Danske Bank A/S sank in Copenhagen trading today as lawmakers said too-big-to-fail designation for Denmark’s biggest lenders won’t entail any state support.
Danske fell as much as 2.1 percent and traded 1.2 percent lower at 106.90 kroner as of 12:52 p.m. in the Danish capital. The stock was today’s biggest loser on the Nasdaq OMX Copenhagen 20 Index, which gained 0.1 percent. Trading volume in Danske was 46 percent of the three-month daily average.
“The too-big-to-fail designation means they need to ensure they have the extra capital buffers, not that the state will bail them out should they get into trouble,” Benny Engelbrecht, head of the parliament’s business committee overseeing bank industry legislation, said in a phone interview yesterday. “It’s of principle importance to this government to protect taxpayers.”
Bond investors have demanded a premium from Danish banks since the Nordic country in 2011 became the first in Europe to enforce a resolution framework that pushed losses onto senior creditors. At Danske, Denmark’s largest lender, Chief Executive Officer Eivind Kolding told investors in November that becoming a systemically important financial institution will help support the bank’s rating.
“The intention is that taxpayers never have to put money toward a bank bailout,” Engelbrecht said. “The model here in Denmark is that the banks provide the funds that might be needed to support the sector, corresponding to 1 percent of the industry’s insured net deposits.”
Nordea Markets today lowered its recommendation on Danske’s stock to buy from strong buy, citing a recent rally in the share price.