July 15 (Bloomberg) -- DnB NOR ASA, Norway’s largest bank, will soon sell candleholders, curtains and potholders, as well as mortgages and credit cards.

DnB will add the household products when it takes over Kid Interioer AS, a Norwegian retailer with more than 100 shops, after parent Nordisk Tekstil Holding breached terms of its loan. Nordisk Tekstil is owned by buyout firm IK Investment Partners.

Nordic banks, including Svenska Handelsbanken AB and Danske Bank A/S, are becoming plastics makers and building managers, as they try to protect more than $22 billion of loans to private equity firms squeezed by the global financial crisis. The region’s lenders are particularly vulnerable after helping finance a wave of acquisitions that made Scandinavia among Europe’s biggest private equity markets.

“The banks will lose money no matter what happens,” said Robert Spliid, head of Saxo Bank A/S’s Zurich branch. “If the company goes bankrupt, the banks lose everything. If they keep it alive, they’ll have to sell it with a discount.”

Private equity “was a gold mine as long as the economy kept booming,” Spliid said.

Sweden’s economy, the biggest in the region, may shrink 5.5 percent this year as demand for the country’s exports wanes and unemployment rises, the Paris-based Organization for Economic Cooperation and Development forecast last month.

The amount of money invested in venture capital and buyouts in Sweden increased more than fourfold to 48.8 billion kronor ($6.2 billion) from 2001 through 2007, according to data compiled by the Swedish Private Equity & Venture Capital Association in Stockholm. Defaults on European leveraged loans may rise to 15 percent in the next 18 months from 1.8 percent at the end of 2008, Fitch Ratings said in an April 22 report.

Banks Seize Companies

That’s forcing Nordic banks to manage non-financial companies.

Copenhagen-based Danske Bank, Denmark’s largest lender, took control of Swedish facilities management firm Addici Holding AB last month after London-based Argan Capital Advisors LLP breached the terms on a 628 million-kronor loan.

Handelsbanken, Sweden’s second-biggest bank, seized parts of Plastal Group and Plastal Holding AB on July 2 after a cash infusion from Stockholm-based private equity firm Nordic Capital failed to save the plastic-parts maker from bankruptcy. Handelsbanken, which loaned the company 2.1 billion kronor, plans to merge Plastal’s Belgian, Norwegian and Swedish units into a new company.

The takeover is designed to “protect our collateral,” the Stockholm-based bank said in a statement.

Bigger Losses Ahead

Taking over defaulting borrowers, rather than letting them go bankrupt, may result in bigger losses if the banks fail to turn around their new enterprises, said Bjarne Jensen, a financial consultant at Bjarne Jensen Consult ApS in Copenhagen.

“This is the last thing banks want to do,” Jensen said. “They are essentially betting on a turn in the economy, and if that drags out they may have to foot an even bigger bill than if they had let the companies go down in the first place.”

Danske tried to mitigate that danger by naming John Dueholm, deputy chief executive officer of Stockholm-based SAS Group, owner of Scandinavia’s largest airline, as chairman of Addici. With experience as a management board member at security company Group 4 Falck A/S and ISS Global A/S, the world’s largest cleaning-services provider, Danske is betting Dueholm can turn around Addici before a sale.

‘Sensible Solution’

Danske doesn’t want to own non-financial companies, the bank said June 26, when it took over Addici, which provides management services for offices, airports and hospitals and is based in Bromma, Sweden.

“The bank wants to divest the operation when market conditions allow it,” Danske said in a statement. “At the moment, the takeover is the most sensible solution to secure the bank’s engagement and at the same time protect Addici, its employees, clients and suppliers.”

DnB NOR declined to comment on how it will run Kid Interioer, which had sales of about 860 million kroner ($133 million) last year. The bank has said it plans to complete the takeover by today.

“Generally, taking over companies as part of a financial solution is not ideal for most banks,” said DnB spokesman Morten Skauge, who declined to comment on why the company couldn’t reach a solution with Nordisk Tekstil.

The Oslo-based lender doesn’t rule out additional takeovers if they’re necessary to protect the bank’s interests, he said.

‘Lower Returns’

“We have said for quite some time now that the private equity industry is entering a period of lower returns compared to the ‘boom’ years when credit was readily available and cheap,” said Camilla Telander, a spokeswoman for London-based IK Investment, the majority owner of Nordisk Tekstil.

Swedish banks Nordea AB, Swedbank AB and SEB AB, all based in Stockholm, have included information on loans to private equity firms in recent quarterly reports, after Nordea branded such lending a “challenging area.”

The banks will report second-quarter earnings later this month. DnB said July 10 that net income fell 64 percent after loan losses soared.

Sweden was the largest private equity market in Europe in 2007 as measured by the percentage of a country’s gross domestic product, according to the Swedish Private Equity & Venture Capital Association. Denmark was fourth, and Norway was ninth on a list of 21 European countries.

“More is likely to come, as the banks have themselves highlighted the risk related to private equity,” said Fridtjof Berents, an analyst at Arctic Securities in Oslo.

To contact the reporter on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

Last Updated: July 14, 2009 19:01 EDT