Danish Banks seeking bailout legality

Denmark’s biggest banks want the state to clarify its readiness to bail them out.

The six lenders identified by a government committee as systemically important for the Danish economy say they need to be shielded from the country’s bail-in legislation for their too-big-to-fail designation to be meaningful. Danske Bank A/S, Denmark’s biggest lender, argues the additional capital costs they face should be matched by explicit guarantees of state support, just like in neighboring Sweden.

“We are very concerned about the fact that the legal wording is different to the extent that our rating is suffering,” Danske Chief Financial Officer Henrik Ramlau-Hansen said yesterday in an interview.

Moody’s Investors Service said last week that March proposals naming Denmark’s systemically important financial institutions and their capital requirements won’t prompt ratings upgrades. The banks will continue to get only one notch inMoody’s systemic support analysis. Swedish banks enjoy three notches. The rating company grades Danske Baa1, compared with an Aa3 rating for Nordea Bank AB of Sweden. Danske says the lower rating adds to funding costs at a time when they’re being asked to raise additional capital.

The lenders have struggled to persuade investors they’re as safe as their Swedish rivals after Denmark became the first European Union country to force losses on senior bank creditors within a resolution framework. The 2011 failure of Amagerbanken A/S left most Danish banks locked out of funding markets as creditors shunned the nation’s bail-in legislation.

Bloomberg

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