Danske to Tap $2.7 Billion From Central Bank Lifeline
Danske Bank A/S (DANSKE), Denmark’s biggest lender, said it will draw 15 billion kroner ($2.7 billion) from the central bank’s first offering of three-year loans today as policy makers try to drag the Nordic economy out of recession.
Danske will use assets from its bond portfolio as collateral for the loan, the Copenhagen-based lender said today by e-mail.
Denmark’s banks have faced higher funding costs than their rivals elsewhere in Scandinavia since the failure of Amagerbanken A/S (AMAG) in February last year triggered senior creditor losses. Lenders in the Nordic country, which sank into a recession in the second half of 2011, need the central bank’s cash to help them repay 146 billion kroner in state-backed debt due next year.
“We have from a purely commercial point of view decided to use the central bank’s new facility,” Chief Risk Officer Peter Rostrup-Nielsen said in the statement. “Danske Bank has recently obtained liquidity via senior debt and covered bond sales, which underlines the bank’s strong liquidity position.”
The Danish central bank, which opens the facility today, first published its decision to provide the loans on Dec. 8, following a similar announcement from the European Central Bank the same day. The Frankfurt-based ECB has injected more than 1 trillion euros ($1.3 trillion) into Europe’s banks since December in an effort to stem the region’s debt crisis.
“This is cheap money and Danske faces no reputational risk by doing this,” Claus Groen Therp, an analyst at Enskilda Securities in Copenhagen, said by phone.
Danske rose as much as 4 percent in Copenhagen trading, making it today’s second-biggest gainer in the Stoxx Europe 600 index. The shares advanced 3.05 kroner, or 3.4 percent, to 93.05 kroner at 9:12 a.m. in the Danish capital.
Denmark’s central bank uses monetary policy to maintain the krone’s peg to the euro. It plans to hold a second offering of the three-year loans at the end of September. Governor Nils Bernstein yesterday encouraged Denmark’s banks to draw on the facility.
“From the central bank’s perspective, we have nothing against using it if there is a good business reason,” Bernstein said at an annual gathering hosted by the Danish Mortgage Bankers’ Federation in Copenhagen.
Banks tapping the facility will pay the central bank’s benchmark lending rate, at 0.7 percent since December. The central bank has said it may add a premium to the rate should financial markets improve.
Denmark is struggling to emerge from a housing bubble that burst in 2007, triggering a regional banking crisis that choked lending. House prices will have slumped 25 percent by next year since the crisis started, the government-backed Economic Council said in November.
Danish banks will tap a total of 116 billion kroner from the three-year facility, according to a Bloomberg poll published March 20.
Denmark’s economy entered a recession in the third quarter of last year as investments and government spending shrank, according to revised data published today by the national statistics agency. Gross domestic product contracted 0.1 percent both the third and fourth quarters of last year, Statistics Denmark said, citing revised quarterly data.
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