Jyske Bank’s $1.36 Billion Mortgage Deal Upends Client Alliances

Jyske Bank A/S’s takeover of BRFkredit A/S unleashed a battle for clients just as Denmark’s $550 billion mortgage industry struggles to adjust to flagging loan and refinancing demand.

Denmark’s second-largest listed bank, which yesterday agreed to buy BRFkredit A/S for about 7.4 billion kroner ($1.36 billion), said it will work to ensure that none of its clients uses competing mortgage providers. Nykredit Realkredit A/S, the country’s biggest lender, countered by saying it’ll take “good care” of borrowers to keep their business.

Jyske’s takeover of Denmark’s fourth-largest mortgage lender creates a financial conglomerate with customer numbers to rival Copenhagen-based Nykredit, Europe’s biggest issuer of mortgage-backed covered bonds. Jyske will have about 900,000 clients against Nykredit’s 1.1 million. Jyske shares soared as much as 10.4 percent to their highest since January 2008.

“Of the roughly 740,000 existing Jyske Bank customers, by far the major part have their mortgages taken care of by other lenders,” Birger Kroegh Nielsen, chief financial officer at Jyske, said yesterday in a phone interview. “Now we’ll work actively to bring those mortgage accounts onto the balance sheet of the new group.”

Stricter Rules

Jyske’s purchase comes as Denmark’s mortgage market, the world’s biggest per capita, gets buffeted by stricter regulatory requirements and criticism from rating companies. That’s adding to the cost of providing home loans and raising the appeal of consolidation.

Loan demand in Denmark has slowed as the world’s most indebted households deleverage. The Financial Supervisory Authority said back in October BRFkredit faced challenges in finding customers. During the financial crisis, the lender had higher writedowns and lower earnings than competitors.

About 60,000 Jyske Bank clients have loans with Totalkredit, a Nykredit subsidiary. Their loans amount to about 83 billion kroner and account for some 7 percent of the bank’s total lending, Nykredit said.

Still, Nykredit’s prices on most mortgage products are lower than BRFkredit’s and Jyske’s distribution network “isn’t getting bigger,” according to Chief Financial Officer Soeren Holm.

“BRFkredit has a very small network, and Jyske has today what it had yesterday,” he said by phone. “I have a hard time seeing there should be something we should be nervous about.”

Farming Loans

DLR Kredit A/S, Denmark’s biggest provider of mortgage loans to the farming industry, will lose “only a few” customers to Jyske as a result of the takeover, CEO Bent Andersen said in a phone interview.

“Jyske will keep us for loans to the farming industry,” he said. “We expect that Jyske will no longer offer loans from us on commercial properties.”

Tonny Thierry Andersen, head of personal banking at Danske Bank A/S, said he’s not expecting to lose market share to Jyske.

“Last year we took market share in new loans” at Realkredit Danmark A/S, the mortgage arm of Denmark’s biggest bank, Andersen said in an e-mailed response to questions. “We’re confident that our products and advantages are popular among customers.”

Jyske, which owns about 9 percent to 10 percent of closely held DLR, has pledged to keep the stake, according to DLR's CEO. Copenhagen-based DLR is owned by about 70 Danish banks.

“We don’t imagine that this will lead to any other changes” in the industry, he said. “This may lead to even tougher competition for the best customers, and that could pressure prices a bit.”

Refinancing Risk

Fewer borrowers want new loans, according to the Association of Danish Mortgage Bankers. Lenders made 2,500 fewer offers in January than the monthly average last year, which already was low, the Copenhagen-based industry group said Feb. 10. At the same time, fees generated from refinancing are shrinking as the market shifts away from one-year mortgage bonds identified by the central bank as risky.

The yield on BRFkredit’s senior unsecured 2.5 percent bond maturing January 2018 fell to 1.80 percent at 11:51 a.m. in Copenhagen trading, its lowest on record, compared with 1.92 percent yesterday.

Jyske, which is buying BRFkredit from BRFholding, plans to issue new shares equivalent to 25 percent of the capital in the combined group, the Silkeborg, Denmark-based bank said yesterday. The bank will also pay 100 million kroner in cash.

After the merger is completed, Jyske will keep its goal of returning 10 percent to 15 percent on equity, before tax, Nielsen said.

“But it now also depends on meeting our synergy targets after acquiring BRFkredit,” Nielsen said.

The bank was advised on the deal by ABG Sundal Collier and JPMorgan Chase & Co. Shares rose 10.3 percent to 338.70 kroner at 3:37 p.m. local time, bringing this year’s gain to 16 percent.