Dismissals at the top of Danske Bank A/S’s management are winning praise from investors looking for signs that the change will help Denmark’s largest bank raise profits and deliver bigger returns.
Danske said yesterday it sacked Steen Blaafalk, ending a career that spanned three decades at the bank, as Thomas F. Borgen works to put in place a new strategy one month after being named chief executive officer. The move follows Chairman Ole Andersen’s decision in September to remove Eivind Kolding as CEO, arguing he lacked the banking expertise needed for the job.
“Danske is the only Nordic financial share where it’s still possible to pick the low-hanging fruits and make improvements that don’t show in the share price yet,” Ole Soeberg, a portfolio manager at Skagen A/S in Stavanger, Norway, said yesterday in a phone interview. “The advantage of this management reshuffle is that it provides Borgen the opportunity to set his own team.” Skagen holds 2 million shares in the bank, having doubled its stake over the past year.
Danske has lagged behind its Swedish competitors in delivering shareholder returns. The bank’s stock gained 23 percent in the past five years, compared with a 43 percent increase at Stockholm-based Nordea Bank AB (NDA), according to data compiled by Bloomberg. Danske hasn’t paid its shareholders a dividend in the period and delivered a return on equity in the first six months of 2013 that was about half a 12 percent target the bank has said it’s working toward.
That performance “has not been satisfactory,” Borgen said in an interview earlier this month. Danske will improve investor returns by winning back clients alienated by a new pricing strategy and branch closures that Borgen said moved too fast.
Since firing Kolding on Sept. 16, Danske shares have risen 4.4 percent, bringing this year’s increase to 27 percent. That compares with a 15 percent gain in Denmark’s benchmark index of its 20 most-traded stocks over the period.
Blaafalk’s departure marks the sixth member of Danske’s top management to leave since the beginning of last year. The head of Danske Markets, Henrik Normann, left in January 2012. He became CEO of Nordic Investment Bank three months later. In May of that year, Danske’s Chief Operating Officer Georg Schubiger left for a management post at Bank Vontobel AG in Zurich, while a month later Danske’s Head of Group Credit Per Skovhus quit. He later took a job at Jyske Bank A/S. In March, Danske fired its Head of Corporate Finance Anders Boending.
“The executive senior management change, when the board replaced Kolding with Borgen, was interpreted by the market as timely and decisive action,” Jyske Bank analyst Christian Hede said by phone. “But if they do it again too soon, it’ll be seen as a panic. It’s all about timing.”
Danske’s management upheaval follows a series of setbacks starting with the lender’s expansion into Ireland at the height of the nation’s property bubble in 2005. The bank’s international ambitions, under then CEO Peter Straarup, put the entire Danish economy at risk, according to a report last month by a government-appointed committee investigating the causes of Denmark’s financial crisis.
Under Kolding, who was fired after only 19 months on the job, Danske lost customers after introducing a strategy that rewarded clients with the most business there. The plan, and an advertising campaign to promote it, was slammed by local media and Danske in June fired its head of communications, Eva Hald.
The list of misfortunes that have befallen the bank in recent years has left Danske cheaper than most of its Nordic competitors, according to Soeberg at Skagen. With the new management falling into place, it’s now only a question of time before the bank’s potential is realized, he said.
“It should be more popular if it was judged on its earnings potential,” Soeberg said.
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