c'è del marcio in Danimarca..

[ramirez]

Something is interesting in the state of Denmark.

Over the weekend, Amagerbanken, a smallish Danish bank filed for bankruptcy. Its assets now have to be transferred to Denmark’s bad bank curating-company Finansiel Stabilitet (FS), which has already taken over the assets of a number of failed financial institutions. The Amagerbanken case is special however.

Holders of senior unsecured debt and even depositors could face losses.

Here’s CreditSights on the how and why:

FS was established in October 2008, by the Danish government to take over failing banks with a view to selling them or winding them down. While shareholders and subordinated debt holders were not bailed out, the Danish bank guarantee scheme protected depositors and senior debt holders. However, the scheme expired on 30 September 2010, and since then senior liabilities, including deposits above the €100,000 Danish deposit insurance limit, are no longer guaranteed. FS’s preliminary valuation of Amagerbanken’s assets is DKK 15.2 bln (€2.0 bln), equivalent to around 59 per cent of senior liabilities. This means that holders of senior debt and deposits over the €100,000 limit can expect a haircut of around 41% … While such action is easier in respect of a relatively small bank, this might well set a precedent for the way failing banks are treated in other jurisdictions.

Indeed, Ireland’s Fine Gael — the party that’s likely to take power in Ireland’s elections later this month — has been busy talking up forcing losses on senior debt.

It’s politically-motivated for sure, but those motivations can be powerful.

In fact, Nomura’s Nick Firoozye figures haircuts might actually happen:

We note that, should there be any real attempts to make senior bondholders share the pain, the leverage of the EU and ECB is so large that, if anything does actually happen, it will be with their implicit approval (irrespective of whatever disapporval is stated publicly). Our expectations are that Fine Gael will in fact take haircuts on the senior debt of insolvent banks. Although not economic (i.e., approximately €5bn senior debt outstanding), the ability to distance the sovereign from the banking sector it has supported for far too long should prove a cause for sovereign bondholders (and voters) to celebrate.

Ireland, doing a Denmark?