Danish Banks Face Long-Term Funding-Cost Rise, Moody’s Says

Danish banks face a long-term increase in funding costs after the February failure of regional lender Amagerbanken A/S triggered the European Union’s first senior creditor losses, Moody’s Investors Service said.

“We’ve seen some evidence funding costs are rising, but we see this more as a long-term issue,” Oscar Heemskerk, an analyst at the credit rating company, said by phone today. “It could lead to foreign investors scrutinizing Danish banks more, making funding more difficult to obtain or more expensive.”

Moody’s today cut the long-term ratings on six Danish banks, including the country’s biggest, Danske Bank A/S, as it factored out the likelihood of state support following the failure of Amagerbanken. That event triggered Danish bank insolvency rules effective since October and forced senior bondholders to bear a 41 percent loss amid a Europe-wide debate on burden sharing.

“Danske Bank was downgraded due to less systemic support,” Heemskerk said. “The bank’s underlying issues persist, which is why we’ve kept the outlook negative.”

Danske Bank and Denmark’s No. 2 and No. 3 lenders, Jyske Bank A/S and Sydbank A/S, had their long-term grades cut to A2 from A1, Moody’s said. Spar Nord Bank A/S and BankNordik, which yesterday said it bought the healthy parts of Amagerbanken, were lowered to Baa2 from Baa1. Regional lender Ringkjoebing Landbobank A/S was cut to A3 from A2, Moody’s said.

‘Not Happy’

With the exception of Danske Bank, the banks’ financial strength ratings were also lowered by one step, Moody’s said.

“We’re not happy with how assets have performed, and we continue to be negative on agriculture, property and small- and medium-sized enterprise exposures,” Heemskerk said.

Danske Bank shares lost 0.5 percent to trade at 110.50 kroner at 4 p.m. in Copenhagen. The stock has dropped 16.5 percent this year, compared with a 0.6 percent increase in the 48-member Bloomberg European Banks and Financial Services Index.

“Danske has been one of the worst performing stocks over the past months, and there is specific explanation for that, the poor results, rather than this environment,” said Simon Maughan, co-head of European Equities at MF Global Ltd. in London. “Danske is optically cheap but there are issues about its ability to grow as all its growth is in the other Nordic markets outside Denmark.”

According to Claus Groen Therp, an analyst at Enskilda Securities in Copenhagen, “Danske is not the problem; it’s the smaller banks that have an issue.” Still, the downgrades are likely to have an impact because “some of the foreign investors very much track rating agencies when deciding where to put their money,” he said.

Heemskerk said Danske Bank’s rating was kept on a negative outlook because of bank specific issues.

“This is the end of the review,” he said. “The only other bank we’ve kept on negative outlook is Spar Nord due to the fact that they have a relatively large government funding that needs to be refinanced.”

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