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Danske CEO Says Driving Costs Lower Key to Survival After Crisis

Danske Bank A/S will continue to trim its business as Denmark’s largest lender adjusts to a post-crisis client landscape that Chief Executive Officer Thomas F. Borgen says is “changing rapidly.”

The Copenhagen-based bank reported a 91 percent surge in net income to 2.81 billion kroner ($523 million) last quarter from a year earlier, it said today. Impairments sank 55 percent, while costs dropped 6 percent. The bank also said its cost/income ratio improved by 8.5 percentage points to 52.6 percent from the fourth quarter.

The bank is committed to a “strong cost focus,” Borgen said in a phone interview.

Borgen, who replaced Eivind Kolding in September, has reorganized Danske’s management team after a spate of consumer satisfaction surveys suggested the bank was falling out of favor. The 50-year-old has also focused on cutting debt, which this week paid off as Danske had its credit rating raised one step to A at Standard & Poor’s, helping bring down the lender’s funding costs.

Danske is surfacing from the financial hangover of burst housing bubbles in Denmark and Ireland, a market it entered in 2005 at the height of the nation’s property boom. In Danske’s home market, consumer demand for credit has remained subdued. The bank is responding by trying to streamline its offering through more online and mobile services, while the branch network will be cut back, Borgen said.

“There’s no doubt that customer behavior is changing rapidly,” he said. “Demand for traditional bank products is declining while there is a pressure to cut costs across the industry. Danske Bank realized that fairly early and that’s what we’re seeing the results of now.”

Raised Outlook

Danske raised its outlook for the year and now sees profit at the higher end of a previously targeted range of 9 billion kroner to 12 billion kroner.

“We need to be cost-effective to offer the products customers need,” Borgen said. “We need to continue becoming more cost-effective and be ahead on digital solutions. In general, it’s important to me that we remain cost-effective as it’s the only way to be competitive.”

Danske shares gained as much as 1.9 percent and traded 1.1 percent higher at 153.60 as of 10:36 a.m. in Copenhagen. The 43-member Bloomberg index of European financial stocks rose 0.5 percent. The yield on the bank’s additional Tier 1 note fell to 5.58 percent, its lowest since being issued in March. S&P on April 29 raised the note to investment grade.

The bank reported a common equity Tier 1 capital ratio of 14 percent, while its total capital ratio was 18.1 percent. Danske’s redemption last month of hybrid capital raised from the Danish state reduced its total capital ratio by 2.7 percentage points at the end of March, it said.

Before today, shares in Danske Bank gained 22 percent this year, compared with a 14 percent increase in the Copenhagen benchmark index of Denmark’s 20 most-traded stocks. Stockholm-based Nordea Bank AB, Scandinavia’s biggest lender, advanced 8.4 percent this year.

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