1...http://www.bloomberg.com/news/2013-02-17/ugliest-danish-banks-find-no-buyers-in-toxic-asset-trap.html
2....http://www.bloomberg.com/news/2013-02-17/debt-bubble-born-of-easy-cash-prompts-swedish-rule-review.html
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2....http://www.bloomberg.com/news/2013-02-17/debt-bubble-born-of-easy-cash-prompts-swedish-rule-review.html
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Debt Bubble Born of Easy Cash Prompts Swedish Rule Review
By Niklas Magnusson - Feb 18, 2013 4:20 AM CT
Ugliest Danish Banks Find No Buyers in Toxic Asset Trap
By Frances Schwartzkopff & Christian Wienberg - Feb 18, 2013 3:09 AM CT
The man who correctly predicted the failures that triggered Denmark’s banking crisis two years ago is now warning that a surge in bad loans will drag down more regional lenders too far gone to attract buyers.
Aggregate impairments will continue to rise this year, with fatal consequences for the country’s weakest banks, according to Nicholas Rohde, founder of Copenhagen-based Niro Invest Aps.
A flag flies above the headquarters of Jyske Bank A/S, Denmark's second-biggest listed bank, in Copenhagen. Photographer: Ulrik Jantzen/Bloomberg
It was Rohde’s financial model that identified the noxious cocktail of bad assets lurking on the balance sheet of Amagerbanken A/S well before its 2011 failure. Photographer: Ulrik Jantzen/Bloomberg
Sydbank A/S, Denmark’s third-largest listed lender, took over Toender Bank A/S in November after the FSA uncovered bad loans big enough to wipe out its equity. Photographer: Ulrik Jantzen/Bloomberg
It was Rohde’s financial model that identified the noxious cocktail of bad assets lurking on the balance sheet of Amagerbanken A/S well before its 2011 failure. The event triggered Europe’s first senior bondholder losses in a state- backed resolution, and Rohde says more bail-ins can’t be ruled out. Legislation designed to spur mergers and avoid creditor losses will probably fall short as potential buyers balk at the prospect of absorbing toxic debt, he said.
“There are some banks that are unattractive, either because they’re small or in a remote part of Denmark,” Rohde said in a telephone interview. “Or because it’s not clear how many skeletons remain in the closet.”
One lender fighting for life is Vestjysk Bank A/S, Denmark’s ninth-largest. The Financial Supervisory Authority’s most recent visit uncovered additional writedowns that left the Lemvig, Denmark-based lender only 350 million kroner ($62 million) shy of being shut down, the bank said in a Feb. 1 statement to the stock exchange.
‘Not Much’
“That’s not much, given the size of the bank, but it’s enough so that we can go forward,” Vestjysk Chief Executive OfficerVagn Thorsager said by phone.
The bank’s shares sank as low as 7.7 kroner this month. In 2007, one year before Denmark’s property market tanked, the stock traded as high as 272 kroner.
A Bloomberg index of Denmark’s 23 listed commercial banks with market capitalizations of 1 billion kroner or less hit its lowest Feb. 4 since the financial crisis began, falling to about one-seventh of its 2007 peak.
The FSA in April began requiring banks to value collateral at prices they could expect to get within six months, driving up industry-wide writedowns by 50 percent in the six months through June. The Copenhagen-based regulator imposed the new rule, dubbed “extreme” by Nordea Bank AB Chief Executive Officer Christian Clausen, after inspections showed banks failed to adequately account for real estate declines.
The financial watchdog has defended its approach as the best way to spur consolidation in an industry frozen by fears of hidden bad loans.
‘Larger Effects’
“The rules are set up to make sure you don’t take into consideration that things might get better,” Kristian Vie Madsen, deputy director at the FSA in Copenhagen, said in a phone interview. “There have been some banks where the effects have been larger. If you go to another bank and try to sell your assets, they would not accept a more positive, forward-looking evaluation.”
House prices have slumped more than 20 percent since their 2007 peak, plunging the economy into a recession. Vestjysk Bank says asset valuations that don’t take the possibility of a recovery into account are toughest in regions where signs of a rebound are most remote.
“In practice it can be difficult, especially in areas of the country where the property market is frozen,” Thorsager said. “It’s hard to say the financial crisis is over.”
Since 2008, 12 banks have been taken over by Denmark’s state resolution agency, Financial Stability. Another dozen troubled lenders have been absorbed by bigger rivals.
“I don’t think we’ve seen the last of banks that will be swallowed up, possibly against their will,” Rohde said.
Bank Takeovers
Sparekassen Faaborg A/S said Feb. 14 it no longer has enough capital to meet an internal solvency target set in 2011 of 16 percent, after an 81 percent surge in writedowns last year ate through almost half its equity. The bank, whose shares hit a record-low in Copenhagen a day later, said it’s working on a plan to rebuild capital as it continues to face “significant” risks from real estate loans.
Sydbank A/S, Denmark’s third-largest listed lender, took over Toender Bank A/S in November after the FSA uncovered bad loans big enough to wipe out its equity. The failure followed what FSA Director General Ulrik Noedgaard called “massive non- compliance.”
‘Magnifying Glass’
Jyske Bank A/S, Denmark’s second-largest listed bank, bought Sparekassen Lolland A/S in January after writedowns ate through its regulatory capital. Oestjydsk Bank A/S the same month said 2012 writedowns will erase five years of profits.
Investors and the government hold at least 140 billion kroner in senior bank industry debt due this year and next, central bank data show. That includes at least 55 billion kroner in state-backed debt remaining from the 194 billion kroner issued by the end of 2010.
“The smaller banks now will be looked at with a magnifying glass,” Per Hoeg Jensen, head of financial origination at Danske Bank A/S, said in a phone interview. “What would upset things is if there were another Toender Bank.That was a big surprise.”
At the same time, Denmark’s banking crisis is widening the divide between the country’s biggest lenders, which are building up capital and winding down bad loans, and regional lenders too small to attract investors.
Danske Bank saw a fivefold surge in net income to 1.15 billion kroner last quarter as impairments dropped. Denmark’s biggest bank is eliminating 3,000 jobs to stay competitive, as it closes branches and cuts back on corporate lending.
Jyske Bank is taking advantage of the crisis to buy up rivals. Dam says his bank can mobilize 18 billion kroner for acquisitions. He estimates about half Denmark’s regional lenders will have been wiped out by 2020.
“The majority of Danish banks have sufficient capital and they shouldn’t have problems if the high writedowns continue,” Rohde said. “But some are still on shaky ground.”
To contact the reporter on this story: Frances Schwartzkopff in Copenhagen atfschwartzko1@bloomberg.net
To contact the editor responsible for this story: Christian Wienberg atcwienberg@bloomberg.net
Sweden’s financial regulator says it’s ready to tighten restrictions on mortgage lending to stop banks feeding household debt loads after a cap imposed during the crisis failed to stem credit growth.
“Swedish households today are among the most indebted in Europe and we cannot have household lending that spirals out of control,” Martin Andersson, the director general of the Financial Supervisory Authority, said in an interview in Stockholm. “If that would happen, we can utilize the two tools we do have again, or look at other alternatives.”
A cyclist passes new homes under construction in the coastal area of Vastra Hamnen in central Malmoe, Sweden. Photographer: Linus Hook/Bloomberg
Sweden’s National Housing Board argues the country is already in the grip of a housing bubble. Photographer: Linus Hook/Bloomberg
“Swedish households today are among the most indebted in Europe and we cannot have household lending that spirals out of control,” Martin Andersson, the director general of the Financial Supervisory Authority, said in an interview in Stockholm. Photographer: Casper Hedberg/Bloomberg
The FSA is ready to enforce a cap limiting home loans relative to property values to less than the 85 percent allowed today, Andersson said. Banks may also be told to raise risk weights on mortgage assets higher than the regulator’s most recent proposal, he said. The watchdog has other measures up its sleeve should these two prove inadequate, he said.
As most of the rest of Europe grapples with austerity and recession, the region’s richer nations, including Sweden, Norway and Switzerland, have been battling credit-fueled housing booms. And with southern Europe sinking into a state of deeper economic decline, the prospect of monetary tightening remains remote. That’s adding to pressure on Swiss and Scandinavian regulators to counter the effect of low interest rates on their markets.
Switzerland this month ordered its banks to hold 1 percent additional capital against risks posed by the country’s biggest property boom in two decades. Norway in December proposed tripling the risk weights banks must use on mortgage assets to 35 percent.
Crisis Prevention
Sweden has already pushed through stricter lending rules as policy makers try to avoid a repeat of the nation’s 1990s real estate and banking crises. The FSA in October 2010 introduced its 85 percent loan-to-value limit, a move that helped slow borrowing growth from more than 10 percent between 2004 and 2008, to 4.5 percent in December. That’s still too fast a pace, according to Finance Minister Anders Borg, who argues credit growth shouldn’t exceed 3 percent to 4 percent.
The regulator last year also proposed tripling the risk weights banks apply to mortgage assets to 15 percent. While the pace of credit growth has eased, household debt still reached a record 173 percent of disposable incomes last year, the central bank estimates.
That far exceeds the 135 percent peak reached at the height of Sweden’s banking crisis two decades ago. Back then, the state nationalized two of the country’s biggest banks after bad loans wiped out their equity. Nordea Bank AB is the product of a series of state-engineered mergers born of that crisis.
‘A Proxy’
This time, some of the banks themselves are withholding credit out of concern debt levels are too high. The turmoil in the 1990s “gives you at least a proxy for what might be sustainable,”Michael Wolf, chief executive officer of Sweden’s largest mortgage lender, Swedbank AB, said in December. He anticipates “some sort of adjustment” to the housing market, he said then.
Five-year credit-default swaps on Swedish debt rose to their highest since November today, gaining as much as three basis points to 22 basis points. A higher swap rate signals investors are less confident in the credit quality of an issuer.
Though FSA measures to tighten lending have helped cool the real estate market over the past two years, property prices have soared about 25 percent since 2006.
1990s Crisis
“What we saw in the 1990s crisis was that if you bought a home with a 90 percent debt ratio in 1991, it took about six or seven years until you were back at a level where you had a property that was worth more than your mortgage,” Andersson said in the Feb. 13 interview. “That is a very long time.”
Riksbank Governor Stefan Ingves, who is also the head of the Basel Committee on Banking Supervision, has warned against keeping interest rates low for too long.
Though his bank held its main rate at 1 percent on Feb. 13, policy makers cautioned that “household debt as a percentage of income is still high and the risks this entails for the economy in the long run still remain.”
The FSA is also battling the consequences of low rates in Sweden’s life insurance industry. The regulator today extended by six months a deadline for removing a floor on discount rates, meaning pension funds and life insurers will be protected from declines in yields that inflate the value of their liabilities, until the end of the year. From then on, Sweden will move to so- called Solvency II rules.
Debt Repayment
Ingves has discussed forcing homeowners to amortize their mortgages as an alternative to interest-only loans. Andersson declined to say whether the FSA would resort to such a measure.
Sweden’s National Housing Board argues the country is already in the grip of a housing bubble. Residential property prices, adjusted for inflation, are about 20 percent overvalued, housing board analyst Bengt Hansson estimates. House prices could fall as much as 10 percent over the next 18 to 24 months, according to Jens Hallen, director for financial institutions at Fitch Ratings. Hallen said in a Feb. 5 interview he wouldn’t characterize such an adjustment as the result of a bubble.
“One should be prepared for a downturn,” Andersson at the FSA said. “House prices cannot just continue upwards in eternity.”
To contact the reporter on this story: Niklas Magnusson in Stockholm atnmagnusson1@bloomberg.net
To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
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