Late Sunday, the Danish government approved a DKK 100 billion (approximately $17.1 billion) credit package that includes state-funded capital injections into banks and mortgage lenders and extension of the existing bank debt guarantee program announced in October. Details of the plan are as follows:  

  • Government injection of Tier 1 hybrid capital into banks and mortgage credit institutions (MCIs): All participating financial institutions after the capital injection should have at least a 12% capital ratio.
  • Pricing: Depending on the individual bank’s rating, capital adequacy and liquidity risk, the fixed interest rate on the invested capital can vary between 9% and 11.25%.
  • All solvent banks may apply: All credit institutions in Denmark that comply with the statutory solvency requirements may apply for state-funded capital injections until June 30, 2009.
  • Conditions on lending: The individual banks will submit semi-annual reports on lending developments and on the bank’s lending policies, which will be made publicly available.
  • Dividend policy: Institutions receiving capital injections may not pay dividends until September 30, 2010. After September 2010, so long as the state capital injection remains outstanding, institutions can pay dividends only if the dividend is covered fully by the annual net profit.
  • Exit: The state-funded capital injections are intended to be temporary. Banks and MCIs may redeem the loans after a period of three years with financial incentives.
  • Guarantee scheme to be prolonged: Banks and MCIs will have the same opportunities to issue medium-term loans during the period until 2013 as their foreign competitors. Effective October 1, 2010, ordinary deposits will be covered by an increased deposit guarantee scheme of DKK 750,000. In October, the Danish government announced that all claims by depositors and senior debt (unsecured unsubordinated debt) holders were fully insured by the government.
  • Underwriting: It will be possible for the institutions to apply to the Danish government to underwrite the a private capital raising.
  • Increased control of remuneration in the financial sector: The Danish government will enforce restrictions on executive compensation.
  • Maximum capital injection: If all institutions fully exploit the offer concerning state-funded capital resources, the Danish State will inject approximately DKK 100 billion (5.5% of Danish GDP), of which about DKK 75 billion will be provided to banks and the remaining DKK 25 billion will be provided to MCIs.