Tuesday, February 8, 2011

AMAGERBANKEN - $2.8 Billion Bank Failure In Denmark: Senior Bondholders Whacked 41%

It may turn out to be the most important bank you've never heard of.

Amagerbanken was taken over by the Danish government today. As with the Irish banks, Amagerbanken suffered huge losses on loans to property developers and investors in commercial real estate. But the rescue comes under new regulations which stipulate steep losses for bondholders. According to Bloomberg, senior bondholders and depositors over the insured limit will face losses of approximately 41%.

Some bondholders, however, still fall under a government guarantee, but expect Amagerbanken to be held up as an example by those who favor haircuts for bondholders rather than bailouts. In particular, we can expect Ireland's Fine Gael party (pronounced feena gail) to point to Denmark when they make their own case for unilaterally restructuring Ireland's bank debt. And when they do, the cat will be out of the bag.

For two years, central bankers and government finance ministers (who know next to nothing) have been claiming that the sky will fall and there will be tanks in the streets if bondholders are forced to take losses. Clearly that is not the case. First Iceland, then Denmark, then Ireland. After that, the race is on.

From Reuters

COPENHAGEN, Feb 7 (Reuters) - Denmark was lumbered with a $2.8 bln bill on Monday as Amagerbanken (AMBA.CO) became the country's tenth bank to fall into the state's hands in the wake of the global financial crisis.

Amagerbanken said on Sunday it would transfer its assets to Finansiel Stabilitet A/S, the state company that administers failed banks, and administrators would close the bank.

Amagerbanken, which was Denmark's eighth biggest bank in terms of lending, said fourth-quarter writedowns wiped out its equity, attributing a large part to failed property investors. [ID:nLDE7150JC]

The failure of Amagerbanken was roughly the same size as the mid-2008 collapse of Roskilde Bank, previously the biggest Danish bank failure.

The bill to the government for taking over Amagerbanken is 15.2 billion Danish crowns ($2.8 billion), which is the price that the state administrating company Finansiel Stabilitet will pay for the remaining assets.

The Danish banking industry will cover 2.2 billion crowns of that cost through the country's depositary guarantee scheme, Amagerbanken Chairman Niels Heering told a news conference.

If total losses from Amagerbanken rise above 15.2 billion crowns, Danish financial institutions would have to bear a larger burden than 2.2 billion, Heering said.

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This clip is worth the 40 seconds...

Video of the Tsar Bomb -- the 50 Mega-Ton monster in the photo for this story.

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