Bloomberg News

Danish Deleveraging Frenzy Sends Business to Nykredit Bank

December 13, 2011

(Updates with bankruptcy figures in 15th paragraph, economist comment in 16th.)

Dec. 6 (Bloomberg) -- Nykredit Bank A/S is gaining customers as its Danish rivals show their clients the door in a deleveraging frenzy that’s accelerated since the Nordic country’s funding crisis started in February.

The banking unit of Nykredit A/S, Europe’s biggest issuer of mortgage-backed covered bonds, is increasing its client base every month as rivals including FIH Erhvervsbank A/S call in loans, Managing Director Georg Andersen said.

“We are not really hit that hard by the current situation,” Andersen said in an interview in his Copenhagen office. “We get quite a few new clients both in Denmark and internationally.”

Danish banks are still reeling from the fallout of a funding crisis triggered by senior creditor losses after the February failure of Amagerbanken A/S. Lenders also need to repay state-backed loans by a 2013 deadline after the government signaled it’s unlikely to respond to pleas to extend the support. FIH, which owes the state about $7 billion, more than any other bank, cut loans to clients by 19 percent in the first nine months as part of a retrenchment strategy, it said Nov. 9.

Finance Minister Bjarne Corydon said last month that Denmark’s banks have received the state support they need and told the industry to focus on consolidation. The government in September passed its fourth bank rescue bill since 2008, designed to encourage healthy banks to take over troubled peers.

Growing Without Buying

Closely held Nykredit Bank, Denmark’s fourth largest, wants to increase its retail and commercial lending business, Andersen said. The bank may not need to resort to acquisitions thanks to the influx of customers triggered by the crisis, he said.

“We want to get new clients in gradually, on markets making, on asset management, on the private side and on the corporate side,” Andersen said. “We’re in a quite healthy situation. We are not forced to reduce balances. We are not forced to move aggressively. Basically, we stand.”

The lender is also expanding its brokerage business and this month opened an office in Stockholm to trade Swedish government and mortgage-backed bonds as investors fleeing the turmoil roiling the euro area seek refuge in Scandinavia, he said.

“What we do in Sweden is part of the drive to grow the bank,” Andersen said. Denmark, Norway and Sweden are functioning as havens, so “we see quite some inflow to these countries of liquidity from international investors who would maybe under other circumstances put this money in the more core euro countries.”

Bond Issuance

Nykredit wants the banking business to serve as an outlet for its issuance of mortgage-backed covered bonds as part of a drive to have international investors make up about a quarter of the total, compared with about 17 percent today, he said.

“We want to move further out to Asia and even South America,” Andersen said. “When you move so far off the Nordic shores, these investors tend to look for one-stop shopping in fixed income.”

Nykredit Bank’s net income for the first nine months jumped 165 percent to 557 million kroner ($101 million), after income from corporate and retail banking climbed and impairment losses dwindled to a fifth of the previous year’s level, the bank said Nov. 10. Still, the bank cut its full-year forecast for profit before losses and tax, citing lower-than-expected loan growth.

Lender Cuts

Elsewhere in Denmark’s banking industry, lenders are cutting jobs to stay profitable. Dansk Bank A/S, the country’s largest, reported its first loss in more than two years on Nov. 1, and said it will cut 2,000 jobs. Jyske Bank A/S, Denmark’s second-biggest listed lender, is closing branches and raising interest rates as third-quarter profit slumped 47 percent.

Sydbank A/S, the country’s No. 3 listed bank, in October shelved plans to issue senior debt indefinitely and is cutting 89 jobs. The lender is also restricting hours for cashier services at most branches, and raising interest rates on floating-rate loans by as much as 0.50 percentage point.

The number of bankruptcies jumped to the highest this year in November, surging 11 percent from October to 507, Statistics Danmark said today. The figures are adjusted for seasonal swings.

“As feared it seems that the economic downturn in Denmark is leaving its mark on the development in bankruptcies,” said Jes Asmussen, chief economist at Svenska Handelsbanken AB in Copenhagen, in a note. “The number of bankruptcies is at a disturbingly high level.”

Negative Outlook

The outlook for Denmark’s banking system remains negative, Moody’s Investors Service said Nov. 2. The ratings company cited depressed profits, weakened asset quality and the 2012 and 2013 deadlines the industry faces to repay 150 billion kroner in state-guaranteed debt against the backdrop of a credit crunch.

About one third of Denmark’s roughly 120 banks hold the government-backed debt, the state wind-up agency, the Financial Stability Company, said Nov. 25.

The Copenhagen OMX financials index has fallen 29 percent this year, compared with an 18 percent drop in the Swedish bank shares and a 29 percent decline in the 46-member Bloomberg European banks index.

It costs 66 percent more to insure against a default at Danske Bank than it does to guard against a credit event at Stockholm-based Nordea Bank AB, the Nordic region’s largest lender, credit default swaps show.

--Editors: Tasneem Brogger, Christian Wienberg.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net.


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus