Banks

Over the weekend there has been a big commotion in the “shire”, as Tonder Bank A/S (CPH:TNDR) not only collapsed, but when the Bank Inspection drew the magic wand it simply disappeared “PUFF” with a slight sulphur flavoured odour.

But that is NOT the story in my view!

The story is Sydbank A/S (CPH:SYDB), Denmarks fifth largest bank, with a balance of about 30 bio. USD in the last 4 years. (Tønder Bank was a microbank extending giant credits and about 1-2% of Sydbank).

The peculiar thing is that Sydbank A/S (CPH:SYDB) CEO, Karen Frösig, immediately stated that: “She hadn’t seen that one coming.” And, she immediately took over all assets and liabilities except “equity” of which there was none.

The behaviour is peculiar to say the least!

On one hand she claims total ignorance. That is unlikely to be true, as where would the Bank Inspection get the bright idea of paying them a visit from. The flash of inspiration most certainly (and admittedly) wasn’t the Bank Inspections home grown thistle (they are arid land in all respects) – they hadn’t visited Tonder Bank A/S (CPH:TNDR) the last four years on the strength of their forwarded annual reports, that after a cursory glance turned out to be more than “well done”! The Bank Inspection is now doing forensic investigations to establish an approximate time of death.

So somebody told the Bank Inspection something.

On the other hand: A bank taking over obligations in total ignorance of credit quality or even the physical existence of the debtors? Not very likely! Naive? Possibly; but not that naive!

In fact the Bank Inspection tailored their examination of Tonder Bank A/S (CPH:TNDR) to fit the conclusion of bankruptcy to a tee. They examined the 60 largest engagements and found 24 flawed, but the impairments fitted off hand with 99.7% of claimed equity – the remaining .3% was easily covered by adjustment of the value of the premises (No, I don’t know if the door knob to the toilet came off!).

It kind of leaves you with an impression that Sydbank A/S (CPH:SYDB)’ annual report – despite its verbosity – is nowhere near to telling the whole story.

The impairments in Sydbank A/S (CPH:SYDB) themselves are not impressive – especially considering that Jyske Bank in Q2 2012 took a hit. Their exposure to agriculture and other known loss generators is claimed to be smallish. 2/3 of their loans are business and the rest is mainly housing loans.

There are other indicators:

1)      Their Swiss branch has been liquidated with an apparent minute loss. Globalization has come, even to rural Denmark. Somewhat akin to a Detroit taxi company claiming to be “international” because they once had a flat tire on the Ambassador Bridge. But then Detroit also claims to be a cultural center.

2)      Sydbank was declared bankrupt by mistake less than three months ago:

Twice! It was claimed and admitted to be the same “clerical error” at the Registry Office. Why not make a habit of it – hitting the wrong keys? A truth not fit to be told – yet?

3)      A weird resignation:

The EO had been on the board for less than four months before he resigned in May 2012. He had been an employee for more than 35 years. He should have had time for deliberation.

4)      The Bank Inspection is a more frequent visitor to Sydbank A/S (CPH:SYDB) than to Tønder bank. Within the last 12 months there have been issued two reports – one of them on agriculture in February, resulting in a minor adjustment to the annual report for 2011. Agricultural exposure is only 7½%, which considering the area does not seem to be alarming. The visit could, as claimed, be a part of the general survey to diagnose the agricultural problem in general for the necessary political initiatives.

5)      CEO Frösig has forcefully, 1½ years ago, rejected speculation of a merger with Jyske Bank A/S (CPH:JYSK), though they share a computer system, claiming mutual disinterest.

6)      Since taking over part of Bank Trelleborg – oh, some 4 years ago – Sydbank has repeatedly bid on the carcasses of dead banks in the official dustbin. But each time been rejected as giving off “to low a bid.”

So why drop the quarter on Tonder Bank A/S (CPH:TNDR)?

Why accept losses which are bound to appear once page 60 is passed in the loan book? A .1 Bio USD impairment portfolio to be “re-evaluated “under new management hardly seems worth using the impairing knife for.

Though a nice smokescreen: The usual political flurry – again – hardly seems worth the effort. The comic relief to business report readers – though amusing – is not likely to draw at the political box-office. This flop raises more questions than it enlightens.