Bloomberg News

Nykredit Cuts Dividend as Only Danish Bank to Fail Capital Test

November 02, 2011

Oct. 27 (Bloomberg) -- Nykredit A/S, Europe’s largest issuer of mortgage-backed covered bonds, will withhold dividends to meet higher capital requirements set by European banking authorities.

Nykredit must raise 50 million euros ($70 million) to raise its a core Tier 1 capital ratio of 8.94 percent to meet the 9 percent requirement set by the European Banking Authority, Denmark’s central bank said. The Copenhagen-based lender will do so by withholding dividends, the central bank said.

Nykredit is Denmark’s only bank that must raise capital to meet the new requirement, as the country’s mortgage banking industry, unique in Europe, continues to grapple with doubts about the system’s strength in the wake of the U.S. subprime mortgage crisis. Danske Bank A/S, Jyske Bank A/S and Sydbank A/S all said today they exceeded the EBA’s requirement.

The EBA “did not factor in the low risk of loss related to mortgage loans,” said Nykredit, which expects to meet the requirement by July 2012. Rules for calculating capital levels set a higher requirement for mortgage loans, and will be replaced in 2015 with more lenient rules, the lender said. Under the future regulations, the bank’s ratio is 15.5 percent, it said.

Denmark was the harshest critic of a December proposal by the Basel Committee for Banking Supervision to treat mortgage bonds as less liquid than government debt, prompting the European Commission to say in July it will determine liquidity based on tests rather than asset class. Under Danish law, interest rate changes are passed directly to borrowers, reducing the risk of bank default.

Hair Cut

“The capital ratio of 8.94 percent under the transitional rules is of minor practical importance,” Soeren Holm, Nykredit’s group managing director, said in a statement.

European banking authorities raised the capital requirement from 5 percent to ensure lenders have enough reserves amid a sovereign debt crisis that threatens the euro area.

European leaders persuaded bondholders today to take 50 percent losses on Greek debt to avoid the crisis from engulfing Italy and France, and gave lenders a June 30, 2012, deadline to meet the ratio after factoring in the hair-cut. The EBA has estimated European banks need additional capital of 106 billion euros ($148 billion).

“The test shows the biggest Danish banks are well capitalized,” Ulrik Noedgaard, director general of bank watchdog Financial Supervisory Authority, said in a statement. “We don’t expect Danish banks will have problems with living up to the requirement for core capital of 9 percent before July 2012.”

Danske Bank said the EBA calculated its ratio at 11.5 percent, while both Jyske Bank and Sydbank said their ratios were 12.2 percent.

--Editors: Christian Wienberg, Tasneem Brogger.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at

To contact the editor responsible for this story: Tasneem Brogger at or Angela Cullen at

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