Nordfyns Bank, whose shares slumped 29 percent last year, led gains in Danish banks today after a merger between two regional peers opened the door to extending government guarantees across the industry.
Nordfyns Bank, based in Bogense, Denmark, jumped as much as 15 percent, the most since July 6, while Skive-based Sparbank A/S (SPB) rose 12 percent, to its highest level since Sept. 2. The OMX CS40 Financials Index (CS40) reversed two days of losses to approach a three-month high.
Vestjysk Bank A/S, which regulators said in December understated its loan losses, announced yesterday it will merge with Aarhus Lokalbank A/S (AARHUS). The two will tap the government’s consolidation law, allowing them to extend state guarantees on at least $1.38 billion in debt beyond 2013.
“Yesterday, a new approach was created,” Christian Hede, an analyst at Jyske Bank A/S, said. “It is a little of an awkward construction. The government always said it didn’t want to be a shareholder but who would have known two years ago that the banking industry would still be in trouble.”
The legislation, passed in September, was intended to encourage healthy banks to take over troubled peers. Vestjysk Bank (VJBA) also exercised an option to convert state-held hybrid capital to shares, giving the government a majority stake in the lender. Aarhus Lokalbank shares lost 86 percent last year, while Vestjysk Bank sank 73 percent after the two announced losses.
Danish banks, which have to refinance a total of about $30 billion in state-guaranteed debt through 2013, have faced a funding squeeze after two failures last year led to senior creditor losses. Vestjysk Bank hit a two-decade low on Jan. 10 amid speculation it might be close to insolvency.
Denmark’s economy will expand by 0.6 percent this year, less than the government forecast, the Organization for Economic Cooperation and Development said today. The government forecast 1 percent in December. A global slowdown will cut exports and private consumption will continue to wane, the OECD said.
Nordfyns Bank (NRDF) gained 47 kroner to 357 kroner, and Sparbank advanced 5.7 kroner to 54.50 kroner at 3:04 p.m. local time. Vestjysk Bank (VJBA) slipped 15 percent, trimming yesterday’s gain of 55 percent. Aarhus Lokalbank (AARHUS) fell 19 percent, after soaring 72 percent yesterday.
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