Plenty of chatter surrounds Vestjysk Bank

Denmark’s eight largest bank Vestjysk Bank (CPH: VJBA) has lost half of its stock market value within the past month as worries over its ability to obtain funding have been weighing in on investor confidence. It shed another 6% today. Just before Christmas Vestjysk Bank announced additional impairments of 550 million on top of the expected 400 million level for 2011 after a review of the bank’s commitments was conducted by the Danish Financial Supervisory Authority (FSA).

The majority of the additional impairments were related to agriculture, where the bank had used a looser approach than FSA, particularly in collateral and farm land valuation. Agriculture is an important segment for the bank. Even after these impairments, the bank remains within the limit values for FSA’s Supervisory Diamond benchmarks. The liquidity ratio stood at 102 percent and solvency rate at 12.7% after these moves.

According to the communications, bank is considered well-run and has healthy core-earnings potential but there has been a lot of media-driven speculation wondering what should be done ”if” problems arise. Needless to say that the ability of small banks to obtain funding hasn’t been getting any easier in the past few weeks and problems with interbank transactions can quickly lead to a liquidity crisis. Newspaper Børsen.dk obtained information that the bank was seeking guarantees from large Danish banks for a capital increase but failed to obtain those.

State’s potential help is now being speculated on, should the need arise. As per taking part in the state guarantees, the bank already has liabilities to the State due this year and in 2013. According to Børsen, bank employees trade organization sees such a solution as a positive to both the shareholders and to the society as a whole. Vestjysk Bank replied the press coverage with a short and puzzling note that it is continuously monitoring the bank's funding and capital structure as well as assessing the strategies, foretelling something is brewing on the capital increase front.