Danske Says Profit Grows More Than Fivefold as Bad Loans Ebb

Danske Bank A/S posted a more-than fivefold surge in profit last quarter after Denmark’s biggest bank said impairments dropped.

Net income rose to 1.15 billion kroner ($208 million) in the three months through December from 200 million kroner a year earlier, the Copenhagen-based lender said in a statement to the stock exchange today. That beat the 1.1 billion-krone estimate in a Bloomberg survey of analysts. Impairments sank to 2.6 billion kroner from 4.8 billion kroner, the bank said.

Danske said last year it needs to eliminate 3,000 jobs to stay competitive after losing money on housing bubbles in Denmark and Ireland. The lender’s efforts to cut costs and be more selective with its customers have helped it improve profit even after the Danish economy contracted last year.

“These are our best financial results since 2007 and it is definitely a step in the right direction,” Danske Chief Executive Officer, Eivind Kolding, said in the statement. “The earnings initiatives we have implemented are starting to produce results.”

The bank’s shares rose as much as 2.4 percent today, the most since Jan. 15. The stock added 2 percent to 106.60 kroner at 9:02 a.m. in Copenhagen.

Danske announced last quarter it will adjust its prices to reward customers with more business at the bank. The strategy has left the lender less popular with private clients, and it scored the lowest of any company in five years in a customer satisfaction survey published yesterday by Jyllands-Posten.

Clients, Shareholders

The bank is also losing popularity among business clients, and sank to third place, behind SEB AB and Nordea Bank AB, in a similar survey by Prospera, Borsen reported today. Danske had previously ranked second.

In contrast, shareholders have rewarded the bank for its efforts to cut costs. Before today, Danske’s stock had gained 9.3 percent this year, beating a 5.7 percent increase in the 40-member Bloomberg index of European financial stocks.

“We are in full swing with the implementation of our strategy that will ensure we achieve our targets in 2015,” Kolding said.

Danske Bank said it will report a profit after tax of as much as 10 billion kroner this year as impairments drop “slightly.” That compares with a reported 2012 profit by the same measure of 4.7 billion kroner. Earnings before impairments will be unchanged from 2012, depressed by low interest rates and low economic growth, the bank said.

Funding Costs

Denmark’s financial industry is still trying to surface from a spate of regional bank failures that in 2011 led to Europe’s first senior creditor losses within a resolution framework. The Financial Supervisory Authority estimates banks representing about 3 percent of total industry lending still face insolvency.

Danske said it has faced higher funding costs and “to a minor extent” limited access to capital market since Moody’s Investors Service and Standard & Poor’s downgraded the bank in May. Moody’s cited the bank’s deteriorating asset quality and weak economic growth.

Danske is rated Baa1 at Moody’s and A- at S&P. Fitch Ratings grades the bank A.

The bank proposed no dividend for 2012, and said it would resume shareholder payouts of 40 percent of net profit “as soon as it is prudent.” Danske said the ratio may be lower as it meets its capital requirements to boost its ratings.