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DNB Extends Losses After JPMorgan, Nordea Downgrades: Oslo Mover

Jan. 23 (Bloomberg) -- DNB ASA fell for a third day in Oslo, its longest run of retreats in more than two months, after JPMorgan Cazenove and Nordea Bank AB cut their ratings on Norway’s biggest lender, citing increased capital needs.

DNB lost as much as 1.9 percent and fell 1 percent to 74.95 kroner as of 3:15 p.m. in the Norwegian capital. Today’s drop adds to yesterday’s 2.6 percent decline and a 0.7 percent retreat on Jan. 21, giving the stock’s its longest string of losses since Nov. 9. More than 2.2 million shares have been traded so far today, compared with a three-month average daily volume of about 2.6 million.

Norway’s Finance Ministry in December outlined a proposal to triple the risk weights assigned to mortgage assets, bringing the minimum requirement to 35 percent. The plan, which aims to curb runaway household mortgage lending, is creating “great uncertainty around future capital requirements,” JPMorgan said in a note to clients yesterday.

Higher risk weights will increase DNB’s risk-weighted assets by 130 billion kroner ($23.4 billion), according to Nordea analyst Thomas Svendsen. JPMorgan cut its rating on DNB to neutral from overweight while Nordea downgraded the Oslo-based lender to sell from buy.

“In a theoretical exercise whereby this target was to be reached today for the whole bank, we estimate DNB would need 36 billion kroner in fresh core tier 1 capital,” Svendsen said in a note to clients. “A significant equity issue cannot be ruled out and the stage is set for several years of contained dividends.”

DNB Chief Executive Officer Rune Bjerke said earlier this month that the bank would remain restrictive on dividend payments, cut jobs and raise mortgage fees to meet the stricter requirements. JPMorgan cut its 12-month price target on DNB to 85 kroner from 93 kroner, while Nordea reduced its estimate to 75 kroner from 80 kroner.

DNB’s shares have gained 19 percent during the past 12 months, giving it a market value of 122.1 billion kroner. The company is scheduled to release its fourth-quarter results on Feb. 7.

To contact the reporters on this story: Josiane Kremer in Oslo on at jkremer4@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman in Oslo at jbergman@bloomberg.net

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