Danish LTRO Stigma Takes Lead From Swedes Snubbing Aid
Stock Chart for Danske Bank A/S (DANSKE)
Denmark’s banks, struggling to emerge from a funding crisis triggered by three failures last year, are rejecting central bank cash to keep up with Swedish rivals that have snubbed emergency liquidity.
Banks last week drew 18.9 billion kroner ($3.4 billion) from Copenhagen-based Nationalbanken’s first offering of three- year loans at 0.7 percent interest. That was about a sixth the amount estimated in a Bloomberg survey and less than the 146 billion kroner in state-backed debt lenders need to repay through next year. Danske Bank A/S (DANSKE), Denmark’s biggest bank, tapped 15 billion kroner “from a purely commercial point of view,” it said on March 30.
“They’re extremely afraid of stigma, too afraid,” Thomas Hovard, head of credit research at Danske Bank in Copenhagen, said in a phone interview. “They have listened a bit too much to the Swedish banks.”
Danish banks have paid more than their Scandinavian rivals to borrow since last year’s failure of Amagerbanken A/S triggered senior creditor losses. By contrast, Sweden’s banks enjoy some of Europe’s lowest funding costs and have been vocal in their rejection of emergency liquidity. Christian Clausen, chief executive officer of Stockholm-based Nordea Bank AB (NDA), said in March investors have rewarded his strategy of sticking with market funding. That’s making life difficult for his Danish counterparts.
“The biggest competition for Danish banks is Swedish banks,” Hovard said. “Swedish banks are in very good shape. They don’t have their own liquidity facility so it’s in their interest to state that it’s not a good idea.”
It costs more than double to insure against a failure of Danske, using credit-default swaps, than it does of Nordea of Sweden, the biggest Nordic bank. Swaps insuring Danske’s senior unsecured debt for five years cost 295 basis points, versus 133.5 for Nordea, according to CMA. The spread widened to a record 165 basis points on March 30, when Danske tapped the central bank’s facility.
Sydbank A/S (SYDB), Denmark’s third-largest listed lender, sold its first senior bonds since 2010 in February, paying 200 basis points more than the euro region’s interbank offered rate on 500 million euros ($667 million) of two-year notes. That followed a sale by Danske in the same week of 1 billion euros in five-year notes at 230 basis points more than the benchmark mid-swap rate.
By comparison, Nordea in January sold two-year floating- rate notes that were priced to yield 95 basis points more than the benchmark euro interbank offered rate. Svenska Handelsbanken AB (SHBA), Sweden’s second-biggest bank, sold a five-year euro bond at 163 basis points more than mid-swaps in January.
‘Way of Thinking’
At Sydbank, using Nationalbanken’s facility doesn’t fit “our way of thinking of how a bank should be funded,” Niels Moellegaard, a spokesman for the bank, said in a phone interview. Sydbank “actually doesn’t need the money,” he said.
Central bank Governor Nils Bernstein said last week he welcomed banks using the three-year facility even if they don’t need the support and instead take advantage of cheap loans to boost their business. Denmark’s main bankers group agrees.
“The funding is so cheap, we shouldn’t be discussing stigmatization,” Niels Stenbaek, chief economist at the Danish Bankers Association, said by phone.
Denmark’s central bank will hold another offering of its three-year loans in September. Banks can borrow at the benchmark lending rate, at 0.7 percent since December, though the central bank has said it may add a premium should financial market conditions improve.
‘No Success Criteria’
“I still expect the funding markets to be working less than perfectly, so a lot of banks will find the facility very attractive” in September, Stenbaek said.
Denmark announced its three-year facility on Dec. 8, the same day the European Central Bank said it would offer Europe’s lenders longer-term loans. Since then, about 800 European banks have tapped more than $1 trillion from the ECB, helping to prop up sovereign-debt markets and ease the debt crisis.
Bernstein said there are “no success criteria” for the facility. “The lending window will be open again on identical conditions in September and the utilization of the facility should be viewed as a whole,” he said in a statement after the results were made public on March 30.
Danske Bank, whose use of the emergency loans accounted for 79 percent of the total, said today it is raising the rates it charges clients by as much as 1 percentage point. The move will help the bank better match borrowing costs to individual risk profiles, spokesman Kenni Leth said by phone.
Danske Bank shares slipped 1.9 percent today to 92.90 kroner as of 2.24 p.m. in Copenhagen. The 43-member Bloomberg index of financials lost 0.9 percent.
Interbank spreads widened after the results were announced. The difference between the Copenhagen interbank offered rate and the equivalent eurozone rate was today quoted at 20.60 basis points, the widest since January last year.
“I expect the facility to be used much more in September,” Jan Kondrup, director of Denmark’s Association of Local Banks, said in a phone interview. “The banks want to stretch the maturity of the loans. Some of our banks will need cash to refinance their government-guaranteed loans before they expire in the first half of 2013.”
The association’s members hold 36 billion kroner of the 146 billion kroner in state-guaranteed debt maturing next year, Kondrup said. According to Hovard at Danske, banks are cutting themselves off from a credit lifeline that the industry needs. That threatens to hurt the economy if lenders can’t provide credit because they run out of cash, he said.
“They’re afraid of having to go to the market later with this stamp, that they’ve used this facility,” Hovard said. “I can’t understand it.”
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