Nykredit has committed to changing the terms of the cooperation between Totalkredit and 41 banks regarding distribution of mortgage loans

Totalkredit is the biggest Danish mortgage institution, and is a subsidiary of Nykredit.

Mortgage loans are in general provided to Danish consumers with universal banks acting as financial intermediaries. Almost no private debtors take up a mortgage through other channels than their primary bank.

In 2003 Totalkredit entered into a contract (“Hovedsamarbejdsaftalen”, in short ”HSA”) with a large number of banks that stipulates the rights and obligations for Totalkredit and the banks when they collaborate on supplying mortgage loans to private debtors. Today Totalkredit provides mortgage loans to currently 41 Danish banks (exclusive Nykredit Bank which is in the same group as Totalkredit). All Danish banks that distribute mortgage loans, and that are not vertically integrated with a mortgage institution (“independent banks”), distribute mortgage loans from Totalkredit. Consequently, Totalkredit supplies 100 percent of mortgage loans provided by independent banks to private consumers. All other banks/competitors to Totalkredit (Jyske Bank, Nordea, Danske Bank) distribute mortgage loans only from their vertically integrated mortgage institution (respectively, Jyske Realkredit, Nordea Kredit and Realkredit Danmark). As a result, all banks distribute mortgage loans for one, and only one, Danish mortgage institution.

According to the HSA the independent banks that distribute mortgage loans for Totalkredit are contractually obligated to distribute these loans exclusively for Totalkredit. The consequence of breaching the exclusivity clause is that Totalkredit has the right to terminate the contract (the bank will no longer be able to distribute mortgage loans for Totalkredit) and that the bank will lose all future commission on mortgage loans that have already been distributed to private debtors. Since most of the banks in question have built a relationship with Totalkredit and distributed mortgages for Totalkredit for more than 20 years, the loss of future commissions and the loss of the possibility to distribute Totalkredit loans will lead to a very large and prolonged financial loss for the banks. Together, the consequences of breaching the exclusivity clause constitute a substantial barrier for banks for switching entirely to a different supplier of mortgage loans and a barrier to simultaneously distribute mortgages for Totalkredit and competitors of Totalkredit (in Danish “parallel distribution”).

It is the Danish Competition Council’s (DCC) assessment that Totalkredit holds a dominant position on the Danish market for mortgage loans to private debtors.

The DCC considers that Totalkredit has possibly abused its dominant position by imposing exclusivity clauses on the independent banks distributing mortgage loans for Totalkredit.

The DCC also considers that the exclusivity clause in conjunction with the right for Totalkredit to stop paying commission to banks breaching the exclusivity clause amounts to the banks paying an exit fee to switch the supplier of mortgages. The DCC considers that this barrier possibly hinders banks from switching to a different supplier of mortgage loans. Most of the banks in the market survey confirm that the potential loss of future commission constitutes a barrier to switching supplier of mortgages.

The DCC further considers that the exclusivity clause – amplified by the potential loss of future

commission – possibly hinders banks from simultaneously distributing mortgage loans for Totalkredit as well as for a competing mortgage institution. The market survey shows that some banks wish to have the possibility to distribute mortgage loans for multiple mortgage institutions while most banks prefer to distribute mortgage loans on an exclusive basis.

Totalkredit has offered commitments to resolve the abuse of dominance-concerns raised by the DCC and the DCC has accepted these commitments. The DCC has therefore not taken a final position on whether Nykredit has abused its dominant position in this case.

Totalkredit has offered commitments in the form of an amendment to the contract (the HSA)

between Totalkredit and the independent banks.

The terms of the contract amendment are the following:

1. banks will not incur a loss of commission from Totalkredit on already distributed mortgage loans for Totalkredit if they switch to another mortgage supplier
2. banks will be able to participate in mergers/acquisitions with banks that distribute mortgages for competing mortgage institutions and also in that situation with no loss of commission on already distributed mortgage loans
3. banks will be able to simultaneously distribute mortgages for Totalkredit and competing mortgage institutions that are not vertically integrated with a universal bank (this excludes all existing competitors to Totalkredit on the relevant market but opens up for potentially new mortgage institutions)
4. it is clarified that it does not constitute a breach of the exclusivity clause if a bank distributes other types of loans secured by real estate, i.e. not mortgages, for competing mortgage institutions

The DCC considers that the commitments as a whole will increase competition on the market for mortgage loans (and other loans secured by real estate) in Denmark. Commitment 1), 2) and 4) provide actual competitors with the possibility to compete for the entire “mortgage loan demand” in a bank and to exert competitive pressure on Totalkredit through the supply of other loans (non-mortgages) secured by real estate to banks distributing mortgage loans for Totalkredit. Commitment 3) reduces the barriers to entry and makes the market contestable for small/new mortgage institutions who need access to a distribution network. The commitments can be re-evaluated by the DCC five years after the date of the decision. The commitments stay in force until the DCC re-evaluates its decision.