition Appeals Tribunal confirmed the Competition Council’s decision that commitment #5 is not time limited. Nykredit has brought the case before The Maritime and Commercial Court where the case is pending.