DNB Declines as Earnings Seen Weighed Down by Costs: Oslo Mover

DNB ASA, Norway’s biggest bank, fell the most in a week in Oslo amid negative sentiment toward the industry and as analysts warned the lender’s quarterly earnings will be hit by weak trading income and restructuring costs.

The Oslo-based lender dropped as much as 2.2 percent, the biggest intraday decline since June 24, and traded 2.1 percent lower at 88.55 kroner as of 12:20 p.m. The Bloomberg EMEA Banks Index, of which DNB is a part, slumped as much as 3.3 percent to 56.71, the lowest intraday level in more than seven months.

Stocks fell around the world today after two Portuguese ministers quit the government, prompting concern that the nation will struggle to implement further budget cuts as its bailout program enters the final 12 months. More than 17 stocks dropped for every one that climbed on the Stoxx 600, with a gauge of banks posting the biggest decline of the 19 industry groups on the equity benchmark, falling 2.6 percent.

DNB, which is targeting annual growth in net interest income of more than 6 percent, is cutting costs, holding back dividends and increasing margins to boost reserves to meet a tightening of capital requirements under Basel III guidelines.

The lender, scheduled to release its second-quarter results on July 11, will report operating expenses “at an elevated level, driven by restructuring costs,” Vegard Eid Mediaas and Jon David Gjertsen, analysts at Pareto Securities AS, said in a note today. The lender is expected to book restructuring costs of 410 million kroner ($67 million) in the quarter, they said.

Financial Turmoil

“We maintain our assumption of no dividends for 2013 through 2015, as we see a significant capital shortfall ahead of Basel III,” said the analysts, who cut their earnings per share estimates for that period by 4 percent to 5 percent.

DNB, which has benefited from a strong position in a home market that’s largely avoided the worst of the financial turmoil in Europe, is lagging other banks in the Nordic region in terms of cutting costs, according to Nordea Bank AB.

“Management has numerous opportunities to streamline operations and thereby create further savings,” the Stockholm-based bank said in a report yesterday. Those savings should help DNB grow earnings faster than its Nordic peers, Nordea said.

DNB will record a 89 million-krone negative effect for basis swaps, or derivative contracts related to long-term funding, in the second quarter, narrowing from 233 million kroner the previous quarter, it said today.

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