Feb. 10 (Bloomberg) -- Danske Bank A/S will bring forward the 2,000 job cuts it’s planning as Denmark’s biggest lender steps up efforts to stay competitive with European rivals, Chief Financial Officer Henrik Ramlau-Hansen said.
“The program will be a little bit frontloaded so we’ll take the major things in 2012 and 2013,” Ramlau-Hansen said in an interview in Copenhagen yesterday. “That will take us a long way to be competitive on the cost side.” There will “not necessarily be pay cuts but we expect a rather limited development in underlying pay,” he said.
The cuts are needed to help Danske reduce costs by about 2 billion kroner ($358 million), or 10 percent of its underlying cost base, Ramlau-Hansen said. In November, the bank gave itself three years to complete the job reduction plan. Lenders across western Europe cut more than 100,000 jobs last year as they prepare to meet stricter capital requirements.
“Growth prospects are limited by the amount of capital a bank needs to back its lending,” said Fridtjof Berents, a stock analyst at Arctic Securities in Oslo. “Cutting costs is one of the few ways to increase return on equities.”
Danske is struggling to stay competitive as it grapples with the fallout of a burst housing bubble and regional banking crisis at home, while loan losses at its Irish business show scant sign of abating.
“The Irish operation is our current pain,” Ramlau-Hansen said. “We have high impairments there and we also expect impairments to continue at a high level for some time.”
Danske’s loan losses swelled 61 percent last quarter on continued impairments in Ireland. The lender bought National Irish Bank and Northern Bank in 2005 just before the property bubble there burst, prompting Ireland to seek an international bailout to stay afloat.
“It’s especially commercial property and the development in the property and house prices that are causing us a headache in Ireland and it will take some time before we see a satisfactory result,” Ramlau-Hansen said.
The losses triggered by the Irish purchases have put Danske out of the market for acquisitions “for the time being,” he said.
Danske’s efforts to contain costs in the face of growing writedowns have already yielded some results. The cost-to-income ratio fell to 54.4 percent in the fourth quarter, versus 59.3 percent a year earlier, it said yesterday.
The lender’s shares rose as much as 3.6 percent, before trading 0.8 percent higher at 89.95 kroner at 1:31 p.m. in Copenhagen. The stock is up 23 percent this year, recouping some of last year’s 45 percent loss. Danske was among today’s biggest gainers on the Copenhagen benchmark index as its shares rose to the highest since August.
The bank managed to increase its core Tier 1 capital ratio to 11.8 percent of its risk-weighted assets last quarter, from 10.1 percent a year earlier, in part after generating 19.8 billion kroner in net proceeds from a share sale last year.
Danske isn’t planning to raise fresh capital this year after reaching a capital adequacy ratio Ramlau-Hansen said is “quite satisfactory.”
“We would like to concentrate our efforts on getting our returns up and then we’ll find out later” what restrictions additional capital requirements for too-big-to-fail lenders entail, he said. The bank’s current return-on-equity level is “completely unsatisfactory,” he said.
Return on shareholders’ equity was 0.6 percent in the fourth quarter, compared with 4.1 percent a year earlier.
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