UPDATE 1-Danish authority takes over Faroese bank Eik Banki
* Says failed to meet solvency requirement
* Agrees takeover by administrator, Financial Stability
* Depositors and creditors covered by government guarantee
(Adds further details, comment from administrator)
COPENHAGEN, Oct 1 (Reuters) - Faroe Islands bank Eik Banki FO-EIK.CO has agreed to be taken over by Denmark's banking administrator, Financial Stability, after failing to meet solvency requirements, it said on Friday.
Eik Banki, with total assets of 29.8 billion Danish crowns ($5.46 billion) at end-June, is among the dozens of small banks in Denmark to fold or be swallowed by rivals as a result of the financial crisis that began in late 2008.
The biggest failure to date is that of Roskilde Bank but Denmark still has over 100 financial institutions.
Eik Banki, which got into trouble with commercial real estate loans in Denmark, said it and its Danish subsidiary will be taken over by Financial Stability, the Danish state company that administers failed banks.
Danish financial regulators on Tuesday had told Eik Banki, listed in Copenhagen and Reykjavik, to write down the value of assets and increase capital to meet solvency requirements. [ID:nLDE68R0RR]
The Danish Financial Supervisory Authority (FSA) extended a deadline for meeting the solvency requirements to Oct. 8 from Sept. 30, Eik Banki said.
But the parent company, Eik Banki P/F, was unable to meet its Danish subsidiary's claim for capitalisation stemming from the solvency requirements imposed by the FSA, it said.
"Eik Banki P/F and Eik Bank Danmark A/S therefore have entered into a conditional agreement regarding the transfer of all the activities of the two banks respectively to a purchaser directed by the Financial Stability Company," Eik Banki said.
Trading of Eik Banki shares and bonds was suspended until further notice, the bank said.
Depositors and ordinary creditors will continue to be covered by Denmark's general government guarantee scheme, the bank said.
The government's guarantee for deposits expired on Thursday, but stays in force for banks, such as Eik Banki, that are subject to an FSA-imposed deadline for meeting solvency requirements.
The head of Financial Stability, Henrik Bjerre-Nielsen, told Reuters that the costs of taking over Eik Banki will be paid out of the support scheme for Danish banks known as Bank Package I.
That means that Danish banks, which have already paid for that package, would not be asked to put up more money for Eik.
Bjerre-Nielsen said in an e-mail to Reuters that Financial Stability had not been in contact with potential buyers of healthy parts of Eik Banki, but he said it was probably only a matter of time before that would happen.
The Faroe Islands between the Norwegian Sea and the North Atlantic are a semi-autonomous part of the Kingdom of Denmark so the Eik Banki group is regulated by Danish law. ($1=5.456 Danish crowns) (Reporting by John Acher and Peter Levring; Editing by Greg Mahlich)
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