As you may recall, Roskilde Bank in Denmark was recently rescued by the Danish central bank as it fell prey to the recession in Denmark. However, shareholders there are still fighting to save the bank, pitting interested parties against one another.
My translation from the following article in the Danish Daily Berlingske Tidene demonstrates that the coming wave of bankruptcies for financial institutions are going to involve a lot of legal bills, man hours and stress. The bankruptcy of a major financial institution is far from simple.
It will pay for financial regulators to have a system ready to deal with common issues efficiently and to adhere to strict guidelines in order to move beyond crisis mode as quickly as possible. As in this case below, shareholders always want to keep from losing their money. But most banks will need to be liquidated or sold. Regulators need to set strict guidelines for determining when to sell, when to liquidate and when to negotiate.
Allowing shareholders to extract gains due primarily to the central bank’s liquidity unfairly benefits shareholders and sets up a moral hazard. This was a primary objection to JP Morgan’s $10 offer for Bear Stearns. The Roskilde Bank case demonstrates that U.S. regulators should consider setting up a Resolution Trust-style entity to deal with bank failures sooner rather than later.
Shareholders of Roskilde Bank want to cooperate
Laurits Harmer Lassen, Friday, 15. august 2008, 05:00
Several different shareholder groups in Roskilde Bank are fighting to save the bank, but the groups’ strategy are widely different. Now, shareholder groups want to find out how they can cooperate. One group is fighting to avoid the sale of Roskilde Bank altogether.
Same goal, different strategies. Two different shareholder groups are currently trying to salvage the value of Roskilde Bank. One group is open to a complete or partial sale of the bank, while the other group is fighting to preserve Roskilde Bank in their own hands.
Now, the two groups want to find out how they can cooperate, says Henrik Langkilde, who is spokesman for the shareholders, who are fighting to avoid a sale of the bank.
“From the beginning, we each have had our own way in the fight to save the bank, but we have continually been in contact. Now we shall meet soon and set joint candidates for the new Board of Roskilde Bank,” he says.
Henrik Langkilde imagines that one should set out the healthy part of the bank into an independent company, which through new capital will continue to run on its own. The plan is for a large number of shareholders to contribute an additional 500 million kroner [$100 million] into the new company, while a further 500 million will be transferred from the old Roskilde Bank.
In this way, all current shareholders will automatically be shareholders in the new company. The rest of the bank should be phased out as soon as possible in a sort of garbage rump company, where the shareholders have to take any hidden losses.
The others want to sell.
The second group, the one most discussed in the media, are more open to continuing the sale process of Roskilde Bank, which the management has launched. The group’s purpose, first and foremost, has been to change the bank’s board, adding new competent people who are not responsible for the bank’s crisis. The group recently succeeded in pressing board reform and the resignation of a board member, as there will shortly be an extraordinary general meeting. Here, the Group will establish a series of new candidates for the board, to ensure that shareholders’ interests are the best possible in the sale of the bank.
“There has been promotion of the figure of 500 million kroner in new money and a further 500 million kroner in old money. However, I have not seen evidence that this would be enough, and little evidence, then, that there won’t be a need for larger amounts, if Roskilde Bank is to be preserved as an independent bank,” says shareholder group spokesman, Ole Nielsen.
Even though the two shareholders have a different approach to the situation, Ole Nielsen, however, is not dismissive of cooperation with the other shareholder group.
“We have the same goal: to save Roskilde Bank. If they can use our board candidates to promote their cause, that is fine with me. We will be having a meeting with one of Henrik Langkilde’s people soon, “said Ole Nielsen.
National Bank requires sale
There are several outstanding issues in connection with the new shareholder group’s strategy to keep the Roskilde Bank in their own hands. In the first instance, a sale of all or part of the bank was a condition of the National Bank, as it created a safety net for Roskilde Bank by providing liquidity. At the [Danish] National Bank Department Chief Karsten Biltoft underlines that a complete or partial sale of the bank continues to be a condition of the Central Bank guarantee, and one has not given the green light to Henrik Langkildes model.
Then there is the big question as to whether it is possible to obtain support from shareholders to inject more money and shift part of the bank’s assets to a new company.
Henrik Langkilde says that he has contact with several major shareholders in Roskilde Bank, who are willing to subscribe to additional shares. He acknowledges, however, that there is a long way to go before reaching 500 million.
At Roskilde Bank, CEO Soren Kaare-Andersen stresses that, parties which want to influence the sales process must turn to Danske Markets, which is in charge of sales for the Roskilde Bank.
‘”If there is to be another capital injection, in all cases, a certain amount of money must be provided, and there must be a guarantee for that money. In any case, we must turn to Danske Markets and hear what it will take to start the process,” Soren Kaare-Andersen said.
Aktionærer i Roskilde Bank vil samarbejde, Berlingske Tidene