Amagerbanken Flops, Leaving Danish Interest Rates In The Gutter

Amagerbanken Flops, Leaving Danish Interest Rates In The Gutter

The result is in.

Amagerbanken, the first Danish bank flopping with losses for depositors, has now paid dividends to simple creditors of 88%.

The last year they could get an auditor to sign the figures were approximately:

Equity: 2 bio. DKK

Junior debt: 2½ bio. DKK

Deposits:  24 bio DKK ~ 10% 2½ bio. DKK.

Total losses: 6 bio. DKK

That more or less adds up – give or take the odd bio. DKK


In itself, the bank is uninteresting to the global public; but it does vindicate my flippant estimate, that a reasonably sober estimate will show that banks have lost equity 2-3-4 times, is about right. It was known from the start that Amagerbanken would be in the high end.

The bankruptcy court has closed the books, and laudably not allowed it to drag on after a reasonably orderly dissolvement.

It should however serve as a stark reminder that audited bank reports are to be viewed with extreme caution. It is a reminder that shares ARE a high risk investment.

The repercussions of that minor bank’s failure have been severe. The market for rental property is non-existent in the capital of Denmark. The market for condominiums is such that ¼ of all deals are judged to be “out of bounds” by the Danish Statistical Bureau. Amagerbanken was one of the driving forces – though by far, not the only one – behind the housing bubble in Copenhagen.

There are other less obvious indications of the scale of the general disaster. The figures for Q3 2012 for Danish real estate bonds are out. September figures are generally known as the revised figures. Significantly enough, there is no figure for how much the MFI sector owns of their own bonds. For the time being, it seems like the Central Bank has given up untangling that web of repo-sales and secured loans.

The effort seems to concentrate on saving as much of the depositors’ money as possible, by depositing it in the Central Bank (around 250 bio. DKK) – and lending it out against good loans as collateral.

It is unlikely that we see similar bank collapses, simply because the repercussions are too severe. Instead, efforts seem concentrated on rescuing the good loans to good businesses by alternative means – creating a more direct contact between the investors and their ultimate debtors.

Structured investments seem to be a thing of the past. The problem is the liquidity of the bonds. Looking at the interest rate sovereign bonds achieve, the investors are very well aware of that they are not going to harvest windfall profits, but rather have to contribute to the losses by sub-inflation yields for a very long time. Denmark is, at the moment, experiencing a negative real interest rate of 2½% measured at CB deposit rate, in relation to the consumer price index. The last 2-3 years, the real interest rate has been in negative territory and there is no improvement in sight.

As to the CB deposit rate: Since 1819, when the country was financially reconstructed after the war with England, the CB deposit rate has NEVER been so low. Even the worst year of the Great Depression (1934), it was at 2½% – positive. Let’s just say: Historical experience is simply not there.

The point being: Seeing the havoc Amagerbanken (a small bank) wrought banks will not be allowed to fail in the normal sense.