DANISH BANKS (3)

Denmark has many banks, but their number is falling. This week, another one bit the dust, namely Tønder Bank, centred on a small town on the Danish-German border. Most of the customers will be hoovered up by Sydbank, one of the big ones. But the shareholders will be wiped out.

This has happened regularly over the past five years. But what is worrying about Tønder Bank is that its accounts looked terrific and were audited without comment. Indeed, not so long ago, the bank issued a prospectus and raised Dkr.30m in subordinated loans. Customers, local citizens and even members of the bank's board and senior management, all participated. Yet a visit from the financial regulator, the first for many years, led to immediate additional loan provisions of Dkr.300m. The bank's otherwise "healthy" equity had suddenly disappeared.

All of which makes the whole sector extremely nervous. Because it means - in essence - that nobody can believe anything they read in any financial institution's financial statements. Tønder Bank had no particular exposure to problem sectors such as farming, commercial property or alternative energy, so there was absolutely nothing, prior to the regulator's visit, that pointed to a cause for concern.

The other worry is to do with the auditors. As I say, the bank's accounts were certified as fine in each of the last five years. A lawsuit will probably follow, though that will probably be viewed as shutting the stable door after the horse has bolted. Expect more consolidation in the Danish bank sector in the medium term.

Walter Blotscher