Danske Withdraws Appeal on FSA’s $18 Billion Risk-Weight Order

Danske Bank A/S is withdrawing an appeal against an order by Denmark’s financial regulator to add as much as 100 billion kroner ($18.2 billion) to its risk-weighted assets.

The order from the Financial Supervisory Authority, first announced a year ago, challenged Danske’s internal ratings-based approach for calculating capital adequacy.

“During the course of the appeal, we have had a constructive dialogue with the Danish FSA about the work on the IRB models going forward and we now want to conclude this issue,” Danske Chief Financial Officer Henrik Ramlau-Hansen said in the statement.

Regulators are focusing on risk weights to prevent banks understating the potential for losses on their balance sheets. Danske said last year its internal models allowed it to take into account individual loss probabilities more accurately than average calculations preferred by the regulator.

Shares in the bank traded 1.2 percent lower at 153.80 kroner as of 12:33 p.m. in Copenhagen.

The bank said last year the net effect “over time” of the orders from the FSA would lead to a rise in risk-weighted assets of about 100 billion kroner relative to the level in the first quarter of 2013.

Danske began implementing the FSA’s requirements a year ago after the order was first issued.

“In accordance with the orders, Danske Bank has increased its risk weights for the corporate portfolio, excluding items with counterparty risk, by 10 percentage points compared with the level in the statement of capital adequacy at the end of 2012,” the bank said.

The bank said its common Tier 1 capital ratio will rise by about 0.4 percentage point. It was 14 percent at the end of the first quarter, it said.

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