Failed Danish Bank Makes History With First Senior Bondholder/Depositor Impairments To The Tune Of 41% Of Total
Danish bank Amagerbanken A/S has just made history. The bank (which together with all other Danish, and not to mention Irish banks passed last year's European stress farce test) failed yesterday, this time for good, after its previous near death experience in the summer of 2010, when it only continued to exist in a zombi state courtesy of $2 billion in financial guarantees by the government. That guarantee, which was subject to "Amagerbanken strengthening its
capital base and solvency by 750 million crowns in the form of
equity or subordinated loan capital by Sept. 15" has ultimately been wiped out and on Monday, the Danish equivalent of the FDIC, the Finansiel Stabilitet A/S, announced that administrators would close the bank. And while the failure itself is not surprising (it was roughly the same size as the
mid-2008 collapse of Roskilde Bank, previously the biggest
Danish bank failure), nor is the reason for the failure, the bank said fourth-quarter writedowns wiped out its
equity, attributing a large part to failed property investors (but we thought European real estate was doing so much better?), what is unique about this failure is that it is the first one to proceed according to new new regulations designed to ensure
senior bondholders suffer losses in a bailout. And suffer they will. According to Bloomberg, bondholders of senior debt, including bonds formerly guaranteed by the government, will face write-offs of about 41%. "The bank estimates its assets
amount to about 59 percent of liabilities." Another loser: depositors, who just happen to be pari passu with senior bondholders. To put this failure in context, recall that every Failure Friday the FDIC bail outs numerous banks, with the tab in most cases running up into the hundreds of millions if not billions. What Europe has done, is instead of getting a deposit insurer to guarantee the loses (at the expense of more taxpayer capital), is it has allowed bond bondholders and depositors to be impaired to the point where pro forma assets equal liabilities. Something, which in bankruptcy is known as Fresh Start, and is the most apt way to make sure that in addition to unlimited upside, bank bondholders actually also incur risk. Which is why this brilliant approach to zombi bank resurrection with NEVER materialize in the US. After all, how can we possibly ask the banksters to dare accept the possibility of loss on even one penny of their investments...
More from Bloomberg on what is truly a beacon of logic in a world that puts bizarro to shame:
Investors in about 2 billion kroner ($360 million) of notes face losing almost half face value after the transfer of 15 billion kroner of the Copenhagen-based bank’s assets to a state- owned company, Bloomberg data show. Liabilities staying at the failed bank total about 13 billion kroner and include subordinated and hybrid debt, about 5.6 billion kroner of bonds backed by the government, as well as senior unsecured bonds.
“The bank hasn’t collapsed and gone into bankruptcy like the Icelandic banks, but has been selectively bailed out with a transfer of assets and a partial transfer of liabilities,” said Simon Adamson, an analyst at CreditSights Inc. in London. “Normally when this happens, senior debt and deposits are protected, such is the sensitivity around them, but this is bank resolution with debt and deposit haircuts, rather than a simple liquidation.”
Only when the FDIC, and the corrupt oligarchs, not to mention bankers who literally rule the US, acquiesce to a comparable form of loss-sharing arrangement (in which the taxpayer does not end up footing the bill in perpetuity for banks' desire to load up their balance sheets with worthless paper, which once upon a time produced yield and now just produces negative cash flow), can we say that America is truly on the way to some form of (fair and equitable) recovery. Everything else is just smoke, mirrors, corruption and lies.
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