Danske Bank Profit Increase Misses Estimates as Income Drops

Danske Bank A/S said net income rose less than estimated last quarter as Denmark’s biggest bank reported a decline in net interest income amid sub-zero central bank rates and weak demand for loans.

Net income rose to 1.47 billion kroner ($260 million) in the three months through March from 778 million kroner a year earlier, Danske said in a statement to today. That trailed the 1.57 billion-krone estimate in a Bloomberg survey of analysts. Net interest income slipped to 5.45 billion kroner from 5.65 billion kroner a year earlier. The bank’s shares fell as much as 5.4 percent.

Danske has been struggling to turn its business around after losing money through burst property bubbles in Ireland and Denmark. The response from central banks to deploy crisis policies has driven rates to record lows in the euro area. In Denmark, lenders are struggling to adapt to negative rates after the central bank sent the deposit rate below zero to defend the krone’s peg to the euro.

“We are gradually, financially putting the crisis behind us, but we are also suffering from the very low level of interest rates, which are hitting our deposit margins,” Chief Financial Officer Henrik Ramlau-Hansen said by phone. “Our market share in lending has gone up in Denmark but there is generally weak demand.”

Job Cuts

Danske Bank reported a fivefold increase in profit in the fourth quarter, its best result since 2007, amid plans to cut 3,000 jobs, restructure business units and put in place a new pricing structure for customers. Loan losses improved last quarter to 1.46 billion kroner from 2.91 billion kroner a year earlier, Danske said today.

Danske still plans to pay a “small dividend” for 2013, Ramlau-Hansen said. “Perhaps not at the full scheduled amount of 40 percent, but it’s our intention to pay a small dividend by the end of the year when we live up to our expectations.”

Danske’s expansion into Ireland before the financial crisis and a recession in its home market have left it the worst performing bank of the Nordic region’s six biggest lenders. Danske hasn’t paid dividends since 2007, a trend the bank says it’s trying to reverse once reserves are big enough.

“We are committed to, by the end of 2014, having made a substantial reduction in our exposure in Ireland,” and impairments there have fallen, Ramlau-Hansen said. “From a financial perspective, we are gradually putting Ireland behind us.”

Third Recession

Denmark is on the verge of its third recession since the global financial crisis erupted as government stimulus measures fail to spur consumer and businesses spending. The government cut its forecast earlier this week, saying the economy will grow 0.7 percent. That compares with an earlier outlook for growth of 0.5 percent to 1 percent.

Prime Minister Helle Thorning-Schmidt won lawmaker backing last week for more stimulus measures, including corporate tax cuts and subsidies for home improvements. That may not be enough to wrench Denmark free from its crisis, according to economists at Danske Bank and Svenska Handelsbanken AB.

“People are repaying their loans,” Ramlau-Hansen said. “That is of course affecting our top-line.”

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