2-12 Holmens Kanal
Our core values: Integrity-in business conduct and with the community at large; Accessibility-electronic and physical--in business and communications; Value creation-for shareholders, customers and employees; Expertise-through high standards for quality and professionalism; Commitment-to customers' financial affairs.
Danske Bank Aktieselskab is the largest banking group in Denmark and among the three largest in Scandinavia. It has branch networks in Denmark, Norway, and Sweden; subsidiaries in Norway and Luxembourg; foreign branches in Finland, Germany, the United Kingdom, and the United States; and representative offices in France, Japan, Poland, and Spain. The bank offers a wide range of financial services, including insurance, mortgage finance, asset management, brokerage, credit card, real estate, and leasing services.
The result of a surprise merger among three of Denmark's six largest banks, the current Danske Bank Aktieselskab incorporated on January 1, 1990, as Den Danske Bank. The second private bank established in Denmark was incorporated in 1871 as Den Danske Landmandsbank, Hypothek-og Vexelbank i Kjobenhavn (The Danish Farmer's Bank, Mortgage and Exchange Bank of Copenhagen). Its founder was Hartvig Abrahamsson Gedalia, a saddle maker who traded bonds and shares as a sideline and later became a full-time broker at the Copenhagen Stock Exchange. At its founding, the bank's objective was "to make farmers' spare capital profitable and to supply them, on completely adequate security, with the capital that their enterprises stood in need of." The bank also facilitated trade, to the extent that its original name was inadequate to describe its full activities.
By 1910, Den Danske Landmandsbank had become the largest bank in Scandinavia. By 1922, however, the post-World War I economic crisis pushed the bank to near-failure from which the state bailed it out. After the rescue, the bank quickly recovered and regained its status as Denmark's largest bank. Over the years, the bank developed from a farmers' bank to a commercial bank serving all segments of Danish society. To reflect this change, the bank shortened its name to "Den Danske Bank" in 1976.
Kjobenhavns Handelsbank ranked as Denmark's second largest bank at the time of the 1990 merger. Founded by the merchant D.B. Adler, Aktieselskabet Kjobenhavns Handelsbank began transacting business on April 18, 1873. In 1920 when southern Schleswig reunited with Denmark after World War I, Handelsbank took over the branches of Schleswig-Holsteinische Bank in the region recovered. This development gave the bank a strong presence in southern Denmark that endures to this day.
Handelsbanken also felt the effects of post-World War I economic crisis. Unfounded rumors of major losses culminated in a 1931 run on the bank. When the Danish central bank issued a liquidity guarantee and a declaration of confidence in the bank, the crisis soon passed.
Provinsbanken, Denmark's fifth largest bank in 1990, was founded in 1846 by the name "Fyens Disconto Kasse" by a group of merchants led by Lorentz Bierfreund. It was the nation's oldest private bank. In 1967 it merged with Aarhus Privatbank under the name "Den Danske Provinsbank." Subsequently, it merged with a number of provincial banks.
Danish Consolidation: 1900-1995
The 1990 merger came as a surprise because Den Danske and Handlesbanken had been aggressive competitors for first place among Danish banks. Several economic and financial developments, both internal to Denmark and in the general European context, impelled the merger. Most immediately, Denmark had experienced a period of stagnant growth since about 1986. This stagnation slowed or reversed lending and deposit growth and caused a 45 percent increase in Danish bankruptcies. Bank returns suffered as a result. These developments contributed to a search for ways to rationalize banking operations and cut costs. The merger partners expected that the greater size of the combination would make the pursuit of these ends easier.
Systemically, the Danish banking sector was highly fragmented in two senses. About 70 commercial banks and 140 savings banks served a population of 5.1 million. Very few large banks with a national presence competed with 15 to 20 regional banks and a plethora of banks that operated in a single town or village; and 18 banks and 10 savings banks accounted for a 90 percent market share.
Moreover, Denmark's strong cooperative history had left financial functions divided among four kinds of institutions. Until banking deregulation in 1975, savings banks were owned by their depositors and were prohibited from entering commercial banking activities. The 1975 deregulation removed these restrictions, placing savings banks and commercial banks under the same banking act. Despite this change, the new law still prohibited savings banks from converting to public companies and raising money through the issuance of stock. A 1989 law eliminated this restriction. Savings banks became equal in all respects to the private commercial banks and became candidates for mergers or acquisitions by other banks.
Denmark's large mortgage credit associations also grew out of the cooperative movement. By law "self-owning associations of borrowers," these associations issue bonds, secured by the mortgaged property, to finance the construction and acquisition of residential property. Before the Den Danske merger, the two largest mortgage associations each had assets of about DKr 300 billion compared to the premerger Den Danske's assets of about DKr 176 billion. By 1990 these institutions had begun to compete directly with the banks. Their mortgage businesses could neither undertake other banking functions nor raise equity through the issue of shares, but they circumvented these restrictions by forming holding companies with separate subsidiaries that could do both.
Insurance companies, prohibited from conducting any business except insurance, also created holding companies to overcome that restriction. By 1990, they too, had begun to invade the territory of the commercial banks by forming separate banking subsidiaries.
Denmark's membership in the European Union (EU) added to the pressures on the banks. EU policies eliminating restrictions on cross-border ownership of businesses threatened the relatively small Danish institutions with takeovers by larger banks in other European nations. European economic integration also encouraged growth in the size of businesses, as they expanded to operate beyond the borders of their countries of origin. Larger businesses required larger banks with access to more capital to meet their financial needs.
The merger of Denmark's fourth, fifth, and eighth largest banks into Unibank, which became the nation's second-ranked bank, immediately after the Den Danske merger confirmed that Danish banks felt themselves endangered.
Having established a substantial asset base of about DKr 350 billion, the new Den Danske Bank proceeded on a course of rationalization of existing operations and expansion into new lines of business. It moved quickly to reduce its branch network and announced plans to cut its staff by 10 percent over two to three years. By 1992 the bank was well along in reducing its branch network from 750 to approximately 550. By the end of that year, it had achieved its staff reduction goal.
Soon after the merger, Den Danske's Chief Executive, Knud Sorensen, stated that the bank was not interested in growing via mergers and acquisitions. It expected to expand "organically," by expansion of its existing organization. Den Danske began such growth in 1991 when it established its own life insurance and pensions subsidiary and announced its intention to make mortgage credit, backed by bank-issued bonds, available to its customers. By early 1995, the bank's "organically" grown subsidiaries controlled only a 7 percent share of the life insurance market. Its mortgage operations were more successful. By January 1995, Den Danske captured 15 percent of Danish gross new mortgage lending.
Den Danske's first major departure from the path of organic growth was not entirely voluntary. It resulted from the Danish tradition whereby strong financial institutions rescued other financial organizations that faced disaster. In 1992, Baltica Holdings, which controlled the country's largest insurance group, faced a severe liquidity crisis resulting from its attempts to join the trend among Danish financial institutions to diversify beyond their core businesses. In Baltica's case, this diversification included investments in real estate. In the difficult economic environment of the late 1980s and early 1990s, these investments lost value and endangered the survival of the company. At that point, Den Danske, the only financial institution strong enough to rescue Baltica, purchased a 32 percent stake in the company and held an option to acquire another 23 percent.
Den Danske planned to dispose of the company, but the Supreme Court ruled in 1993 that Baltica's life insurance subsidiary, Danica, could not pay a dividend for 25 years. This made it impossible to sell the company. The bank then decided to acquire all of Baltica. In 1995, Den Danske sold many of Baltica's assets, keeping Danica, which brought Den Danske's life insurance market share to about 30 percent.
Post-1995 Pan-Nordic Expansion
By 1995 the Scandinavian economic crisis of the late 1980s and early 1990s had resolved itself. This elimination of excess economic risk freed all Nordic financial institutions, relatively small by European standards, to pursue Pan-Nordic expansion. Den Danske was no exception. Partly in response to incursions by banks based in other Scandinavian nations into Denmark, Den Danske established a full branch in Stockholm and representative offices in Helsinki and Oslo in 1995.
Some questioned the advantages of cross-border mergers and acquisitions. They suggested that such combinations did not reduce the duplication of services, staff, and operations that within-border mergers did. Therefore, minimal or no cost savings and rationalization could be realized. Nevertheless, most Nordic financial institutions, Den Danske among them, pursued increases in their customer base, revenues, and assets beyond their national boundaries. A major reason behind this strategy was a desire to grow so that they could maintain their independence from the expansionistic designs of other Nordic and European financial institutions. Thus, Den Danske, along with many Nordic banks, came to view all of Scandinavia as its home market and began to pursue business throughout the region.
This pressure toward within- and cross-border expansion increased substantially by the mid-1990s as the previously settled Danish financial scene became highly competitive. Den Danske and Unibank held about 60 percent of banking assets between them, but in 1995, a third potential competitor formed. Bikuben, the flagship of the savings bank movement, and GiroBank, originally formed an alliance to facilitate cash transfers within the postal system, becoming an independent full-service bank with a contract to continue management of postal transfers. Later Bikuben and GiroBank merged to form BG Bank. The new institution immediately became Denmark's third-ranked bank. It also had significant cross-holdings in one of the nation's large mortgage credit associations and a major insurance company.
By 1998, BG Bank remained a distant third in both size and profitability. To protect itself from potential acquisition by Den Danske or Unibank or by a foreign financial institution, BG Bank merged, under a holding company, with Realkredit Danmark, one the nation's major mortgage credit associations.
At about the same time, foreign banks continued to make incursions into Denmark and other, less traditional, financial service groups emerged. These included the Norwegian group Finax, which entered the consumer credit market with the Accept credit card. The FDB cooperative retail group, with 1,200 stores in Denmark, also threatened to launch its own financial services in the near future.
In the face of this increasing competition, Den Danske significantly advanced its Pan-Nordic strategy. In 1997, Den Danske made its first major cross-border purchase. It bought Ostgota Enskilda Bank, Sweden's only remaining provincial bank after a wave of banking consolidation had swept the country. This move gave Den Danske an existing network of 29 branch offices in southern Sweden and an established brand under which to conduct business. Chief Executive Knud Sorensen stated that the acquisition was a "unique opportunity to break into the Swedish market" at a relatively low cost of both money and time. The combination also came at an opportune time because a bridge was due to connect Denmark and southern Sweden in 2000. Den Danske would have a good base of operations to serve the region when it inevitably evolved into a single market.
The bank followed this move with several smaller cross-border acquisitions. To expand its securities trading, corporate finance and asset management businesses, it purchased brokerage firms in Norway, Sweden, and Finland. It also bought a mortgage credit business in Sweden.
By 1999, Den Danske had digested these acquisitions. It faced continued consolidation among banks in other Scandinavian countries, especially Sweden, and incursions into the Danish markets by these same banks. It also saw speculation that larger European banks outside of Scandinavia might be interested in acquiring Nordic banks. To meet this competition and to try to defend itself from a takeover, Den Danske made its next Pan-Nordic deal, acquiring Fokus Bank, Norway's third largest bank. This move extended the bank's presence from Denmark and Sweden to Norway.
In the same year, MeritaNordbanken, the result of a 1998 merger between a Finnish and Swedish bank, first signaled its desire to acquire Unibank as a means of establishing itself in Denmark. The bank made the purchase in March 2000, immediately making itself Den Danske's most significant competitor, and placing pressure on Den Danske to respond. This, however, was difficult because few major acquisition targets had survived the consolidation wave of the preceding several years.
Den Danske, now officially named Danske Bank Aktieselskab, merged with RealDanmark, the holding company that owned both the mortgage credit association Realkredit Danmark and BG Bank. With this move, Danske Bank solidified its position as Denmark's leading financial institution. It became the nation's largest bank and biggest mortgage credit bank. It ranked among the country's top life insurance and pension providers and controlled the largest Danish mutual fund.
The Future of Danske Bank
The beginning of the 21st Century saw a Danish banking and financial environment very different from that of only a decade before. The nation's largest banks had merged, made acquisitions, and been acquired. The second largest bank, Unibank, was a subsidiary of a foreign bank, and the largest, Danske, owned significant branch networks and other assets in the other Scandinavian countries. Although Denmark still had numerous small banks, its three largest banks--Danske, Unibank and Jyske--accounted for 70 percent of the market.
In Scandinavia, too, waves of mergers and acquisitions had cut the population of major banks to about five. Observers speculated about the next trend to affect Nordic banks. Little potential for combinations among the region's banks remained. The Baltic nations and Poland presented some opportunity for continued expansion, but the Baltics had relatively small populations, and larger German, French, and Irish banks had already established themselves in Poland. Acquisitions by larger European banks to the south were also possible, but observers questioned the desirability of the relatively small Nordic banks to the much larger major European banks.
Principal Subsidiaries:Danske Bank International S.A. (100%); Danske Bank Polska S.A. (91%); Danske Capital Finland Oy (100%); Danske Corporation (100%); Danske Finance, Asia, Ltd. (100%); Danske Kredit Realkredit Aktieselskab (100%); Danske Private Equity A/S (100%); DDB Fokus Invest AS (100%); DDB Invest AB (100%); Forsikringsselskabet Danica Skadeforsikringsaktieselskab af 1999 (100%); RealDanmark A/S (96%); Realkredit Danmark A/S (100%).
Principal Competitors:Nordic Baltic Holdings; Svenska Handelsbanken; SEB; Swedbank; Jyske Bank.