Implosion in Denmark

The ancient Viking city of Roskilde is renowned for its picturesque views, music festivals and a cathedral where a handful of Danish kings and queens are buried. But now there's a small footnote to add to the tourist books: it is the site of Denmark's second bank failure.

The Danish central bank and several other private lenders announced Monday that they were paying 41.8 billion kroner ($8.3 billion) to take over Roskilde-based Roskilde Bank and effectively nationalize it. Now some 33,000 individual investors in Denmark have lost their money. (The bank's institutional investors already bailed a long time ago.) The Danish central bank governor said overnight that shareholders had lost 1.0 billion kroner ($198.2 million), and hybrid loan holders had lost 2.5 billion kroner ($495.9 million).

Roskilde will receive 4.5 billion kroner ($890.0 million) in cash from the central bank for its capital base, while the central bank and its buyers will also assume 37.3 billion kroner ($7.4 billion) of Roskilde's debts.

Roskilde is the second Danish bank to sell itself because of the credit crisis. Earlier this year, Trelleborg Bank was folded into larger rival Sydbank. Roskilde had also tried selling itself after receiving a 750 million Danish kroner ($149.5 million) cash injection from the central bank in July, but no buyer came forward.

"Danmarks Nationalbank sees the Roskilde Bank situation as very serious. It is expected that the takeover of Roskilde Bank will contribute to limiting the negative effect on the Danish financial system," the Danish central bank said in a press release on Monday [Aug. 25th, 2008]. Roskilde also revealed Monday that it was now expecting to post a loss of 1 billion kroner ($198.1 million) for the first half of the year, almost double the loss it had forecast last July. [...]

The question now is who might be next. Last Friday, Carsten Andersen, the chief executive of Sydbank, said he would not be surprised if one or two other Danish banks ran into similar troubles as Roskilde Bank in the next 12 to 18 months. Two banks that currently look to be at risk because of their rapid growth rates in the past two years and heavy lending to the property sector are small-cap lenders Max Bank and Sparekassen (or savings bank) Lolland.

Source: Forbes.com