Banks in Denmark looking for smaller lenders to purchase say too few are willing to be sold, driving prices higher and stalling the industry consolidation the government says is needed to emerge from the crisis.
“There are more buyers than sellers,” Lasse Nyby, chief executive officer of Spar Nord Bank A/S, Denmark’s fourth-largest listed lender, said in an interview in Copenhagen. “I can’t eliminate the possibility there will be price wars. We have made bids six times and succeeded only twice.”
Five years after Denmark’s housing bubble burst, the nation’s banks are still struggling to wind down bad loans and turn a profit. A 20 percent drop in property prices since the market peaked in 2007 has wiped out 62 community banks. After trying to discipline the industry with bail-in legislation, lawmakers have since urged consolidation to work around burden-sharing rules that alarmed foreign investors.
According to Nyby at Spar Nord, a number of Danish banks won’t be able to survive unless they either issue shares or agree to be bought.
“Some of the smaller banks at the moment are struggling to meet the stricter capital requirements,” he said. “They’re looking at their books and deciding whether they should dilute owners by issuing shares, or team up with another bank.” Nyby says “it’s all driven by capital requirements.”
Banks in a position to make acquisitions are looking for ways to build revenue amid record-low interest rates and as the economy struggles to grow. Gross domestic product in Scandinavia’s weakest economy contracted 0.1 percent in the first six months, after shrinking 0.4 percent in 2012.
“I want very much to take part in consolidation if it’s possible,” Karen Froesig, CEO of Sydbank A/S, Denmark’s third-largest listed bank, said by phone. “I don’t think there are many healthy banks that right now want to be swallowed up. If there are, I’d like to have a coffee with them right now.”
Shares of targets have climbed amid expectations of rising prices. DiBa Bank A/S, which said last month it has put itself up for sale to address its capital hurdles, has surged 189 percent since an April low. Vestjysk Bank A/S has seen its share price soar 70 percent since a March low. The government, which holds a 67 percent stake in the bank after a conversion of state hybrid capital, has said it doesn’t intend to be a long-term owner.
Jyske Bank A/S, Denmark’s second-largest listed bank, in January purchased Sparekassen Lolland A/S after the smaller lender failed a regulatory inspection. Sydbank bought Toender Bank A/S in 2012 after the Financial Supervisory Authority said it found more impaired assets than the lender had equity to absorb.
Smaller banks are also merging. Lollands Bank A/S and Vordingborg Bank A/S said in August they plan to combine. The FSA said Oct. 31 that “challenged” banks now account for 3.5 percent of the Danish loan market, compared with 3.2 percent in June 2012.
Danish lawmakers, who in September agreed on stricter capital requirements for seven banks deemed systemically important to the $340 billion economy, are now signaling they will no longer strive to outdo the European Union in setting stricter bank rules. Business Minister Henrik Sass Larsen said in an interview this month Denmark should follow the EU’s timetable on financial regulation.
Aside from increasing their lending operations through takeovers, banks are also looking for other ways to build revenue. One model involves persuading depositors to shift their savings into higher-yielding accounts, Nyby said.
“It’s an effective boost to our top line in an low-interest environment,” he said. “We’ve shifted about 5 percent of our deposit base since the start of the year and we haven’t had to hire more staff.”