Vestjysk Bank A/S (VJBA) dropped to the lowest price in Copenhagen trading in at least two decades after local media said Denmark’s biggest banks won’t contribute to a rescue.
Shares in the lender, based in Lemvig, Denmark, fell 1 krone, or 6.1 percent, to 15.50 kroner in the Danish capital. That’s the lowest since at least October 1989. The bank’s market capitalization slipped to 194 million kroner ($33 million).
“I have difficulties seeing this being an independent bank going forward,” said Lars Holm, a Copenhagen-based analyst at Danske Markets. He has a “sell” recommendation on the stock.
The lender, which has issued about $1.38 billion of state- backed bonds that expire by 2013, said Dec. 20 the Financial Supervisory Authority ordered it to raise its writedowns by about 550 million kroner, double the reported figure, to accurately reflect impairments. Most of Denmark’s banks have been frozen out of funding markets since the February failure of Amagerbanken A/S triggered senior creditor losses. Two other Danish lenders have collapsed since then.
A conference call yesterday that included executives from Danske Bank A/S, Nordea Bank AB’s Danish unit, Jyske Bank A/S and Sydbank A/S, as well as representatives from the Danish Bankers Association, ended with an agreement not to rescue Vestjysk Bank, Borsen said today. The banks concluded Vestjysk must either survive on its own, be taken over by the state bank resolution agency, or become at least partially government- owned, the newspaper reported, citing people it didn’t identify.
The call raises questions about the banking industry’s commitment to solving Denmark’s banking crisis, Ole Sohn, Denmark’s minister of business and growth, said in an interview with Ritzau Finans.
Denmark passed its fourth bank rescue package last year when the government agreed to take over the struggling parts of a bank if the healthy operations were acquired by another lender.
“The banking sector naturally will meet its obligations as they were formulated in the agreement on a series of consolidation initiatives,” Joergen Horwitz, the bankers association’s director, said in an e-mailed statement today.
Vestjysk is “not in a deep crisis” and will meet its funding requirements by tapping a three-year lending facility that the Danish central bank made available on Dec. 8, Frank Kristensen, the bank’s chief executive officer, said.
“We are not even close to going bankrupt or anything like that,” Kristensen said in a phone interview today.
Vestjysk Bank is reviewing various strategic options and had asked Bankers Association members to comment on one at yesterday’s call, Kristensen said. He declined to specify what the strategic option presented to the members was. He said it wasn’t a takeover by another bank and that Vestjysk doesn’t have concrete plans to exercise its option to convert hybrid capital to shares, which would give the government an ownership stake.
Vestjysk Bank was seeking a guarantee from the banking industry for a 500 million-krone share capital issuance, broadcaster TV2 said today, without citing anyone.
Hybrid Core Capital
“I’m confident that Vestjysk Bank will exist as an independent bank,” Kristensen said.
In a separate statement to the Copenhagen stock exchange, the bank said it’s continuously monitoring its funding and capital structures and its strategies, and will make changes public if and when any are made.
Denmark’s government has lent 1.4 billion kroner in hybrid core capital to Vestjysk Bank, according to the website of Denmark’s bank wind-down agency the Financial Stability Company.
The government can opt to convert its hybrid capital in Vestjysk to equity to avert another failure, bringing its stake in the bank to more than 50 percent, Danske’s Holm said.
“After the government has a majority holding, the state would try to sell it,” he said. “There are rivals who would no doubt be interested in the good assets.”
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