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Danske Bank’s Patience With Moody’s Evaporates

May 11, 2012

Danske Bank A/S (DANSKE) Chief Executive Officer Eivind Kolding signaled Denmark’s largest lender is losing patience with Moody’s Investors Service less than a year after the bank’s mortgage arm sacked the rating company.

“We disagree quite a bit with Moody’s here in Denmark,” Kolding said in an interview yesterday after the Copenhagen- based bank reported earnings.

Including Danske’s mortgage unit, Realkredit Danmark A/S, three lenders in the Nordic country have fired Moody’s, arguing the company’s assessments are based on faulty models. Jyske Bank A/S (JYSK), Denmark’s second-biggest listed lender, said last month it’s reviewing its relations with Moody’s as disgruntlement among the country’s lenders spreads.

Denmark’s financial industry is struggling to emerge from the fallout of a burst real estate bubble and higher funding costs after the February 2011 failure of Amagerbanken A/S pushed losses on to senior creditors. The so-called bail-in prompted Moody’s to assume a lower degree of support from the Danish state to banks facing insolvency, putting lenders in the Nordic country at a disadvantage to their Scandinavian rivals.

“Moody’s has a view that the systemic support in Denmark is less than in Sweden, which is in our mind wrong,” Kolding said. “They don’t get the systemic support in Denmark right.”


Moody’s is looking into cutting the credit grades of eight Danish lenders, including Danske, as part of a review of 114 European banks. Any ratings cuts now would be counterproductive as Denmark shows signs of emerging from its twin housing and banking crises, Kolding said. Danske’s issuer rating at Moody’s is A2, with a negative outlook.

“It’s a negative review at the point when we are actually moving in the right direction,” Kolding said. “The Danish economy is slowly progressing. We are at zero growth now, but the bigger issues are behind us.”

Danske’s shares have gained 22 percent this year, outperforming a 0.5 percent decline in the 43-member Bloomberg index of European banks. Danske stock fell 0.8 percent today to 88.65 kroner at 11:24 a.m. in Copenhagen trading.

Denmark, which fell into a recession in the third quarter, will grow 1.2 percent this year, the central bank estimates. House prices have already lost about 23 percent of the aggregate 25 percent the government-backed Economic Council estimates will have fed through the property market by next year since the crisis started in 2007.

Moody’s Criticism

Moody’s in June criticized Denmark’s $470 billion mortgage- bond industry, the world’s third largest after the U.S. and Germany, for failing to curb refinancing risks fueled by a mismatch in funding and lending maturities. The ratings company said this week that risks in agricultural lending and falling property prices are damaging Danish banks’ credit profiles.

Nykredit A/S, Denmark’s biggest mortgage lender and Europe’s largest issuer of covered bonds backed by home loans, terminated its contract with Moody’s on April 13, citing its “volatile” views. Mortgage lender BRFKredit A/S dropped the rating company in October. Realkredit Danmark, the country’s second-largest home-loan provider, fired Moody’s in June. Jyske Bank Head of treasury Steen Nygaard said last month the rating company has “crossed the line for fairness,” adding the bank “simply cannot follow Moody’s arguments.”

Still, Denmark’s banks continue to face growth in impairments this year, according to Standard & Poor’s. It estimates total loan losses at the country’s lenders swelled to 155 billion kroner in the four years through 2011, with another 30 billion kroner in writedowns yet to be taken. Danske accounted for almost half the industry’s bad loans, S&P said.

Job Cuts

Danske’s impairments rose 38 percent to 3.9 billion kroner last quarter as it continued to lose money on its Irish business. Kolding, who took over as CEO from Peter Straarup in February, will wind down Danske’s Irish commercial property portfolio, valued at 35 billion kroner, as the bank tries to contain losses.

The Financial Supervisory Authority said Feb. 6 it will tighten regulations for reporting loan losses to boost the industry’s “credibility” after what it called “optimistic” outlooks by banks.

Danske will also bring forward cost reductions, meaning 2,000 jobs earmarked for elimination will be cut by 2013 instead of 2014, it said yesterday.

“At this point we’re sticking to our plan,” Kolding said. “There might be further opportunities as we develop our strategy over the years.”

To contact the reporter on this story: Adam Ewing in Stockholm at;

To contact the editor responsible for this story: Frank Connelly at

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