Excess Capital Targets Cheap Banks as Denmark Exits Slump
After hoarding capital, Denmark’s biggest banks are absorbing their smaller rivals in what has become a recipe for growth even as the economy stagnates.
Jyske Bank A/S (JYSK), Denmark’s biggest listed lender after Danske Bank A/S (DANSKE), said yesterday it has enough reserves to take over more than $4 billion in bank assets. Lasse Nyby, chief executive officer of the fourth-largest lender, Spar Nord Bank A/S (SPNO), said he’s on the lookout again after buying Sparbank A/S last year. His bank has 66 percent more capital than it needs to meet regulatory requirements.
“We still have capital so there is room to do more,” Nyby said yesterday by phone. “We would have preferred for lending to grow but if something interesting comes up, we are also interested in expanding the business through acquisitions.”
Banks are looking for ways to generate profits after spending the past few years building capital buffers to comply with tougher rules. Yet as interest rates remain close to record lows and economic growth stays weak, lenders have struggled to boost income. In Denmark, the economy contracted 0.5 percent last year and didn’t grow in the first quarter. The nation has yet to emerge from the fallout of its 2008 burst housing bubble and a spate of bank failures that have pummeled consumer confidence.
“We need to see some growth in the general economy to get our loan and guarantees to increase in an organic way,” Karsten Dahl, Jyske Bank head of accounting, said yesterday in an interview. “So acquisitions must be the thing we rely on for the time being.”
The strategy is paying off. Jyske, which in January purchased Sparekassen Lolland after it failed a regulatory inspection, yesterday reported second-quarter net income that beat analyst estimates by 69 percent.
Efforts to expand its client base are proving popular with investors and the bank’s shares have soared 70 percent this year. Spar Nord shares are up 63 percent, compared with a 13 percent increase in Bloomberg’s 44-member index of European financial stocks.
Jyske gained 0.9 percent to 267.20 kroner as of 2:51 p.m. in Copenhagen. Spar Nord slipped 0.7 percent to 42.10 kroner.
The government has urged the nation’s capital-strong banks to absorb rivals at risk of insolvency in an effort to sidestep bail-in legislation that’s triggered when banks fail. Denmark in 2011 became the first European Union nation to test a resolution model that forces losses on senior creditors.
Smaller banks are also teaming up to consolidate their costs and gain access to more customers. Lollands Bank A/S (LOLB) and Vordingborg Bank A/S (VORD) said yesterday they plan to merge to boost profitability. The merged bank will have a solvency ratio of 16.9 percent, versus a 10.8 percent individual requirement.
Spar Nord yesterday reported a solvency ratio of 16.8 percent, compared with its requirement of 10.1 percent. Jyske Bank reported a ratio of 15.6 percent and a 9.9 percent requirement.
Jyske Bank, based in Silkeborg in western Denmark, has amassed excess reserves after selling shares and is ready to increase its risk-weighted assets by 24 billion kroner ($4.26 billion) through purchases of local lenders that approach it, Dahl said.
“If we are going to do anything that is above 24 billion kroner, then we have to go to the capital markets as well,” he said. “We need to see some growth in the general economy to get our loan and guarantees to increase in an organic way. So acquisitions must be the thing we rely on for the time being.”
To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at email@example.com