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Danske Bank to Appeal FSA Orders as Risk Weights Threaten Buffer

Danske Bank A/S said it will appeal orders by Denmark’s regulators to raise risk-weighted assets by 13 percent, a requirement that would reduce loss-absorbing buffers at the Nordic region’s second largest lender.

“This is an important matter of principle for Danske Bank,” Chief Financial Officer Henrik Ramlau-Hansen said in a statement today. “We believe that it is proper to submit the decision to another body. We have therefore decided to appeal against the decision.”

The Financial Supervisory Authority last month ordered Danske Bank, whose balance sheet is almost twice the size of Denmark’s economy, to increase risk-weighted assets by 100 billion kroner ($17.5 billion) to about 897 billion kroner. The Copenhagen-based agency said the bank had failed to accurately account for risks in its portfolio.

Financial institutions’ methods for calculating risk have come under scrutiny as regulators find discrepancies among similar organisations. FSA Director General Ulrik Noedgaard said in November the agency would be reviewing internal models to ensure banks didn’t engage in what he called “backdoor” dilution of tougher capital requirements.

The Basel Committee on Banking Supervision, which draws up global banking guidelines, said this month it will address complaints about banks “gaming the system” after differences were found among global lenders.

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FSA discussions with Danske Bank over risk weighting date back to at least last year. The lender said it’s appealing three of the four changes demanded in June by the FSA even as it implements the requirements.

Danske will comply, as previously planned, with an FSA order to set aside additional capital to cover risks it faces from other institutions, it said.

The appeal leaves temporarily intact plans by Danske to improve its credit ratings and pay its first dividends since 2007. The bank has closed branches, reduced lending and retained profit to build up capital. Ramlau-Hansen said in May lower-than-expected first-quarter earnings wouldn’t deter the bank from paying at least a “small dividend.”

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