‘Bad bets on commercial loans’ caused Danish failure

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, Jyske Bank chief executive Anders Dam said.

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

Denmark’s state resolution agency has closed down 12 banks since the nation’s housing bubble burst in 2008, with a further 12 absorbed by stronger rivals.

The crisis has wiped out community lenders where management speculated on property prices and boards failed to stop reckless bets. The Financial Supervisory Authority (FSA) is reviewing governance standards across the country to ensure boards meet minimum professional requirements.

“It’s commercial loans that are causing the troubles,” Mr Dam, who runs Denmark’s second-biggest listed lender after Danske Bank, said.

“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 south-east, was wiped out after the FSA found impairments that exceeded those reported for the third quarter by at least 289m kroner (€38.7m).

The bank’s management and board yesterday stepped down 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 collapse fuelled speculation that more Danish lenders may yet be declared insolvent.

“Have we seen the last bank failure in Denmark? I hardly think so,” Simon Christensen, an analyst at Nordea Bank in Copenhagen, said.

“Thinly capitalised banks tend to delay booking writedowns until they’re forced to do so or until they can raise capital, which was also the case here.”

Jyske didn’t disclose a purchase price and Mr Dam declined to say how much his bank put into the deal. The stock has added 15% this year.