Danske Hints at First Post-Crisis Dividend on 2012 Earnings

Danske Profit Rose 27% Last Quarter as Costs Fell, Income Gained
Danske is in the middle of a cost-reduction plan that will result in the loss of 2,000 jobs by the end of next year. Photographer: Linus Hook/Bloomberg

Danske Bank A/S may be able to pay its first post-crisis dividend on 2012 earnings, Chief Executive Officer Eivind Kolding said, after Denmark’s biggest lender delivered profit that beat analyst estimates.

“Dividends, if any, will probably be in the lower end,” Kolding, who took over as CEO from Peter Straarup in February, said in an interview in Copenhagen today. “Obviously we would like to pay dividends, but on the other hand we also have some capital requirements that have increased quite a lot, so we have to balance that; but I’m sure we’ll have a more balanced view on that after the third quarter.”

Danske is in the middle of a cost-reduction plan that will result in the loss of 2,000 jobs by the end of next year. The bank, which is struggling to compete with Scandinavian rivals such as the region’s biggest, Nordea Bank AB, has yet to recover fully from burst property bubbles in Denmark and Ireland. While Danske’s return on shareholders’ equity improved to 4.7 percent last quarter from 3.8 percent a year earlier, it still lags behind the 12.5 percent Nordea said last month it achieved in the three months through June.

Delivering a return on equity that matches competitor levels “must be our target,” Kolding said. “I don’t think we can get there in one or two years, but obviously that’s where we need to be.”

‘A Relief’

Danske Chairman Ole Andersen said in a March interview the bank targets paying a dividend some time before 2014.

The bank, which last paid a dividend on its 2007 earnings, today reported a 27 percent surge in net income that beat analyst estimates by the most since the first quarter of 2010 to reach 1.5 billion kroner ($250 million). That compares with the average estimate of 824 million kroner in a Bloomberg survey of 15 analysts. Expenses fell 1 percent to 6.6 billion kroner and net interest income gained 7.5 percent to 6.2 billion kroner.

“It’s a bit of a relief and a bit of a credibility test” for Kolding, Mads Thinggaard, an analyst at Nykredit A/S, said by phone. “It’s the second report for Kolding and confirms that Danske Bank is on the right path to a rebound.”

Danske Bank’s shares gained as much as 7.1 percent before trading at 95.75 kroner at 3:18 p.m. local time. The stock has advanced 31 percent this year, trouncing a 1.4 percent gain in the Bloomberg index of European banks and insurers.

Strategy Overhaul

Danske will shut down as many as 70 branches in Denmark this year, Kolding said at a press conference today. Danske Bank plans to unveil an overhaul of its strategy including its dividend and branch policies when it reports third-quarter results. Danske also plans to raise customer rates “soon,” Kolding said.

“Our cost cuts are progressing as planned,” Kolding said in the interview. “We’re taking out 1,000 jobs this year and 1,000 next year. We will see an impact of what we’re doing this year next year. The impact when fully implemented will be 2 billion kroner, so 1 billion in 2013 and 1 billion in 2014.”

Danish banks are struggling to maintain their interest margins to counter the effect of central bank rates below zero. Nationalbanken Governor Nils Bernstein on July 5 lowered the official deposit rate by a quarter of a percentage point to minus 0.2 percent to fight a capital influx and defend the krone’s peg to the euro.

A 25 basis point rate cut translates into an annual net loss of about 800 million kroner for Danske Bank, Kolding said.

Danske’s core Tier 1 equity ratio -- a measure of capital strength -- was 12.1 percent of the bank’s risk-weighted assets at the end of the second quarter, compared with 12.3 percent a year earlier, the bank said.

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