Finansiel Stabilitet has published its 2018 annual report. The annual report (English version) is available at the end of March at www.fs.dk.
Finansiel Stabilitet posted a surplus of DKK 756 million for 2018. Finansiel Stabilitet’s performance can be broken down into the three segments that Finansiel Stabilitet manages, i.e. the Resolution Fund, the Bank Package I-V activities and the Guarantee Fund. All three segments made positive contributions to the overall performance for 2018.
The most significant contribution was the Resolution Fund’s surplus of DKK 617 million, while the Bank Package I-V activities and the Guarantee Fund reported DKK 103 million and DKK 36 million in surplus, respectively.
The Resolution Fund’s surplus mainly derived from the DKK 618 million contributed to the Fund by banks, mortgage credit institutions and investment companies.
The surplus of the Bank Package I-V activities was largely attributable to reversals of impairment losses on loans and guarantees, including debts previously written off in the total amount of DKK 153 million. In addition, an estimated amount of DKK 100 million relating to the FIH state aid case was recognised as income. Also adding to the surplus was income in the amount of DKK 74 million recognised as a result of the Supreme Court ruling in the case between BEC and Amagerbanken in bankruptcy and Finansiel Stabilitet.
The surplus of the Guarantee Fund primarily resulted from the positive results of FS Finans I-IV, in which the Guarantee Funds has financial interests relating to past guarantees and earn out agreements.
Balance sheet and capital
The Group’s total assets at 31 December 2018 amounted to DKK 21.9 billion. Of this amount, the Bank Package I-V activities accounted for DKK 6.8 billion, the Guarantee Fund accounted for DKK 13.3 billion, the Resolution Fund accounted for DKK 2.7 billion, while a negative amount of approximately DKK 0.9 billion related to an intra-group balance.
Total equity stood at DKK 20.6 billion, of which DKK 13.3 billion was attributable to the Guarantee Fund, DKK 4.9 billion to the Bank Package I-V activities and DKK 2.4 billion to the Resolution Fund. A distribution of dividend to the Danish State reduced the equity of the Bank Package I-V activities by DKK 2.5 billion compared with 2017.
Of the Guarantee Fund’s equity, DKK 8.8 billion was attributable to the Banking Department of the Guarantee Fund. The Banking Department thus continued to meet the target level, which was set at DKK 4.9 billion in 2018. On the basis of the covered deposits of currently comprised entities, the target level for 2019 is expected to be DKK 5.4 billion.
The Resolution Fund remains in the build-up phase. The target level for 2018 was DKK 6.1 billion, and based on presently calculated covered deposits for the institutions that have an obligation to pay contributions it is expected to be DKK 6.7 billion in 2019.
At 31 December 2018, total loans and guarantees were recognised in the amount of DKK 1.0 billion, the portfolio of financial assets amounted to DKK 5.9 billion and properties amounted to DKK 3 million. The majority of the remaining loans and guarantees related to the segment Bank Package I-V activities, while a minor portion of loans related to FS Finans V (formerly Andelskassen J.A.K. Slagelse) and Københavns Andelskasse under kontrol.
The significant increase in the portfolio of financial assets relative to 2017 was due to the new investment strategy applied to the assets of the Guarantee Fund and the Resolution Fund. The portfolio of related financial assets at 31 December 2018 amounted to almost DKK 6 billion.
The new, more active, investment strategy was initially pursued by investing in short-term mortgage bonds. Seen in isolation, the return from this active investment strategy provided a minor positive contribution to the results for 2018.
Finansiel Stabilitet is still party to a substantial number of lawsuits which have arisen in connection with the takeover of failing banks, including liability lawsuits instituted against the former managements, etc. of eight of the failing banks taken over. Status of the lawsuits:
- In the lawsuit against the former management of Capinordic Bank, the Danish Supreme Court in January 2019 delivered its decision, which was in reality an affirmation of the High Court's judgment. Final damages were established at approximately DKK 141 million, including statutory interest accrued.
- In the appeal of the liability lawsuit against the former management of Amagerbanken, a decision is expected to be delivered during the first half of 2019. Finansiel Stabilitet appealed the district court decision, which was given in favour of the defendants and which ordered Finansiel Stabilitet to pay legal fees in the amount of approximately DKK 77 million.
- In the lawsuit against the former management and auditors of Roskilde Bank, the Eastern High Court delivered its decision in November 2017, which ruled in favour of all the defendants, and Finansiel Stabilitet was ordered to pay legal fees of approximately DKK 73 million. Finansiel Stabilitet appealed the decision with respect to the CEO and the Board of Directors.
- In October 2018, the Eastern High Court delivered a decision in the case against the former management and auditors of Eik Bank Danmark, ordering four members of management to pay damages plus statutory interest in the total amount of approximately DKK 43 million. Finansiel Stabilitet was ordered to pay legal fees in the amount of DKK 39 million. The four members of management found liable have appealed the decision to the Supreme Court, and Finansiel Stabilitet has subsequently appealed the decision in respect of all six members of management.
- The trial hearing in the Eik Bank Færøerne lawsuit commenced in January 2018 and is expected to be completed mid-2019. A decision in this case is expected to be delivered before the end of the year.
- The trial hearing in the liability lawsuit against ebh is expected to be completed mid-2019, and a decision is expected to be delivered before the end of the year.
- In January 2019, the trial hearing in the proceedings against the former management and auditors of Løkken Sparekasse commenced.
- In the case against the former management of Andelskassen J.A.K. Slagelse, the trial hearing will commence in August 2019.
Outlook for 2019
The outlook for 2019 is determined for each of the three segments of the Finansiel Stabilitet Group. For the Resolution Fund, a surplus of approx. DKK 700 million is expected, corresponding to the expected payments from the institutions that have an obligation to pay contributions to the Resolution Fund. For the Bank Package I-V activities, without consideration for recognition of effects of any value adjustment on winding up of activities, Finansiel Stabilitet expects a loss. Similarly, the Guarantee Fund is expected to report a loss for 2019.
The outlook is subject to some uncertainty due to the continued substantial uncertainty about the 2019 results of the activities relating to the Bank Package I-V activities. Moreover, the outcome of contingent liabilities, including lawsuits and disputes, is subject to substantial uncertainty.
Finally, any interest rate changes could significantly influence the results for 2019, which would particularly affect the results of the Guarantee Fund and the Resolution Fund.
For further information, please contact:
Henrik Bjerre-Nielsen, CEO, on tel. +45 21 14 21 11, or alternatively via the press contact, on tel. +45 24 76 35 90, e-mail: email@example.com.