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More Danish banks are likely to fail, but job losses will be minimal

First the bad news. Don’t expect the collapse of a second Danish bank last week to be the end of the woes facing the country’s banking sector, investors and financial services workers are being warned.

The good, or better, news is that there is no indication any serious Danish players are in difficulty, with only relatively small, regional banks likely to suffer from the government’s tough line on state support.

Denmark’s Fjordbank Mors was forced to resort to the state’s bank resolution package, Bank Package III, last week after it admitted it had failed to meet solvency requirements.

The bank, which employs around 118 people and is based in Nykobing Mors on Jutland, will now have its assets transferred to Finansiel Stabilitet, the state-owned company charged with winding down the country’s insolvent banks.

All employees, for now, will keep their jobs, though the current board and management team will step down.

It follows the similar collapse of Amagerbanken in February, the “good” assets of which were bought in June by Faroe Islands-based bank BankNordik in a deal that secured the jobs of Amagerbanken’s 630 employees.

The issue with Amagerbanken was its exposure to too many developers, but with Fjordbank Mors it has more been agricultural investments, especially around wind turbines, that have proved to be its undoing, argues Stig Nymann analyst at Alm. Brand Markets in Copenhagen.

“Since Denmark has changed to its new bank package there is no guarantee that the state will take over the whole bank and assume the risk,” he points out.

“There have not initially been any job losses because it has been transferred into Finansiel Stabilitet, which is supposed to sell the best parts off and run down the rest.

“So I assume a lot of people will end up maintaining their jobs but it is still now classed as a red bank that will eventually evaporate,” he adds.

The situation in Denmark is quite different from that in, say, Ireland or in terms of what happened with RBS in the UK, points out Simon Adamson, chief executive of research provider CreditSights.

“It would have much wider implications if it had been a larger bank. But this may set a precedent and be an indication of how bail-ins might work.

“There is as yet no real indication of what it will mean for jobs, but the probability is that it will be closed down. The Danish economy is still looking fragile and I think there will be other banks that may run into difficulty, but it will probably only be small domestic ones,” he adds.

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