Failed bets show Danish bank crisis far from over

COPENHAGEN: Denmark’s latest bank failure was caused by bad bets on commercial property, a model for insolvency that continues to dominate the nation’s financial woes, according to Jyske Bank A/S chief executive officer Anders Dam.

Dam, who agreed on Friday to take over Sparekassen Lolland A/S after it failed to meet regulatory solvency requirements, won’t cover losses incurred by shareholders or subordinated creditors. Jyske had yet to calculate the final cost of the deal, he said in an interview.

Denmark’s state resolution agency has closed down 12 banks since the nation’s housing bubble burst in 2008, with a further dozen absorbed by stronger rivals. The crisis has wipedout community lenders where management speculated on property prices and boards failed to stop reckless bets. The Financial Supervisory Authority (FSA) is now reviewing governance standards across the country to ensure boards meet minimum professional requirements.

“It’s commercial loans that are causing the troubles,” Dam, who runs Denmark’s second-biggest listed lender after Danske Bank A/S, said in an interview on Friday. “It’s loans used to speculate in property outside Sparekassen Lolland’s geography that caused the extra writedowns. It’s the same story again.”

Equity in Sparekassen Lolland, based on an island in Denmark’s southeast, was wiped out after the FSA found impairments that exceeded those reported for the third quarter by at least 289 million kroner (US$52mil).

The bank’s management and board stepped down yesterday after the lender was officially declared bankrupt, according to a statement to the stock exchange. All trading in its shares and bonds has been suspended.

The bank, whose total assets were 13.3 billion kroner at the end of September, had made 25.4% of its loans to real estate projects, the regulator said. –