Monday 25 September 2017

Bondholders face losses as another Danish bank fails

banking

Thomas Molloy

Thomas Molloy

DENMARK'S Fjordbank Mors became the third regional Danish lender since February to fail -- and the second to burn senior bondholders.

The Danish state will now step in after Fjordbank Mors declared that it had to close after Denmark's regulators asked it to write down more bad loans. A request that the bank raise more money before the end of the week forced the bank to close, the lender said.

Holders of senior unsecured claims will take a loss of about 26pc, Denmark's state-appointed bank resolution unit, Financial Stability, said in a statement.

Ordinary people and companies who have deposits with the bank won't lose anything because they will be compensated by a special fund financed by all the country's banks.

The bank had asked for shares to be suspended last Friday, citing a "rumour" that it would fail.

Like Ireland, Denmark fell prey to a property mania during the last decade which saw many inexperienced developers begin large projects in the small country and in neighbouring Germany.

Property prices have since collapsed, sending many developers to the wall. Fjordbank's failure was forced by bad loans to the construction and farming sectors. It is Denmark's second bank collapse to trigger a resolution package that allows for senior bondholder losses.

The collapse of a larger lender called Amagerbanken in February was the first in the European Union to force unsecured senior creditors to take a 41pc haircut on their holdings.

Moody's Investors Service has since downgraded a number of Danish lenders, including the country's biggest, Danske Bank, citing an absence of state support.

Unlike Ireland, Denmark has announced plans to end all guarantees in two years' time on debt issued before the end of last September.

Yesterday's failure will trigger losses at Denmark's three biggest banks: Copenhagen-based Danske Bank, which owns National Irish Bank here, Jyske Bank and Sydbank.

Each of the three lenders will lose about 5pc of their profits via their contribution to the fund that compensates depositors.

Shares in all three banks fell while shares in the country's smaller banks fell further.

Nine banks have failed in Denmark - the most significant of which were the 2008 collapse of Roskilde Bank and the downfall in February this year of Amagerbanken.

Meanwhile, Danske Bank criticised the Basel Committee on Banking Supervision and Moody's, claiming they don't understand Denmark's mortgage bonds after Moody's said it may downgrade the so-called covered bonds backing the Danish mortgage market.

Irish Independent

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