Moody’s Investors Service cut its rating on Danske Bank A/S and four other Danish lenders after the government forced losses on senior creditors in the bailout of Amagerbanken A/S this month as Europe debates how investors should share the burden of potential bank failures.
Moody’s reduced long-term ratings on Danske Bank, FIH Erhvervsbank A/S, BankNordik P/F, Spar Nord Bank A/S and Ringkjoebing Landbobank A/S and kept the three former on review for a further possible downgrade, the New York-based rating company said in a statement today.
The Feb. 6 failure of Amagerbanken A/S, the country’s fifth-biggest listed lender, was Denmark’s eighth bailout of a bank since 2008 and the first since the government on Sept. 30 ended a blanket guarantee of deposits and senior debt. Moody’s placed the long-term ratings of Nordea Bank AB’s Danish unit, Sydbank A/S and Jyske Bank A/S on review for possible downgrade.
“Today’s rating actions reflect a reduction in Moody’s systemic support assumptions,” Oscar Heemskerk, a Moody’s vice president, said in a statement. The “bankruptcy of Amagerbanken demonstrated both the willingness and ability of the government to allow depositors and senior creditors of Danish banks to take losses in bankruptcy, where bank operations are continued as a going concern.”
Danske Bank, the largest Danish lender, fell 1.3 krone, or 1 percent, to 128.10 kroner as of 12:26 p.m. in Copenhagen, pushing this year’s loss to 10.4 percent.
Danske Bank was lowered to A1 from Aa3, Ringkjoebing was cut to A2 from A1, and Spar Nord to Baa1 from A2, Moody’s said.
In Ireland, politicians are debating whether to allow senior bondholders to share losses from the failure of lenders ahead of the Feb. 25 election. Bank of Ireland Plc and five other Irish lenders had some senior debt ratings cut by Moody’s last week on concern that investors may be asked to share the cost of saving the country’s financial system.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said there is “no appetite” for imposing losses on senior bondholders at Irish banks. “We want to avoid any kind of potential contagion effect,” he said yesterday in Brussels.
Pressure has grown on Danish banks after Amagerbanken failed to meet a Feb. 4 deadline to prove it was solvent after losing money on property investments, currencies and wind-energy projects, the Financial Supervisory Authority said. A sale will start once the state’s bailout unit Financial Stability has split off Amagerbanken’s toxic assets, the bailout fund’s Chairman Henning Kruse Petersen said.
Financial Stability, the government bailout unit, said it estimates creditors and depositors will lose about 41 percent of holdings not covered by the state guarantee. This would affect less than 2 billion kroner in bonds, according to a spokesman at Financial Stability, who declined to be named citing policy.
Rising funding costs for Danish banks may force more consolidation in the industry, analysts such as Christian Hede at Jyske Bank A/S and Jakob Brink at Svenska Handelsbanken AB said this month.
Denmark, with a population of 5.4 million people and gross domestic product of $300 billion, has about 125 banks. That compares with 89 in Sweden, the largest Nordic economy. The country, home to the world’s third-largest mortgage-bond market after the U.S. and Germany, is also expected to deliver the weakest economic growth in Scandinavia this year, the European Commission estimates.
GDP will expand 1.9 percent in 2011, compared with 3.3 percent in Sweden and 2.9 percent in Finland, the commission said Nov. 29. Norway’s mainland economy, which excludes oil and shipping income, will grow 3 percent, the central bank estimates.
“The impact will be larger on the banks that lack the opportunity to issue mortgage backed bonds since senior unsecured funding will be more expensive,” Maths Liljedahl, analyst at Nordea Bank AB, said today in an e-mail. “Important to note also is that we believe Moody’s has a relatively limited impact on investors view of the banks following the earlier misjudgments of government support.”
Danske Bank on Feb. 10 reported earnings that missed analyst estimates and said it will sell shares for about 20 billion kroner. Sydbank fell the most in nine months yesterday after reporting an unexpected loss as writedowns rose.
“We don’t expect that this will have any significant impact on us,” Peter Rostrup-Nielsen, Danske Bank’s chief risk officer, said in an e-mail. “Danske Bank’s fundamental conditions are good and we have a strong capital position, which is to become even stronger after our planned share issue.”
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