Danske Net Rises 10% as Bank Winds Down Irish Property Loans
Danske Bank A/S (DANSKE) said first-quarter net income rose 10 percent after Denmark’s largest lender booked higher income from lending and reduced costs. The bank will also wind down its Irish property portfolio to combat loan losses.
Profit climbed to 783 million kroner ($136 million), the Copenhagen-based bank said in a statement today. That beat the average estimate for a 707 million-krone profit in a Bloomberg survey of 19 analysts. The bank said it will wind down its Irish commercial and investment property portfolio, valued at 35 billion kroner. The change will show up in the bank’s accounts by January, it said.
“The Group expects earnings to remain low in 2012, but because of the economic climate, the outlook is subject to considerable uncertainty,” Danske said in the report.
Danske Bank said it plans to complete its costs cutting plan a year earlier than previously targeted, meaning the bank will seek to reduce underlying costs by 10 percent, or by 2 billion kroner, by 2013. Danske is struggling to stay competitive as it deals with the fallout of the burst housing bubble and a regional banking crisis at home as well as a collapsed commercial property market in Ireland. Total impairments rose 38 percent in the period to 3.9 billion kroner, the bank said.
“The Irish economy is expected to continue to face structural challenges, and because of the economic climate, the level of future impairment charges is uncertain,” the bank said. “The situation for rental property and property developers in Northern Ireland is also uncertain. Loan impairment charges at the units in Ireland and Northern Ireland are therefore likely to remain high, at least in the coming quarters.”
Chief Executive Officer Eivind Kolding said the bank may push through more than its planned 2,000 job cuts, after announcing plans to accelerate the program.
Shares climbed as much as 5.2 percent and were up 2.6 percent at 90.70 kroner at 1:25 p.m. in Copenhagen trading. The Bloomberg Europe Banks and Financial Services Index was up 0.8 percent.
“At this point we’re sticking to our plan,” Kolding said in an interview with Bloomberg Television today. “There might be further opportunities as we develop our strategy over the years.”
That may not be enough to boost profitability. Claire Kane, a London-based analyst at Royal Bank of Canada, said there is “little visibility to achieving returns in line with cost of equity in the future.”
Andreas Hakansson, a Stockholm-based analyst at Exane BNP Paribas, said “if this is the big restructuring that the market has been expecting, it doesn’t seem to come together with any cost savings. They continue to reiterate the flat cost target, which the market has already more than priced in. I don’t think the new restructuring adds much to the investment case,” he said in a phone interview.
Danske, which said it will use Danske Bank as its brand name in all banking operations by the end of the year, continues to face a number of hurdles in some of its main markets. Ireland is still relying on an international bailout to stay afloat while Denmark’s economy entered a recession in the third quarter as investments and government spending shrank. Gross domestic product contracted 0.1 percent both in the third and fourth quarters of last year, Copenhagen-based Statistics Denmark said March 30.
Danish house prices fell an annual 9 percent in February, the country’s statistics agency said last month, and by next year real estate values will have dropped 25 percent from their peak in 2007, the government-backed Economic Council said in November. The Financial Supervisory Authority said Feb. 6 it will tighten regulations for reporting loan losses to boost the industry’s “credibility” after what it called “optimistic” outlooks by banks. The rules took effect this quarter.
Danske Bank’s group net interest income, the difference between what the bank earns from lending and what it pays on deposits, rose 11 percent to 6.2 billion kroner in the quarter, while its total income grew 5.7 percent to 12.4 billion kroner.
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