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.
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....
“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....
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.
“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.”