Bloomberg News

Denmark’s Bank Merger Bill to Be Broadened as Losses Swell

February 01, 2012

(Updates with Vestjysk Bank merger with Aarhus Lokalbank in fifth paragraph.)

Jan. 25 (Bloomberg) -- Denmark is close to unveiling extra measures to accelerate bank mergers and avert insolvencies as losses in the industry swell, according to a member of the parliamentary group overseeing lenders.

The parliament’s business committee is in talks to broaden a consolidation bill passed in September as healthy banks in the Nordic country show reluctance to buy their troubled peers, said Brian Mikkelsen, a member of the committee who, as economy minister until last year, was an architect of the original legislation. The September bill offered subsidies if lenders bought troubled rivals.

The decision follows concern that more Danish banks may fail. Vestjysk Bank A/S, Denmark’s fifth-largest listed lender at the end of 2011, saw its shares plunge on Jan. 10 to the lowest since at least 1989 amid speculation it was close to insolvency.

“In light of what’s happening with Vestjysk Bank, we have to see if we could give some more incentives so that other banks can take their part of the responsibility,” Mikkelsen said in a phone interview yesterday. “We’re negotiating that right now.”

Vestjysk Bank today announced it will merge with regional peer Aarhus Lokalbank A/S, whose shares plummeted 86 percent in 2011 after failing to post an annual profit since 2009. Vestjysk is also converting 297 million kroner ($52 million) in government-held hybrid capital to shares to boost its equity.

Vestjysk Bank jumped as high as 34 percent earlier in the day. The stock pared gains to 10 percent as of 11:27 a.m. in Copenhagen after the merger was announced.

The banks will be able to tap the consolidation bill, allowing them to extend their state-backed loans, Business Minister Ole Sohn said in a statement today.

Funding Squeeze

Most of Denmark’s roughly 120 banks remain cut off from international funding markets after the February failure of Amagerbanken A/S triggered senior creditor losses. The Nordic country is also in the grip of a housing slump with prices set to fall 25 percent until 2013 since their peak in 2007, the government-backed Economic Council said in November.

Stockholm-based Nordea Bank AB, the largest Nordic lender, said Danish losses made up 40 percent of total impairments in the fourth quarter as the country’s economy remains mired in its twin banking and housing crises.

Vestjysk Bank said Dec. 20 the Financial Supervisory Authority told it to raise its writedowns for 2011 by 550 million kroner ($96 million) to 950 million kroner because of bad loans to the farming industry.

‘Sufficient Incentives’

“We need to make sure that there are sufficient incentives for banks to take over other banks, so that we have a going concern rather than a concern going down,” Mikkelsen said. “We don’t have any interest in putting state money into banks but we do have an interest that they will survive so they can be taken over by other banks.”

Denmark also needs to ensure any changes to the bill are cleared with the European Union, Mikkelsen said.

The central bank is offering lenders three-year loans at the benchmark lending rate, currently at 0.7 percent, to help offset a funding crunch as the industry struggles to pay back about $30 billion in state-backed debt due through 2013.

“We want to provide sufficient incentives to do the job so that the state is as uninvolved as possible,” Mikkelsen said. “But the bank sector is a very important part of our economic system in Denmark, so that’s why we have to make sure it’s healthy and working.”

--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: Tasneem Brogger at tbrogger@bloomberg.net


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