Denmark's Aarhus Lokalbank struggling to stave off bankruptcy

09:03, February 22, 2011      

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Aarhus Lokalbank, a small Danish bank, is struggling to avoid bankruptcy, its management revealed when announcing annual financial results for 2010 on Monday.

The bank's Annual Report 2010 notes that "The year 2010 will go down in history as the bank's annus horribilis (year of horror). A year when the bank registered a pre-tax loss of 233 million Danish kroner (around 42.72 million U.S. dollars)."

The bank is believed to have made substantial losses on investments in real estate and agriculture, pushing its finances below the safety limit imposed on banks by the Denmark's Financial Services Authority.

Danish financial news website Borsen.dk explains that in 2010, Aarhus Lokalbank suffered write-downs totaling 255 million Danish kroner (46.76 million dollars), and its equity plummeted to 136 million Danish kroner (24.94 million dollars).

Now, the bank's auditors have warned that a state-backed capital rescue plan may be required to rescue the bank, Borsen.dk said.

The auditors added that the bank faces substantial risk of financial distress if a capital plan is not implemented.

A potential rescue plan would depend on conversion of a 147 million Danish kroner (26.95 million dollars) Danish government loan provided to the bank, into shares, which are sold to raise equity for the bank. This would make the Danish government the majority shareholder.

However, bankruptcy remains a real threat.

"The capital plan implementation will strengthen the bank's capital base," Aarhus Lokalbank's management said in the report, "but it can not be excluded that the bank can run into difficulty, even if the capital plan is implemented as planned."

The bank management is aware that, if the capital rescue plan does not work, Aarhus Lokalbank could be put under administration of the Financial Stability Company, a state-run financial stability facility for distressed banks.

Moreover, the NasdaqOMX, the Nordic Bourse, has put Aarhus Lokalbank on its observation list after news of its financial difficulties emerged, the Direkt news agency reports.

A number of small banks in Denmark have come under scrutiny following the collapse of The Amager bank (Amagerbanken), another small bank, two weeks ago.

Source: Xinhua

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