UPDATE 1-Denmark's Spar Nord Bank buys rival, more deals seen
(Adds details, background, quotes, share prices)
* Spar Nord, Sparbank see 130 mln DKK in annual synergies
* Industry could see number of small, mid-sized banks halved
* Sparbank shares rise 27.5 pct, Spar Nord shares fall 2.5 pct
By Mette Fraende
COPENHAGEN, Sept 18 (Reuters) - Spar Nord Bank said it would acquire rival Sparbank, fuelling expectations of more consolidation in Denmark's fragmented banking sector as the financial crisis bites and regulations toughen.
The deal - the second involving small Danish banks in a week - would improve earnings and create a company with a nationwide network of branches in a stronger position to take on competitors in the retail and commercial markets, the banks said on Tuesday.
Sparbank shareholders will get two new shares in Spar Nord for each share currently held in Sparbank, the banks said in a statement. That put the value of Spar Nord's all-share offer at about 329 million Danish crowns ($57.97 million) based on 6.03 million Sparbank shares outstanding.
Sparbank shareholders would end up holding about 9 percent of the share capital of Spar Nord, they said.
Danish banks have been stung by bad loans in the aftermath of a burst property bubble and rising writedowns on loans to struggling farmers.
Bank profits took a further beating following Denmark's tighter writedown rules imposed in April.
Upcoming stricter capital requirements under international Basel III rules are also expected to drive more mergers and acquisitions between financial institutions.
Denmark has the most fragmented banking industry in the Nordic region with more than 100 banks. Last week, two of the country's smaller listed banks, Salling Bank and Vinderup Bank, said they would merge.
"There will no doubt be more (mergers and acquisitions) because a lot of smaller banks in Denmark realise that they need to be bigger in the longer term. Costs are simply too high," said SEB Enskilda analyst Claus Therp.
"For regulatory reasons, banks need to be bigger to be profitable," Therp said.
A number of industry insiders, including the Chief Executive of Denmark's second-biggest lender Jyske Bank, have forecast the number of small and medium sized banks in Denmark could halve over the next three years.
Last month, Spar Nord Bank reported second-quarter pre-tax profit dropped 88 percent to 6 million crowns, hurt by 221 million crowns worth of writedowns on loans to farming clients.
Sparbank also said last month its writedowns rose to 262 million crowns in the first half of the year as a result of the tighter rules, more than doubling its pre-tax losses to 190 million crowns.
The merger was expected to produce annual synergies of around 130 million crowns once fully integrated, the banks said.
Spar Nord Bank's Chief Executive Lasse Nyby told a news conference he expected the total number of staff would be reduced by about 100 after the merger.
Shares in Sparbank soared 27.5 percent by 1021 GMT while shares in Spar Bank Nord traded down 2.5 percent, against the background of a 0.6 percent decline in the Nordic banking sector index and a flat Copenhagen benchmark index. ($1 = 5.6749 Danish crowns) (Reporting by Mette Fraende; Editing by Dan Lalor and Andrew Heavens)
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