Max Bank Will Fail Under Denmark’s Bail-In Law, Government Says

By Christian Wienberg - Oct 9, 2011 5:07 AM GMT+0700

The Danish government’s wind-up unit said it will probably take over regional lender Max Bank (MAX) A/S, which would become the third failure this year under the European Union’s toughest resolution laws.

The Financial Stability Company will probably take over and wind up the Naestved-based lender today, it said in an e-mail statement late yesterday. In a separate statement, Max Bank said the Danish Financial Supervisory Authority had told it after an inspection to increase writedowns on bad loans and boost solvency before a deadline of 6 p.m. today.

Denmark enacted a law in October last year making it the first EU member to force senior bank creditors to bear losses within a resolution framework. Since then, two regional lenders have collapsed and international investors have withheld funding for most of the nation’s 120 banks. Max Bank said yesterday the OMX Copenhagen stock exchange had agreed to suspend trading of its shares and bonds.

“If the bank can’t meet the deadline set by the FSA to raise sufficient capital, or find another resolution to the banks situation, it will allow itself to be settled under the resolution laws,” Max Bank said in its statement.

To spur takeovers and avoid more bail-ins, Danish lawmakers last month passed the fourth bank rescue package in three years. The legislation extends the maturity of state-guaranteed debt and allows the government to take over bad loans from ailing banks in the event of a merger. The Financial Stability Company said today that Max Bank may be resolved under the fourth package, suggesting another bank may step in with a takeover offer.

Max Bank has bonds out worth 3 billion kroner ($540 million), according to Bloomberg data. The bank’s stock market value was 59.5 million kroner as of Oct. 7’s closing price after the shares lost 72 percent this year.

The bank had assets of 9.39 billion kroner at the end of June, according to its first-half earnings report. It was the third-riskiest of 99 Danish banks graded by researcher Niro Invest ApS in a June survey.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net