Jyske counters Moody’s spin on demise and takeover of Spar Lolland

Moody’s said last week that the demise of Sparekassen Lolland is credit negative for Danish banks, but an official at Jyske Bank, which is taking over the regional savings bank, said that the rating agency’s view is backwards looking and that the takeover sends a positive signal.

After the Danish Financial Supervisory Authority (Finanstilsynet) found Spar Lolland to be in breach of solvency requirements, Jyske announced on 25 January that it is taking over the bank’s assets and liabilities, except for subordinated debt (Tier 1 and Tier 2). Share capital and subordinated debt remain in the bankruptcy estate and will be lost.

“Sparekassen Lolland’s failure is credit negative for Danish banks because it indicates that real estate lending and other large commitments continue to weigh on banks’ asset quality and challenge the government’s, investors’ and regulators’ assessments of related risks,” said Oscar Heemskerk, Moody’s vice president and senior credit officer, last Thursday (31 January).

The rating agency said that the failure came after a protracted period of intense oversight from regulators, and of government and investor support, and that Spar Lolland was itself the acquiring party in Danish bank consolidation when it purchased the retail operations of failed Eik Banki from Financial Stability, the government backed vehicle mandated to take over, sell and wind down struggling Danish banks.

However, Merete Poller Novak, head of strategic funding and debt investor relations at Jyske Bank, told Nordic FIs & Covered that the resolution of Spar Lolland’s problems should be seen positively.

“Moody’s are seeing it the wrong way,” she said. “Of course there are issues in Denmark because of the asset bubble, which led to over-expansive growth and weak underwriting procedures, especially among some of the smaller banks who were over-eager to expand out of their regions. The FSA has been very hands on, and the number of banks under intensive supervision has been quite stable and actually declined for a second quarter.

“It should not come as a surprise to anybody that there are still asset quality issues in a small part of the Danish banking system, but these are contained and declining, and we seem to be moving into a new environment,” she added. “First we had the first Bank Package, then we had the unfortunate bail-in that was used twice (Bank Package III), then we had scheme number IV allowing for resolution without senior bondholder losses, and now we actually have the banks and the banking sector solving it without need for Bank Packages anymore. So I can’t see why Moody’s does not see it as a positive that the sector itself solves these remaining problems.”

Novak noted that since Spar Lolland announced a capital plan in early 2012 to solve its solvency/asset quality challenges, Spar Lolland had been investigating various options to ensure the survival of the bank alone or as part of a consolidation process. During that process Jyske was in contact with Spar Lolland in relation to a potential takeover by Jyske , and as part of this process Jyske was able to conduct a thorough due diligence on Spar Lolland, which allowed Jyske to move quickly when an FSA deadline for Spar Lolland arrived at the end of January. Jyske had already made public its desire to play an active part in consolidation in the banking industry back in Q3 2011.

Related to the takeover, Jyske this week repaid a Skr800m (Dkr694m/Eu93.1m) government guaranteed bond issue of Spar Lolland. Novak said that the bank’s funding plans are unaffected by the takeover. Jyske is acquiring Dkr12.9bn of assets in the takeover.