Danske Shares Rise as Cost Ratio Eases, Capital Buffer Grows

Danske Bank A/S rose after Denmark’s biggest lender reported declining costs relative to income and after it boosted its capital buffer.

Danske Bank rose as much as 5.8 percent before trading 3.8 percent higher at 88.25 kroner as of 10:22 a.m. in Copenhagen. The bank’s cost-to-income ratio fell to 54.4 percent in the fourth quarter, versus 59.3 percent a year earlier, the bank said today. Net income fell 81 percent to 201 million kroner ($36 million), missing the average 296 million-krone estimate of analysts surveyed by Bloomberg.

Investors “seem to like the good development in the core Tier 1 ratio and largely had already written off the quarter,” said Simon Christensen, a Copenhagen-based analyst at Nordea Bank AB, in a phone interview today. “With the eurozone crisis showing signs of improvement, some consider this a buying opportunity.” Nordea has a “buy” rating and a target price of 105 kroner.

Danske Bank’s core Tier 1 ratio, a measure of financial strength, improved to 11.8 percent from 10.1 percent a year earlier after it sold shares in 2011. Danske is boosting income and reducing costs as it grapples with the fallout of a burst housing bubble and regional banking crisis at home. At the same time, the bank continued to book losses at its Irish units last quarter.

Irish Losses

Danske’s loan losses swelled 61 percent on continued impairments in Ireland. Danske bought National Irish Bank and Northern Bank in 2005.

Danske Bank shares had plunged 35 percent in 12 months before today, underperforming the 43-member Bloomberg index of European financials, which lost 28 percent in the period.

Global economic uncertainty is “likely to continue in 2012, and the foundation for economic growth appears weak,” said Chief Executive Officer Peter Straarup, who retires next week to be replaced by Chairman Eivind Kolding. “The economic situation remains unstable.”

Net interest income, the difference between what the bank earns from lending and what it pays on deposits, rose 1.9 percent to 6.18 billion kroner in the quarter, while its fee income retreated 7.4 percent to 2.22 billion kroner. Danske said it won’t pay a dividend.

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