Something Rotten in the State of Denmark?

It is almost too easy, on a day like this, to paraphrase Shakespeare's old play about deceit and greed in the city of Helsinore. This time however it is not the venerable city of Helsinore which is under the spotlight but another old Danish city or more specifically the bank which carries its name.

At this point the details are naturally quite scarce but what is clear is that Roskilde Bank has requested the central bank for a liquidity guarantee.

Roskilde Bank A/S has announced to the OMX Nordic Exchange that in connection with the regular review of loans and guarantees in prepa-ration of the semi annual report, the management of the bank has found that write-downs have to be made on a significantly larger scale than what has previously been assumed. The amount and scope of the write-downs are not known at this point but will be made pub-lic once the full amount is known.

As a result of discussions between the Ministry of Economic and Business Affairs, the Danish Financial Supervisory Authority, the Danish Bankers Association and Danmarks Nationalbank, Danmarks Nation-albank has decided to provide the necessary liquidity to Roskilde Bank A/S.

The Government and the financial sector have assured Danmarks Na-tionalbank of their support to the arrangement with a guarantee to-wards Danmarks Nationalbank.

At the ensuing press meeting held at 10.00 AM CET the CEO of Roskilde Bank muttered words about a very complicated real estat portfolio which he deemed so complex that a considerable amout of months could be used to "sort it out." Now, the press meeting did not feature a buyer by name, which is a testament to the seriousness since normally in these kinds of situations a buyer would be lined up before hitting the microphones. Of course, it may also be a question of several contesting bids but we will know soon enough.

Now, why should you care about this? Well, Roskilde Bank is Denmark's 10th largest bank and together with a number of other mid-sized banks it forms the part of the Danish banking sector that has been most aggressive in lending. Predictably these other banks are dropping like bricks at the moment; one bank (Amagerbanken) is down 20% this morning. Moreover, Denmark is in a recession and in this light these kinds of tremors come at a quite unwelcome time.

Lastly, there is obviously the question about whether Roskilde Bank could be the butterfly that flaps its wings to induce much greater market swings. Time as per usual will tell.