The nation’s largest bank is still in dire straits despite receiving billions of kroner in loans from the state’s bank packages

Too little capital in relation to its loan deficits has left Danske Bank in a desperate situation during the current financial crisis, admits Martin Gottlob, the bank’s head of investor relations.

Despite being the first bank to receive financial assistance from the government’s Bank Package II – 26 billion kroner in all – Danske Bank was given the worst gearing ratio of the country’s top 13 financial institutions in a study conducted by Moody's Investors Service.

Gearing ratio is defined as a bank’s equity in relation to its loan capital, or borrowed funds. Moody’s indicated Danske Bank’s solvency capital was at 3 percent – under the 6 percent recommended by the service and well under the 8 percent required by the state.

Moody’s also deemed Danske Bank to be one of the least resistant financial institutions in terms of withstanding further losses in the face of the crisis.

Gottlob said the bank is acutely aware of its vulnerability at the moment.

‘It could well be that our gearing ratio has fallen too low,’ he said. ‘We’d like to get our solvency level back up, but we do have relatively large reserves to cover any unexpected losses.’

Yet despite the poor results, Moody’s gives Danske Bank an overall rating of Aa3, the third best rating it can give. Moody’s qualifies the rating on the basis that, as the nation’s largest bank, Danske Bank is first in line when it comes to being bailed out of trouble by the state.

Analysts believe Danske Bank will have losses of around 2 billion kroner in 2009. Gottlob pointed to unsuccessful mortgage loans and problems with its Irish partner banks as being the main causes of the bank’s negative figures.

Of the larger banks, Jyske Bank and Sydbank are weathering the crisis fairly well, according to the Moody’s study. Nordea’s Danish figures were poor in the ratings, but the bank’s health was much better overall when taking its other Nordic branches into consideration.