Feb. 3 (Bloomberg) -- Danish banks dropped in Copenhagen trading after Moody’s Investors Service said a merger between two troubled lenders revealed weaknesses in the government’s consolidation bill.
The sub-index of the 36 lenders in the all-share KAX index slipped 0.6 percent at 9:37 a.m. while the overall gage increased 0.4 percent. Danske Bank A/S, Jyske Bank A/S and Sydbank A/S, the country’s three biggest, all declined at least 1 percent.
Danish banks are struggling to recover from the fallout of a burst property bubble and a faltering domestic economy. Bad real estate and farming loans led to three bank failures last year, two of which pushed losses on to senior creditors and exacerbated a funding squeeze. Moody’s said a merger between Vestjysk Bank A/S and Aarhus Lokalbank A/S showed that no “stronger merger partner” was willing to take over the banks, a model the government’s consolidation bill had targeted.
“The merger highlights the challenges that Danish banks face with regards to their asset quality, specifically in agriculture and real estate lending, which is credit negative,” the rating company said in an e-mailed statement late yesterday. Neither of the merging banks is rated by Moody’s.
Denmark’s banking crisis is getting worse, threatening to trigger more failures, as loans to farms and small businesses sour and the property market fails to recover, Ulrik Noedgaard, director general of the Financial Supervisory Authority, said in an interview this week. Banks at risk of being declared insolvent represent about 3 percent of Denmark’s financial industry, he said.
Lemvig-based Vestjysk, which the FSA told in December to double its writedowns, said Jan. 25 it will merge with Aarhus Lokalbank, allowing the two to extend state guarantees on their debt. Vestjysk plunged 73 percent last year, while Aarhus Lokalbank plummeted 86 percent, after posting losses.
Jyske Bank, based in Silkeborg, declined as much as 2.1 kroner, or 1.2 percent, before trading at 176.20 at 9:49 a.m. local time. Copenhagen-based Danske fell as much as 1 percent before trading down less than 0.1 percent. Sydbank, based in Aabenraa, lost as much as 1.1 percent before trading 0.9 percent lower.
--Editor: Tasneem Brogger.
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