Danske Bank Keeps Dividend Plan as Rule Appeal May Take a Year

Danske Bank A/S still plans to pay a dividend for 2013 even as the level of capital it holds as a buffer against losses may be uncertain for as long as a year.

The bank is appealing an order by the Financial Supervisory Authority to increase its risk-weighted assets, a demand that would reduce the amount of capital the bank holds relative to the portfolio, the Copenhagen-based lender said July 12. The process “is probably going to last around one year,” Chief Financial Officer Henrik Ramlau-Hansen said in an interview.

Still, Danske Bank foresees being in a position to return some of this year’s profit to shareholders, Ramlau-Hansen said. “That’s a decision for the board of directors, but we still expect to pay a dividend if our results materialize as expected,” he said.

Danske Bank’s performance has been the worst among Nordic banks since 2007, the last year it paid a dividend, as it struggled to rebuild capital amid the collapse of property markets in Denmark and Ireland and increasing regulatory requirements. Being designated by a government committee as a too-big-to-fail financial institution may result in additional capital demands of as much as 5 percent.

The bank plans to pay about 40 percent of its profit as dividend once it reaches financial targets, including return on equity of more than 12 percent in 2015 and a one-level increase in credit ratings. Danske’s return on equity was 4.3 percent at the end of the first quarter.

FSA Order

The FSA ordered Danske, whose balance sheet is almost twice the size of Denmark’s economy, to increase risk-weighted assets by 100 billion kroner ($17.5 billion) to about 897 billion kroner over time, Danske said in June. Danske didn’t specify the time frame. The demand lowers the ratio of total capital to risk-weighted assets to around 19.1 percent from 21.6 percent at the end of March, the bank said.

Danske Bank is rated A- at Standard & Poor’s, Baa1 at Moody’s Investors Service and A at Fitch Ratings.

The bank is complying with the order even as it challenges the ruling. The decision to appeal “has nothing to do with the capital adequacy of the bank as such,” Ramlau-Hansen said.

“We have very sufficient capital,” he said. “It’s just a question of what is, so to say, the minimum requirement.”

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