EU clears Danish takeover of Roskilde Bank

BRUSSELS, Belgium - The European Union on Wednesday cleared Denmark's takeover of struggling lender Roskilde Bank, saying the $6.4 billion deal in August had possibly prevented the collapse of the country's banking system.

The Danish National Bank and the DNB association of private banks took over Roskilde Bank, the country's 10th largest, in August. Roskilde had run up huge losses on mortgage loans when Danish house prices tumbled and could not borrow enough money on tight credit markets, paralyzed by the global financial crisis.

They paid $6.4 billion to wind up Roskilde Bank and buy its assets and liabilities, turning them over to a new company into which they also injected $773 million in capital. They promised to pay back most of the bank's creditors and prolonged a liquidity facility.

The European Commission said these payments counted as state aid — which could break EU law by giving one company an unfair advantage over others.

But it said it approved them because confidence in the Danish financial system — which relies heavily on international financing — could be at risk if Roskilde Bank collapsed.

"This constitutes a serious risk of a systemic crisis, which may also have spillover effects into other business sectors," it said. "The liquidation ... was an appropriate and proportionate measure to address a serious disturbance of the Danish economy."

The EU executive said it saw no problems with the subsequent sale of Roskilde Bank's branches to Nordea, Spar Nord Bank and Arbejdernes Landsbank in September for $108 million.

The price they paid, it said, was the "maximum possible market price" and they did not receive state subsidies when they took on Roskilde Bank's loans worth nearly $2 billion and deposits of $980 million.

Roskilde Bank first ran into trouble in July and received state help to stay afloat. But this rescue failed when it was unable to find a buyer.

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