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DAB.CPH - Danske Andelskassers Bank A/S


John Hjorth
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This is not a "normal" OP with investment thesis etc.

 

I'm starting this topic, specifically because NewbieD posted in the "What are you buying today" topic, that NewbieD had invested in this Danish bank within the last few days.

 

I hope NewbieD want to elaborate just a bit here in this topic on the idea. Personally, right now, I have no position in DAB.CPH, but I'm interested, and interested to do some work on it, and to discuss with fellow board members.

 

Thank you in advance for any contribution in this topic.

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Thanks for the discussion invitation John.

 

So far this is a minor position for me. It is part of trying to reorient my holdings to a likely steepening yield curve. It seems many smart people think the string will not be pushed much longer in Scandinavia. See for instance opening remarks at Sampos presentation today: https://sampo.videosync.fi/2017-09-07-cmd?seek=6653

 

Therefore I want to lighten up on growth cases (whose future big earnings 10 year out should be worth less) and find more cash-flow / turn-around / special situation / changing perception type cases.

 

DAB came up on a screening I did. I think small banks are less likely to be efficiently priced w respect to a steepening yield curve. It certainly looks fairly cheap on current earnings ability. Also likely to be cheap due to low liquidity, which is not a big problem for me. Being a rural bank, if you can be that in Denmark, I think they might be less exposed to overeager mortgagers. Which I think other alternative bank investments in Sweden, Norway and bigger Danish banks have more of. If that is off-base you're welcome to shout..They have a lot of exposure to the agriculture market which I have none of elsewhere and know of no obvious correlation to other risks I bear.

 

Over a very long horizon they might be a bit too old school to thrive as a business. But I think the stock looks cheap enough even assuming negative lending growth.

 

Need to do more work to make it a bigger position though.

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Thank you for a great starting post here, NewbieD,

 

it's much appreciated.

 

From your post I can read, that you have all my a priori concerns [without my specific or particulary not very good knowledge about this specific Danish bank] covered in your line of thinking, whatever investment time horizon.

 

Now I need to do some work on this thing going forward, to get to your level of knowledge about it. I'll chime in here along the way, hoping not to bother you with - for you - trivialities.

 

I'm looking forward to discuss. [ : -) ]

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NewbieD,

 

After reading about this Danish bank a major part of yesterday - I really got dragged into it [ : - ) ] - I consider this a real value investment case, special situation, with an activist investor [Henrik Lind / Lind Invest ApS / AROS Investments Holding ApS] on the prowl, to shake this bank up to get better, or perhaps to take control over the bank with the intent to flip it [spar Nord Bank A/S has been mentioned as potential aquirer].

 

We have to study the shareholder structure as it is right now in detail, what has happened with it lately, and please also take a look at the DTAs [here we go again!], and try to do some thinking about the possible investment outcomes on the upside [i see two possible ways to make money on the possible upside outcomes], and also try to think about possible downside scenarios.

 

Website: Lind Invest ApS.

 

- - - o 0 o - - -

 

I'll elaborate over the days to come.

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Attached is my analysis of the DAB.CPH shareholder structure, version 1. There are a lot of qualifications to this, because of time discrepancies between the individual measurement points in time, used as basis.

 

Overall, I'm still thinking about this idea, still no position. More to come here. I consider it hairy.

DAB.CPH_-_Danske_Andelskassers_Bank_AS_-_Analysis_of_shareholder_structure_-_v1_-_20170909.pdf

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Very nice work on the shareholder structure. It's not often I've had the money to out-own the CEO and the board..

 

Lind Invests annual reads well and they have done well on the other public banks they've invested in. Don't mind them one bit as coinvestor.

 

It seems fraction B of the shareholders got 3 out of their 5 appointees into the board (http://www.jv.dk/varde/Henrik-Lind-faar-sine-folk-ind-i-andelskassens-bestyrelse/artikel/2494029).

 

It doesn't look far-fetched to believe fraction B could become a majority even in a voting assembly next year. For one, Lind was still buying recently (http://www.jv.dk/varde/Milliardaer-tabte-foerste-slag-Nu-gaar-han-paa-opkoeb-i-andelskassen/artikel/2512440).

I know there are a few value investors in this already hiding in the other category. And if the payoff is there it should be possibly to achieve, if not today. Even if no decisive power change takes place it's probably a good thing to have these owners and shareholder oriented guys on board. The fact they merged the 16 funds into two for instance, saving some krs, might not have taken place otherwise.

 

My handle here applies even more so than other areas to bank investing, but I'll take a look at the DTAs and see what I can gather. Although it sounds like you have more analysis power to bring there..

 

Interested to hear more of your thinking.

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Thank you, NewbieD,

 

Please feel free to share it with whoom you like. [ ; - ) ] There are no strings attached to it. Everybody can do it - it's just dull work to do it. The real [intellectual] work, to create value from from it, is to interpret it, and to read the chess board about this Danish bank, as it is.

 

I really appreciate your observations and judgements in your last post in this topic, - thanks a lot for sharing. I think we think alike about this case.

 

I'll share my thoughts more going forward. No intention for me to buy on monday as is. I need more discussion, ping-pong and pushback in this topic to decide.

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... It's not often I've had the money to out-own the CEO and the board. ...

 

Yes, somehow the management and board skin in the game is a bit ridiculous. It does not flag any kind of confidence in own competences to stear this ship clear of the reef.

 

- - - o 0 o - - -

 

Attached are the 2016 financials for the two continuing foundations, pre merger with the rest of the foundations, 14 dissolved foundations by the merger in total recently.

 

Those foundations are somehow zombie. They basically have no cash to join the party further, and no cash income, because DAB.CPH has not paid any dividends for years, and the bank has no ability to pay a dividend in the near future because of its capital situation, thus also no ability for the foundations to make donations either. At some future point in time, the foundations likely will have to sell DAB.CPH shares to pay the auditors bill.

offentliggorelse_Fonden_for_Andelskasserne_i_Område_Nord_-_Pre_Merger_2016_-_20170910.pdf

offentliggorelse_Fonden_for_Andelskasserne_i_Område_Syd_-_Pre_Merger_-_2016_-_20170910.pdf

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At some future point in time, the foundations likely will have to sell DAB.CPH shares to pay the auditors bill.

 

Right. So likely these foundations will soon lose their power. Seems unlikely someone would be willing to put up money for the cause of the status quo.

 

Structurally - are the funds having their 30%+ important to the bank? To what extent would customers leave if this (prospect of) a kickback/feeling as owners went away?

 

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At some future point in time, the foundations likely will have to sell DAB.CPH shares to pay the auditors bill.

 

Right. So likely these foundations will soon lose their power. Seems unlikely someone would be willing to put up money for the cause of the status quo.

 

Structurally - are the funds having their 30%+ important to the bank? To what extent would customers leave if this (prospect of) a kickback/feeling as owners went away?

 

I'm still thinking about this thing, NewbieD,

 

Somehow, the whole situation about this Danish bank is ridculous.

 

The whole situation as it has evolved over time, since the resque of the bank in 2015, by "new" - capitalistic capital - has evolved into a clash between cultures. - Where are the money behind the talk of the people involved in this clash, stating "we will do as we have done so far"?

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Just want to post here, that I haven't lost interest in this damn thing, NewbieD [ : - ) ],

 

I'm just more than a bit stuck in my analysis of what has been going on in the bank over the pre GFC till today. It's pretty complicated to analyze, because of the restructuring of the bank in earlier years, so I'm taking a break from it right now, till I have mood to work on it some more.

 

It is such a calamity, what has happened to this bank over the years - I don't have the exact figures yet, but it must be somewhere about DKK 2 B in loan losses over the ongoing cycle. I'm hit by the same feeling that I had, when I was looking at C in June this year - I feel soo appalled about what I read.

 

What I wan't to come up with is an overall assesment of the banks performance over the credit cycle. It certainly does not look good. I think this bank will cease to exist as separate and independent bank within the next few years, primarily because I consider the strategy combined with the business model of the bank flawed.

 

- - - o 0 o - - -

 

I really have my concerns with regard to the chairman of the bank - Mr. Jakob Fastrup. I'm very sceptical about the question if he's the right person to manage this bank going forward.

 

- - - o 0 o - - -

 

The above does not change, that I consider it possible to make money on this bank, if the investment case evolves to the advantage of Mr. Lind in the future going forward - near/mid term.

 

There is absolutely no way out of this investment for Mr. Lind, as I see things, if he does not gain effective control over this bank. He simply has to continue buying. We know Danske Bank A/S is the market maker. So I suppose he's using Nordea Bank Danmark in his continued buying, if one looks at daily buyers and sellers.

 

- - - o 0 o - - -

 

I'll have to read up on Danish flagging rules for major shareholders and requirements for control situations for Danish banks. My knowledge right now is insufficient.

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