COPENHAGEN Denmark's central bank unveiled a 4.5 billion crowns ($896.8 million) bailout of Roskilde Bank ROSK.CO acting to confine the negative effect of the struggling bank on the Danish financial system.
The central bank, Nationalbanken, stepped in after Roskilde, Denmark's eighth-largest retail bank by customer market share, failed to receive any offers after putting itself up for sale in the face of bigger-than-expected writedowns on real estate project loans.
"We believe the situation around Roskilde Bank now constitutes a significant threat to the financial stability in Denmark," Denmark's Central Bank Governor Nils Bernstein said on Monday.
Bernstein added that other Danish banks' ability to access international capital could have been compromised if the central bank had not stepped in to guarantee Roskilde's debt.
Bernstein told Reuters Roskilde was extraordinary in that it was heavily exposed to the property sector and that other Danish banks in general were well prepared in a deteriorating Danish economic situation.
"We have no expectations of any other banks suffering similarly, but we can't make any guarantees," he said.
Roskilde, with 24 branches and about 100,000 customers, is the second small Danish bank to face a liquidity crunch. Earlier this year, Trelleborg was forced to sell itself to Sydbank.
In July, Roskilde secured a bailout of 750 million crowns from the central bank and put itself up for sale.
Bjarne Jensen, an independent bank analyst at BJ Consult, said Roskilde had gambled heavily in the real estate market since 2003, but said other Danish banks were not as focused on property development. "They've had enormous growth since 2003, but the growth was financed by loans and not deposits."
In a separate statement, Roskilde said an uncompleted audit had revealed a further 1 billion crowns in likely writedowns on loan provisions that would hit six-month pretax earnings. This is in addition to the expected loss of 520 million to 540 million it forecast in July, when the bank blamed global financial turmoil and a downturn in the Danish real estate market for its problems.
SLIPSHOD CREDIT CULTURE
Bernstein said Roskilde's exposure to real estate together with a "slipshod" credit culture had affected the bank, which was not "fit to survive," although he gave no examples.
Nationalbanken said it would set up a new bank to buy all assets and take over all debt and other liabilities in Roskilde, except hybrid core capital and subordinated loan capital in a government-backed bailout.
The central bank intends to continue Roskilde's banking business with the aim of disposing of the company in an orderly fashion.
Bernstein said shareholders and holders of hybrid core capital and subordinated loan capital had most likely lost their capital.
Shares in Denmark's three largest banks, Danske Bank DANSKE.CO>, Jyske Bank (JYSK.CO) and Sydbank (SYDB.CO), were all marginally lower on Monday. Trading in Roskilde's shares was suspended.
Nationalbanken and the Danish financial sector will contribute about 4.5 billion crowns in capital base for Roskilde. Losses will initially be covered by 750 million crowns in capital contributed by the financial sector through a contingency fund.
Denmark's financial sector is represented in the rescue by a private association set up by the Danish Bankers' Association which has received funds from its members and from mortgage lender Nykredit.
Nationalbanken said since July, auditing of Roskilde's interim report had revealed additional losses in the bank to the extent that it no longer met solvency requirements.
(Additional reporting by Rasmus Nord Jorgensen; Editing by Sue Thomas and Erica Billingham)