DNB ASA climbed to the highest level in more than 19 months in Oslo trading after Norway’s largest lender reported stronger capital buffers, increased its dividend and reported profit that beat estimates.
DNB rose as much as 8.1 percent to 81.9 kroner, the highest intraday level since June 3, 2011, and traded up 7.7 percent as of 3:15 p.m. local time, making it the biggest gainer on the Bloomberg Europe 500 Banks and Financial Services Index. More than 7.3 million shares have been traded today, almost three times the daily average volume during the past three months.
While DNB’s fourth-quarter net income fell 6.8 percent to 3.81 billion kroner ($693 million), partly because of a rise in loan losses at its shipping unit, profit beat the 3.32 billion-krone average of 15 analyst estimates compiled by Bloomberg.
DNB proposed to pay a dividend for 2012 of 2.1 kroner a share, or 25 percent of its earnings a share and an increase of 5 percent from 2011. The board “has taken the new regulatory capital adequacy requirements into account while focusing on conducting a consistent long-term dividend policy,” DNB said.
The report is “positive,” with profit before loan losses, net fee and commission income and net interest income beating both consensus and its own estimates, Pareto Securities AS said in a note to clients.
DNB’s common equity Tier 1 capital ratio of 12.1 percent, when including new Basel III regulation and IAS19 accounting rules, would decline to 10.6 percent when including Norway’s proposed new 35 percent risk-weight floor on mortgages -- higher than Pareto’s 10.3 percent estimate, the broker said.
Shares in DNB fell more than 3 percent from Jan. 21 to Jan. 23, its longest decline in more than two months, after JPMorgan Cazenove and Nordea Bank AB cut their ratings on the stock, citing increased capital needs. At the time JPMorgan said Norway’s plan to triple the risk weights assigned to mortgage assets was creating “great uncertainty” around DNB’s future capital requirements.
Improving DNB’s capital ratios through a rights offer “is not on the agenda,” DNB’s management said in a conference call with analysts and journalists today. The bank plans to continue to build up capital buffers through retained earnings and increased prices, it said.
DNB reported a common equity Tier 1 capital ratio, calculated according to Basel II transitional rules, of 10.7 percent at the end of last year, up from 9.4 percent a year earlier, it said. Based on full implementation of Basel II, and excluding the effects of the limitations ensuing from the transitional rules, the common equity Tier 1 capital ratio would have been 12.1 percent at the end of 2012, DNB said.
The lender is “well capitalised in relation to the risk of operations and well prepared to meet future capital adequacy requirements,” DNB’s board said in the statement.
The global shipping industry is struggling because of an overcapacity of ships and declining demand, contributing to a 29 percent increase to 1.19 billion kroner in credit impairments at DNB in the fourth quarter. DNB is the world’s second-largest shipping bank, setting the lender apart from Swedish rivals, which all have reported profit gains. Stockholm-based Svenska Handelsbanken AB, Swedbank AB and SEB AB -- the best capitalized major banks in the European Union -- and Nordea Bank AB all also raised their 2012 dividends because of rising capital.
“There was a certain rise in impairment within both retail banking and the large corporate segments, with a significant increase within shipping,” DNB said.
“Record-low freight rates in the tanker, dry bulk and container segments put pressure on shipping companies’ earnings and liquidity. Lower portfolio quality must be expected in these segments in the future.”
The increase in loan losses at DNB’s shipping operations followed a more than a 17-fold increase in the third quarter, when DNB forecast credit impairments at its shipping division would reach 1 billion kroner to 1.5 billion kroner this year.
Swedbank targets an 87 percent dividend increase to 9.9 kronor a share while SEB is raising its payment by 57 percent to 2.75 kronor a share. Nordea stepped up its proposed payout for last year by 31 percent to 0.34 euro. Handelsbanken proposed increasing it by 10 percent to 10.75 kronor.
While DNB’s dividend next year will depend on regulatory changes, “we have no intention of lowering our payout ratio in 2014,” Chief Executive Rune Bjerke said in an interview today. “Hopefully we can gradually increase the payout ratio” within a three-year period, he said.