Bubble burst in northern Europe?
Roskilde Drops in Denmark After Central Bank Bailout (Update3)
By Christian Wienberg and Niklas Magnusson
July 11 (Bloomberg) -- Roskilde Bank A/S fell the most since its initial public offering in 1989 after it made bad loans to home builders and needed Denmark's first central bank bailout in 15 years.
The central bank will provide ``unlimited liquidity,'' and the Danish Bankers Association agreed to cover as much as 750 million kroner ($159 million) of losses, Roskilde Chief Executive Soeren Kaare-Andersen told reporters today. The bank, facing more writedowns than it expected on loans to property developers, dropped as much as 57 percent in Copenhagen trading.
``They have seen some heavy losses on their lending to property developers,'' said Christian Hede, an analyst at Jyske Bank A/S. ``There is a tense atmosphere here in Denmark.''
Kaare-Andersen is seeking a buyer for the 124-year-old bank after the real-estate collapse made Denmark the first this year in Europe to fall into recession. Dusseldorf, Germany-based IKB Deutsche Industriebank AG and Newcastle, England-based Northern Rock Plc also needed government help to survive the credit crunch that has triggered $404 billion of writedowns since last year's collapse of the U.S. subprime mortgage market.
Roskilde Bank fell as much as 82 kroner and was down 49 percent at 73 kroner at 4 p.m. in Copenhagen. The stock has declined 78 percent this year, six times as much as Denmark's OMX Copenhagen 20 Index, down 13 percent.
`Possibility'
Stockholm-based Nordea Bank AB, the Nordic region's largest lender, said it ``won't rule out'' acquiring parts of the bank, based in the town best known for the Roskilde Rock Festival where Neil Young and Radiohead performed earlier this month.
``Acquiring the branch network could be a possibility,'' Nordea spokesman Claus Christensen said in an interview.
Roskilde got the first central bank bailout since Denmark provided a credit line of 4.4 billion kroner in 1993 to break up Varde Bank after its bankruptcy the same year. Sydbank A/S, the third-largest Danish lender, acquired BankTrelleborg A/S in January after it ran into ``significant financial problems.''
Scandinavia's last financial crisis occurred in the early 1990s following the real-estate boom of the 1980s. Nordbanken and Gota Bank went bankrupt and were merged in 1993 in a state- engineered restructuring. Nordbanken, Finland's Merita Bank, Denmark's Unidanmark and Norway's K-Bank were then merged from 1998 to 2000 to create Nordea Bank.
Dropping in Denmark
Danish house prices will drop as much as 10 percent this year and next because of rising borrowing costs and too much supply, Svenska Handelsbanken AB's Danish Chief Economist Jes Asmussen said July 1. Denmark's gross domestic product contracted 0.6 percent in the first quarter and 0.2 percent in the fourth.
``The credit crisis has hit Denmark,'' said Henrik Henriksen, head of investments at Straumur Asset Management in Copenhagen. ``We saw this first in the U.S., then in the U.K. and Spain and now also in Denmark.''
The declines come after Danish house prices soared 23 percent in 2006, the most in at least 20 years, according to the association of Danish Mortgage Banks. That prompted a wave of investment in the construction industry as builders sought to take advantage of price gains.
``There are indications that, as house prices skyrocketed, a massive construction investment bubble was built up, which we expect will burst,'' Asmussen said on July 1.
Stuck With Real Estate
Kaare-Andersen said Roskilde got stuck with too many real- estate loans. ``It would have been much smarter not to have such a large real-estate portfolio, but we weren't able to reduce its size fast enough,'' he told reporters today.
Profit at Roskilde Bank rose more than fivefold from 2000 to 2006, partly because of increasing lending to the real-estate industry. While those activities have ``contributed significantly'' to the core earnings of the bank in recent years, they also raised the bank's risk profile ``considerably,'' Roskilde said.
``The subprime crisis and the property crisis have toppled over us very suddenly,'' Roskilde Bank Chairman Peter Mueller told reporters.
Moody's Investors Service lowered Roskilde's bank financial strength rating to C- from C on July 1, citing the lender's weakening asset quality, risks in the Danish real estate industry and intense competition in the banking market.
Guarantees
The Danish Bankers Association, which gets funds from its commercial lender members, is providing a guarantee of 550 million kroner, while Nykredit A/S, the country's biggest mortgage lender, is providing 200 million kroner.
``This amount doesn't mean that our coffers have been emptied should another bank need funds, which I don't think will be the case,'' said Mikael Winkler, association spokesman. It still has 950 million kroner, he said.
Sanne Keyser, 31-year-old fashion student, said she has no plans to withdraw her savings after hearing about the bailout. ``I'd be heart-broken if the bank were to be acquired,'' she said. ``I've been a customer here for five years.''
To contact the reporters on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.netNiklas Magnusson in Stockholm at nmagnusson1@bloomberg.net |
