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Danske CEO Says Housing Collapse Is Polluting Retail Portfolio

The fallout of Denmark’s house price collapse is spreading through Danske Bank A/S’s loan book as the country’s biggest lender watches losses grow at its retail unit, said outgoing Chief Executive Officer Peter Straarup.

“The bank had been sheltered by the crisis because it hit mostly small and medium-sized businesses,” Straarup said in an interview in Copenhagen. “We’re now seeing more retail clients” affected, he said.

Denmark’s housing bubble, which burst in 2007, is still wreaking havoc in Scandinavia’s worst-performing economy. The foreclosure rate rose in December to the highest since June 2010, while house prices slumped an annual 8.5 percent in November and will have collapsed 25 percent by 2013, the government-backed Economic Council estimates.

Loan losses at Danske Bank’s mortgage unit, Realkredit Danmark A/S, rose 8.3 percent to 1.06 billion kroner ($188 million) last year, the bank said Feb. 9. The share of losses related to private mortgages jumped to 50 percent of the total, compared with 26 percent a year earlier, the bank said.

Denmark’s housing slump has fueled a regional banking crisis. More than two dozen small and medium-sized Danish lenders have either failed, received state bailouts or been taken over since 2008, succumbing to bad loans to real estate or farming.

More banks may collapse this year, Financial Supervisory Authority Director General Ulrik Noedgaard said in an interview in January. He estimates about 3 percent of the country’s financial industry is at risk of insolvency.

Rate Dilemma

The twin housing and banking crises have also taken their toll on Denmark’s labor market. Survey unemployment will rise to 7.4 percent this year, compared with 3.2 percent in 2008, the Organization for Economic Cooperation and Development estimates.

Continued declines in property values and rising unemployment will probably trigger wider loan losses at Danske Bank, Straarup said.

Home owners have been spared bigger losses thanks to record-low interest rates. Denmark’s central bank cut its benchmark lending rate to a record low 0.7 percent in December, to maintain the krone’s peg to the euro.

Retail mortgage losses remain “very limited as rates have been at record lows,” Straarup said. “Low rates are good for the bank’s credit quality but not for earnings.”

Danske’s net income dropped 81 percent drop in the fourth quarter, missing analyst estimates as loan losses swelled. It was the last earnings report to be delivered by Straarup as he steps down this week to be replaced by Eivind Kolding, the former CEO of A.P. Moeller-Maersk A/S’s container unit and Danske Bank chairman.

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