Danske Bank A/S unveiled plans to cut 3,000 jobs and sell 7 billion kroner ($1.2 billion) in shares as Denmark’s largest lender looks for ways to increase its capital buffers.
The measures were announced together with Danske’s third-quarter report, showing net income of 1.31 billion kroner, compared with a loss of 384 million kroner a year earlier. That was in line with the average 1.34 billion-krone estimate of 17 analysts surveyed by Bloomberg. Danske’s share sale will be through an accelerated book building process to help achieve a core Tier 1 capital ratio in excess of 13 percent by the end of next year. The bank also announced plans to provide shareholders a return on equity after tax of 12 percent by the end of 2015.
Danske is responding to a recession and burst housing bubble in its home market with job cuts, raising its target for staff eliminations by 1,000 from its previous goal of 2,000 cuts. Chief Executive Officer Eivind Kolding, who took over from Peter Straarup in February, is pushing through an overhaul of the bank’s strategy to help boost competitiveness and squeeze better returns out of the lender. Danske’s business conditions “have changed radically,” the bank said today.
“The group’s focus on streamlining operations, closing branches, improving and automating customer service, as well as changed customer behaviour, will lead to a headcount reduction of 2,000 in the period 2013-15,” the bank said. That’s on top of the 1,000 job cuts planned by the end of this year, it said.
Danske shares slumped as much as 7.7 kroner, or 7.4 percent, to 96 kroner in Copenhagen trading, its steepest intraday decline since Nov. 1 last year. The shares, which have gained 35 percent this year, were down 5.7 percent at 11:07 a.m. local time. The bank said today it won’t propose any dividend payment for 2012. Danske, which last passed on profits to shareholders in 2008, aims to resume dividend payments of about 40 percent of profit “as soon as it is justifiable,” it said.
Danske Bank, which is rated A at Fitch, A- at Standard & Poor’s and Baa1 at Moody’s Investors Service, said the capital increase will help “accelerate rating improvements and achievement of our capital targets, strengthen our funding position and better align us with our Nordic peers.”
The bank aims to improve its credit ratings by at least one level “as soon as possible” to reduce funding costs, it said.
The share sale announcement “was a surprise to us, but should be viewed from the perspective that it is targeting a 13 percent core Tier 1 ratio by the end of 2013 and its rating ambitions,” Simon Christensen, an analyst at Nordea Bank AB in Copenhagen, said in a note to clients. “The rights issue is conducted in order to fast track the return to past rating levels. Danske Bank could probably boost its rating levels towards A relatively quickly and more will likely come as earnings stabilise.”
Danske also said it is committed to its role as a universal bank in the regions it does business in, which outside the Nordic region includes Ireland and the Baltics.
That role includes “the value-adding business within asset management and life insurance and pensions,” the bank said. The comments followed speculation Danske may be looking to divest its pension unit Danica.
The bank’s net interest income rose to 6.2 billion kroner from 6 billion kroner a year earlier, while impairments were little changed at 2.88 billion kroner, compared with 2.8 billion kroner in the year-earlier period, the bank said. Trading income jumped more than six-fold to 1.79 billion kroner.
Danish banks are struggling to generate interest income growth after the central bank cut its deposit rate below zero to defend the krone from a capital influx. Negative policy rates may last into 2014, Nordea Bank estimates. Danske is also still fighting to recover from losses in Ireland, where its operations were dragged down by the nation’s economic crisis.
Denmark, where property prices have plunged about 25 percent since their 2007 peak, is probably in the grip of its second recession in less than a year, the Confederation of Danish Industry said yesterday. The economy will remain under pressure well into 2013, the group estimates.
Danske’s loan losses will decline “significantly” through 2015 as interest rates normalize, Kolding said at a press conference in Copenhagen today. Once rates start to rise, it will provide a “huge lift” for the bank’s earnings, he said.
Danske had a loan loss ratio of 0.68 percent on all lending and guarantees in the first nine months of the year, with charges mainly relating to commercial property loans in Ireland, shipping, and retail banking in Denmark, it said. Stockholm-based Nordea, the Nordic region’s largest lender, had a loan loss ratio of 0.27 percent in the same period.
Danske reported a return on average shareholders’ equity of 4.1 percent in the third quarter, down from 4.7 percent in the second quarter. In the three months through September last year, the return was minus 1.2 percent.
The bank’s Tier 1 capital ratio stood at 17 percent at the end of the third quarter, compared with 16 percent at the end of last year and 16.2 percent at the end of June. The core Tier 1 capital ratio was 12.7 percent at the end of September.