denmark flag photoVery interesting development. If you have been following the Value Walk, the past few weeks have seen a lot of posts on Den Danske bank, the biggest bank in Denmark. The bank has over $560billion in aum.

DISCLOSURE: NO POSITON

Below are some of the posts:

There is a full scale bankrun on Denmark’s Largest Bank 12/12/11

My rebuttal to Danske Bank’s CFO 12/12/11

Danske Bank’s CFO Rebuttal 12/11/11

Short Thesis: Danske Bank Update 12/10/11

Luxor Capital Q3 Shareholder Letter: REMOVED 12/05/11 The letter was removed at the request of the CEO of Luxor Capital. I will not be sending the letter to anyone, but you can still view some of the comments on the letter. This letter made major news and was a very convincing and extensive write up on Danske’s current state and the Danish economy in general.

I have little to zero faith in the rating agencies, but Fitch just downgraded several European banks, including Danske bank. This is an interesting development to follow. Below are some excerpts:

Danske Bank, Denmark’s largest lender, was lowered to A from A+.

While ratings for these banks are driven by idiosyncratic factors that determine how they rank in relation to each other and the wider rating universe, the downgrades reflect the broader phenomenon of stronger headwinds facing the banking industry as a whole. Exposure to troubled Eurozone countries through their subsidiaries was a direct consideration in the downgrades of Danske Bank and Credit Agricole. For the other banks, however, Fitch considers the Eurozone crisis is also having negative indirect consequences. Capital markets, in particular interbank markets, are not functioning effectively, and, along with more global factors, the crisis is driving economic slowdown.

Fitch’s ratings are predicated on normally functioning capital markets, with severe disruptions being temporary in nature. That said, the agency does consider severe scenarios and higher-rated entities are expected to have more capacity to absorb unexpected levels of operational or financial stresses. In the context of Europe, Fitch foresees the current crisis continuing for some time, but neither the agency’s sovereign nor its bank ratings assume a break-up of the eurozone – with its profound consequences – as the ratings ‘base case’. Such a scenario, were it to occur, would have a material negative effect on Fitch’s bank ratings. The recently completed EU summit did little to ease pressure and reinforced the inherent complexities of ‘resolving’ the crisis. This feeds the market’s scepticism with respect to policy makers’ ability to craft durable solutions, and highlights the ongoing potential for pronounced market volatility.

Fitch notes that all five banks have improved and continue to improve capital and liquidity positions, which is positive for credit ratings, and have meant that VR downgrades have been contained to a single notch. However, the general developments in the global economy and a notable shift in market confidence towards the banking sector as a whole outweigh the positives and have been the primary drivers of today’s downgrades. All of these banks are exposed to capital market sentiment for their business models to function beyond the short term.

The banks all have leading franchises in their domestic retail and commercial banking markets. Fitch considers that leading retail and commercial banking positions put the banks in more robust positions for the medium term than banks with concentrations in other areas of the financial services industry. Nevertheless, questions over how the Eurozone crisis will be resolved and austerity measures taken to varying extents by European governments, will affect commercial banking negatively, particularly in Southern Europe and Ireland.

For additional perspective on the broader context that is informing this review, please refer to the companion special report ‘Rating Banks in a Changing World,’ (13 October 2011).

For a detailed list of the rating actions taken for each issuer, please refer to each company’s rating action commentary available on www.fitchratings.com.

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Danske Bank

Long-term IDR: downgraded to ‘A’ from ‘A+’; removed from RWN, Outlook Negative;

Short-term IDR: affirmed at ‘F1’;

Viability Rating: downgraded to ‘a’ from ‘a+’, removed from RWN;

Support Rating Floor: affirmed at ‘A-‘.