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Denmark lets another bank fail, bondholders hit.

Summary: COPENHAGEN - Danish bank shares fell on Monday on concern about the health of the country's small lenders after Fjordbank Mors became the latest to fail over the weekend.

COPENHAGEN - Danish bank shares fell on Monday on concern about the health of the country's small lenders after Fjordbank Mors became the latest to fail over the weekend.

Fjordbank Mors is the ninth Danish bank to collapse following the 2008-09 financial crisis and the second to trigger a state-managed closure in which senior bondholders as well as shareholders will bear part of the losses.

The failure of Amagerbanken in February set a precedent in the European Union by making unsecured senior creditors liable for bank losses, highlighting the Danish government's resolve to shield taxpayers from the costs.

Shares in Danske Bank , Denmark's biggest financial institution, were down 4.2 percent at 1218 GMT on Monday, while shares in several small banks plunged.

Aarhus Lokalbank initially slid more than 31 percent but rebounded to trade up 6.3 percent. Max Bank shares fell 20 percent, making it the biggest loser on the Copenhagen bourse. Hvidbjerg Bank was down 9.1 percent, TotalBanken down 7.8 percent and Sparbank lost 7.3 percent.

Fjordbank Mors said after the market closed on Friday it would ask state administrators to take it over and wind up its business as it no longer met the Financial Supervisory Authority's (FSA) increased solvency requirement.

The bank and FSA reached agreement at the weekend on the state takeover by Finansiel Stabilitet, the state company that manages and winds up distressed banks.

The transfer of Fjordbank Mors to a subsidiary of Finansiel Stabilitet takes place under rules that took effect on Oct. 1 last year. It involves no immediate financial risk to the state because depositors' and creditors' losses are covered by a deposit guarantee fund financed by the banking sector.

The Danish system contrasts with bank bailouts across Europe, not the least in Ireland where the government has ended up the owner of most of the banks during the financial crisis.

No state aid

"We will not be involved with state aid," Minister for Economic and Business Affairs Brian Mikkelsen said on TV2 News.

"We think that it is not reasonable to give state crowns to banks that are run badly and have got themselves involved in risky businesses and lost money on that," Mikkelsen said. "It is not us as Danes that should pay for that."

Mikkelsen said that banks would continue to pay the costs of government bank aid packages.

Payment for Fjordbank Mors' assets was set at a preliminary 7.8 billion Danish crowns ($1.48 billion), corresponding to about 74 percent of unsecured senior liabilities, the FSA said in a statement.

"Creditors, including depositors with deposits exceeding 100,000 euros in Fjordbank Mors must therefore anticipate losses of approximately 26 percent as the bank closes," the FSA said.

"The bank's shareholders will have to acknowledge that their investment is lost, as will the owners of the subordinate liabilities," the FSA said.

Fjordbank Mors said separately at the weekend that about 450 of its 73,000 customers had deposits in the bank that would not be covered by the 100,000-euro guarantee.

A spokesman for the banking industry said small bank collapses like that of Fjordbank Mors hurt the whole sector.

"Every time that the sector goes in and covers losses of a bank collapse, it is the healthy banks that pay for the bad ones," Danish Bankers Association chief Jorgen Horwitz said in a statement. "Thus the healthy banks are weakened which means that the sector in general is destabilised."

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Publication:Khaleej Times (Dubai, United Arab Emirates)
Date:Jun 27, 2011
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