Danske Bank CEO Targets $8.2 Billion in Debt Cuts This Year

Danske Bank
A pedestrian passes the offices of Danske Bank in Copenhagen. Photographer: Freya Ingrid Morales/Bloomberg

Danske Bank A/S Chief Executive Officer Thomas Borgen says Denmark’s biggest lender will cut its debt load by as much as 45 billion kroner ($8.2 billion) this year as it seeks to raise its credit profile.

Borgen, who yesterday unveiled a proposal to pay shareholders their first dividend since 2007, says Danske will need to issue as little as 20 billion kroner in debt in 2014, compared with redemptions of 65 billion kroner. That’s equivalent to a 14 percent reduction in debt.

Funding costs are coming down, interest-rate spreads to rivals are narrowing and financing needs are lower, Borgen said yesterday in an interview in Copenhagen. Danske shares jumped 4.3 percent today to their highest in three years.

The bank, which cut 5 percent of its workforce in 2013 to rein in costs, now has a total capital ratio equivalent to 21.4 percent of risk-weighted assets. That gives Danske the necessary buffer to redeem hybrid capital from the Danish government, it said yesterday. Borgen targets at least a one-step credit rating upgrade by next year.

“If you look at the issues which the ratings agencies pointed at, we are fixing them one by one,” Borgen said. “We are slowly but surely getting them fixed.”

Shares Soar

Danske shares rose 4.2 percent to 135.70 kroner at 12:38 p.m. local time. That’s the highest level since Feb. 3, 2011. The stock was also the biggest gainer in the 43-member Bloomberg index of European financial stocks. Today’s move brings Danske’s year-to-date share increase to 9.1 percent, compared with a 2.1 percent advance in the Bloomberg index.

Danske is ranked Baa1 at Moody’s Investors Service, four steps lower than the Aa3 that Nordea Bank AB of Sweden enjoys. Standard & Poor’s rates the Danish bank A-, compared with the AA- grade it gives Nordea.

Credit-default swaps on Danske have crept higher since the end of December, with five year contracts costing 96 basis points yesterday, versus 83 on Dec. 31.

Danske, which has the lowest return on equity among Scandinavia’s biggest banks, has struggled to recover from burst property bubbles in Denmark and Ireland that depressed loan demand in its main markets and triggered ratings downgrades. The bank responded last year by firing Eivind Kolding as CEO after 19 months on the job.

Shareholder Returns

Borgen, who took over in September, cut the bank’s 2015 return-on-equity target a month later to 9 percent from 12 percent. He also pledged to expand cost cuts by 1 billion kroner as low interest rates eroded income.

Danske targets a dividend payout ratio of 40 percent of the bank’s profit, a level that’s well below levels being distributed by Sweden’s four biggest banks. Swedbank AB’s payout ratio was 75 percent for 2013, while Nordea’s was 56 percent. Svenska Handelsbanken AB proposed a dividend equivalent to 73 percent of profit and SEB AB plans to pay 59 percent for 2013.

Danske shareholders will be paid 2 kroner a share, or 28 percent of the lender’s net income for 2013. Profit in the fourth quarter rose to 1.9 billion kroner from 1.1 billion kroner a year earlier after writedowns shrank, the bank said yesterday.

Danske shares have gained about 10 percent since Chairman Ole Andersen fired Kolding five months ago. Borgen, who has worked at Danske since 1997, said in October the bank may have alienated customers by closing branches too fast. He said then he would start a 360 degree service check of the bank to ensure it doesn’t misread client needs in future.

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