Impairment charges from new DFSA guidelines pushes Jyske to a big Q2 loss

Before extraordinary items, Jyske Bank (OMX: JYSK) has had its best first six months since the financial crisis. This comes forth from a statement explaining interim results in advance due to material charges. Second quarter gross earnings of 1.7 billion DKK and net interest income of 1.14 billion were down slightly from last quarter but up year-on-year. Second quarter gross core earnings of 180 million were more offset five-fold by a 900 million impairment charges related to new guidelines from Danish Financial Supervisory Authority. This consists of 540 million in loan impairments and 360 million for value adjustments regarding customers’ interest-rate hedging. The bank said this was intensified due to the falling interest rate in Q2.

Solvency ratios are as follows: Core Tier 1 capital ratio 14.3%, Core Tier 1 capital ratio excluding hybrid capital 13.1%. Capital surplus when comparing to individual solvency requirement of 9.6% at the end of Q2 stood at 6.8 billion DKK, up by 1.7 billion during H1 2012. This period included a 1.3 billion private placement. The bank says it is satisfied with the operational performance and maintains loan impairment charges and provisions for guarantees for the year even after the DFSA-related charge at 1.6 to 2 billion DKK range but exclusive of interest-rate hedging value adjustments. Full-report is expected on August 21st.

More credit rating downgrades, this time Denmark again in focus

Ratings agencies are swinging left and right also aiming at Nordic banks all the more often as. Danske Bank (OMX: DANSKE) was under heaviest pressure in today’s trading after Standard & Poor's downgraded it in the morning by one notch A-/A-2 from A/A-1 on Irish property market weakness and the situation in Denmark. The rating now carries a stable outlook. Danske Bank expressed surprise on the move, given a declining trend in Irish property market related losses as of late.

If the S&P downgrade was, the latest bomb from Moody’s caused outrage. After market close it cut ratings of several Danish and Finnish banks by one to three notches. Danske Bank, Jyske Bank (OMX: JYSK) and Sydbank (OMX: SYDB) were slashed two notches deposit rating Baa1 and Spar Nord Bank (CPH: SPNO) by one notch. Several specialised credit institutions saw their ratings cut by three notches in a single go. In Finland Danske’s subsidiary Sampo Bank to deposit grade A2 and Pohjola Bank (HSE: POH1S) to baa2

Jyske Bank strengthens capital base with a private placement

Jyske Bank A/S (OMX: JYSK) said after market close on Wednesday that it is issuing up to 6,479,999 new shares (9.99% of share capital) at market price through accelerated book-building process for institutional investors. Based on the closing price on Wednesday, this would net the bank approximately 1.3 billion DKK. Existing shareholders have no pre-emptive rights.

Annual earnings for 2011 were released around a month ago. Pre-tax profit for 2011 was 601 million, which was adversely affected by special one-off items up to almost 500 million. Solvency ratio at the end of the year was 14.7% with Core Tier 1 capital ratio excluding hybrid core capital at 12.1 %. Jyske Bank still forecasts further consolidation in the Danish banking sector.

Jyske Bank's numbers tell a tale of an economy slowing down

Jyske Bank’s second quarter numbers disappointed investors. The negative mood weighed in on the entire sector in Copenhagen stock exchange yesterday. Pre-tax profit of 118 million Danish kroner was down nearly 50% compared to Q2 2010 and profit for the period of 88 million was exactly 50% lower.

Net interest income continued on a downward path for the fourth quarter in a row and was now at 1.453 billion. Net fee and commission income fell back to under 300 million. Loan impairment charges had been coming down but jumped back up considerably to 370 million. Jyske Bank recognized expenses on reimbursements to Finansiel Stabilitet over the winding up of Amagerbanken. Total Bank Package I and Guarantee Fund expenses for H1 2011 were 256 million DKK.

The bank’s solvency ratio at the end of the quarter was 16%, Tier 1 Capital 14.5% and Core Tier 1 capital exclusive of hybrid core capital: 12.8% Jyske Bank fell over 7.5% yesterday and is trading flat today slightly above 145 DKK a share. The full interim report is here.

Nordic banks pass stress tests

European Banking Authority has published results of the 2011 EU-wide stress tests for 90 banks in 21 countries. All 10 Nordic banks involved in the latest stress tests passed comfortably. They were Nordea Bank (OMXS: NDA, OMXH: NDA1V), Skandinaviska Enskilda Banken (OMX: SEB A, STO: SEB C), Svenska Handelsbanken(OMX: SHB A) and Swedbank(OMX: SWED) from Sweden, Danske Bank (OMX: DANSKE), Jyske Bank (OMX: JYSK), Nykredit Bank and Sydbank (OMX: SYDB) from Denmark, DNB NOR (OSE: DNBNOR) from Norway and Pohjola Bank (HSE: POH1S) as a part of OP-Pohjola group from Finland.

Eight banks were below 5% Core Tier 1 T capital threshold and sixteen banks between 5% and 6% CT1R. EBA is formally recommending national supervisory authorities to require those banks under 5% CT1R to promptly remedy capital shortfall. Those failing the tests were all small banks. Five of them are in Spain, two in Greece and one in Austria.

While stricter than the tests last year, these tests have been also been blamed too soft and authorities are worried markets will view the fact that the tests do not include Greek default provision as a reason to panic. Also some have worried about the great detail that banks are revealing about their specific exposures to provide bad incentives. More information is available here.