Sweden and Finland step in to prevent energy companies from falling into a Lehman-like situation

Finland and Sweden on Sunday announced plans to offer billions of dollars in liquidity guarantees to energy companies in their countries after Russia's Gazprom (MCX:GAZP) deepened Europe's energy crisis by shutting down the Nord Stream 1 gas pipeline.

Finland plans to provide 10 billion euros ($9.95 billion) and Sweden 250 billion Swedish kronor ($23.2 billion) in liquidity guarantees. "This has the ingredients for a kind of Lehman Brothers of the energy sector," Finnish Economic Affairs Minister Mika Lintila said on Sunday. Lehman Brothers, the fourth-largest US investment bank at the time, triggered the worst parts of the US financial crisis in September 2008 when it filed for bankruptcy with more than $600 billion in debt. "The government's program is a last-resort financing option for companies that would otherwise face the threat of bankruptcy," Finnish Prime Minister Sanna Marin told a news conference. State-controlled Finnish energy company Fortum, which last week called on Nordic regulators to take immediate action to prevent even small players from defaulting, praised the proposals made by Helsinki and Stockholm. "We appreciate the Finnish and Swedish governments taking swift action to stabilize the Nordic derivatives market and support Nordic energy companies in a time of crisis," the company said in a tweet. "It is very important to keep the companies in operation. Our discussions with the Finnish government are ongoing." The governments said the guarantees were aimed at preventing ballooning collateral requirements that could topple energy companies trading electricity on the Nasdaq Commodity exchange and spread to the financial sector. Reduced gas flows from Russia before and after its invasion of Ukraine in February have pushed up prices and electricity costs in Europe. The rapid rise in electricity prices has led energy companies to make losses on paper in electricity futures contracts, forcing them to find funds to post additional collateral on exchanges. The Swedish debt office said on Saturday that the collateral requirement on the Nasdaq exchange has recently reached 180 billion Swedish kronor, up from around 25 billion in normal times, due to the up to 100% increase in electricity prices. The government feared that the shutdown of Nord Stream 1 would lead to further increases. Finland's Marin said measures should be taken at the European Union level to stabilize the functioning of both the derivatives market and the energy market as a whole. The fact that the Nasdaq exchange is a Swedish company supervised by Swedish authorities is the main reason why Sweden was the first country to step in to deal with the potential crisis. Swedish Finance Minister Mikael Damberg said on Sunday that the guarantees will last in Sweden until March next year and will cover all Nordic and Baltic countries for the next two weeks only. Damberg said that without the government guarantees, electricity producers could have experienced "technical bankruptcy" on Monday. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!