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Danish Deleveraging Frenzy Sends Business to Nykredit Bank

22.05.12

(Updates with bankruptcy figures in 15th paragraph, economist remark on in 16th.)

Dec. 6 (Bloomberg) -- Nykredit Bank A/S is gaining customers as its Danish rivals show their clients the door in a deleveraging distraction that’s accelerated since the Nordic country’s funding crisis started in February.

The banking element of Nykredit A/S, Europe’s biggest issuer of mortgage-backed covered bonds, is increasing its patron base every month as rivals including FIH Erhvervsbank A/S call in loans, Managing Director Georg Andersen said.

“We are not actually hit that hard by the current situation,” Andersen said in an interview in his Copenhagen area. “We get quite a few new clients both in Denmark and internationally.”

Danish banks are still reeling from the fallout of a funding danger triggered by senior creditor losses after the February failure of Amagerbanken A/S. Lenders also paucity to repay state-backed loans by a 2013 deadline after the government signaled it’s unpropitious to respond to pleas to extend the support. FIH, which owes the state about $7 billion, more than any other bank, cut loans to clients by 19 percent in the first nine months as part of a retrenchment scheme, it said Nov. 9.

Finance Minister Bjarne Corydon said last month that Denmark’s banks have received the grandeur support they need and told the industry to focus on consolidation. The government in September passed its fourth bank saving bill since 2008, designed to encourage healthy banks to take over troubled peers.

Growing Without Buying

Closely held Nykredit Bank, Denmark’s fourth largest, wants to inflate its retail and commercial lending business, Andersen said. The bank may not need to repair to to acquisitions thanks to the influx of customers triggered by the crisis, he said.

“We craving to get new clients in gradually, on markets making, on asset management, on the private side and on the corporate side,” Andersen said. “We’re in a fully healthy situation. We are not forced to reduce balances. We are not forced to move aggressively. Basically, we tolerate.”

The lender is also expanding its brokerage business and this month opened an office in Stockholm to commerce Swedish government and mortgage-backed bonds as investors fleeing the turmoil roiling the euro range seek refuge in Scandinavia, he said.

“What we do in Sweden is part of the drive to blossom the bank,” Andersen said. Denmark, Norway and Sweden are functioning as havens, so “we see wholly some inflow to these countries of liquidity from international investors who would maybe under other circumstances put this profit in the more core euro countries.”

Bond Issuance

Nykredit wants the banking business to accommodate as an outlet for its issuance of mortgage-backed covered bonds as part of a drive to have international investors insinuate up about a quarter of the total, compared with about 17 percent today, he said.

“We miss to move further out to Asia and even South America,” Andersen said. “When you move so far off the Nordic shores, these investors take care of to look for one-stop shopping in fixed income.”

Nykredit Bank’s net profits for the first nine months jumped 165 percent to 557 million kroner ($101 million), after gains from corporate and retail banking climbed and impairment losses dwindled to a fifth of the earlier year’s level, the bank said Nov. 10. Still, the bank cut its full-year prophecy for profit before losses and tax, citing lower-than-expected loan growth.

Lender Cuts

Elsewhere in Denmark’s banking energy, lenders are cutting jobs to stay profitable. Dansk Bank A/S, the realm’s largest, reported its first loss in more than two years on Nov. 1, and said it will cut 2,000 jobs. Jyske Bank A/S, Denmark’s assist-biggest listed lender, is closing branches and raising interest rates as third-barracks profit slumped 47 percent.

Sydbank A/S, the country’s No. 3 listed bank, in October shelved plans to end senior debt indefinitely and is cutting 89 jobs. The lender is also restricting hours for cashier services at most branches, and raising interest rates on floating-appraise loans by as much as 0.50 percentage point.

The number of bankruptcies jumped to the highest this year in November, surging 11 percent from October to 507, Statistics Danmark said today. The figures are adjusted for seasonal swings.

“As feared it seems that the cost-effective downturn in Denmark is leaving its mark on the development in bankruptcies,” said Jes Asmussen, chief economist at Svenska Handelsbanken AB in Copenhagen, in a note. “The numeral of bankruptcies is at a disturbingly high level.”

Negative Outlook

The viewpoint for Denmark’s banking system remains negative, Moody’s Investors Work said Nov. 2. The ratings company cited depressed profits, weakened asset grandeur and the 2012 and 2013 deadlines the industry faces to repay 150 billion kroner in state of affairs-guaranteed debt against the backdrop of a credit crunch.

About one third of Denmark’s brutally 120 banks hold the government-backed debt, the state veer-up agency, the Financial Stability Company, said Nov. 25.

The Copenhagen OMX financials sign has fallen 29 percent this year, compared with an 18 percent leave out in the Swedish bank shares and a 29 percent decline in the 46-colleague Bloomberg European banks index.

It costs 66 percent more to insure against a default at Danske Bank than it does to stand watch over against a credit event at Stockholm-based Nordea Bank AB, the Nordic bailiwick’s largest lender, credit default swaps show.

--Editors: Tasneem Brogger, Christian Wienberg.

To contact the newsman on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the leader-writer responsible for this story: Christian Wienberg at cwienberg@bloomberg.net.

Source: BusinessWeek