Sydbank A/S (CPH:SYDB) has been slammed by the Danish Supreme Court.
The Danish Supreme Court has overturned the ruling of the High Court and decided that the shareholders of the failed Trelleborg Bank can have their losses reimbursed by the successor to the estate: Sydbank.
The ruling is due to the faulty prospectus that Bank Trelleborg issued. The guarantors had their deposits changed into stock, although they were pawned to Spar Nord. The Supreme Court found that management must have known about that and could/should easily have checked.
To bring you up to speed:
Sydbank A/S (CPH:SYDB) is Denmarks 5th largest bank – no giggling – with a balance of about $30 billion. In November 2012, Sydbank took over Tønder Bank which went bankrupt. But in the hectic, week Sydbank first denied liability to the shareholders and guarantors; but then changed their mind and paid shareholders who had signed for the new capital just a month ahead of a prospectus that the Bank Inspection found deeply flawed, as the 2011 report was corrected after the inspection that led to the bankruptcy.
At the time there were some questions as to the change of heart of Sydbanks CEO, Karen Frösig – legally trained – as either you are liable or you are not. The other question was how the attention was directed towards Tønder Bank, as the Bank Inspection with more than a little embarrassment had to admit that several years had passed since they had inspected Tønder Bank – this issue is still not clarified.
What is clear is that Sydbank A/S (CPH:SYDB) has a somewhat (hopefully) rare history. It started in the 1970’ies as a merger of several small local banks, and in 1987 took over the assets of 6. Juli Banken ( an outright speculative high interest on deposit bank – at the time the flotsam was rescued, it was noticed that the extreme socialist party’s funds would have been endangered by a bankruptcy). Now its is involved in different mergers with failed banks (swallowing up a large part of Varde Bank failed in 1994) which continues to this day. Really is this a strategy that could be called “Growth by Scavenging”. Today, it has a solidity of the merest shade over 12½% demanded by law.
The business practice seem to be: Find a small bank in distress. This bank will have senior deposits that can be turned into stock – and then flop that bank. The flopped bank will have to use equity to impair loans when it enters into the authorities’ garbage can. These impaired loans can now be bought at rock bottom price, as recently added capital gives real nice impairments that in a couple of years might be reassessed and turned into nice loans and a profit from reversal of impairments.
It seems like the Bank Inspection has gotten a bit tired of that sort of suspended animation and Sydbank has been forced to impairments of 1/3 billion DKK in Q4 2012. The really interesting thing would be how many of their loans are actually viable?
The next question is: How much of the bank’s loan portfolio are actually not disguised losses – I mean in general. But the history – early and recent – of Sydbank A/S (CPH:SYDB) does cause wrinkles on the forehead: They have been carrying on like this for the past 40 years – so why change now?
