DNB Slides as Capital Buffers Seen Denting Dividends: Oslo Mover

DNB ASA fell the most in 12 weeks in Oslo as SEB AB said capital rules may lead to slower lending growth and limit the ability of Norway’s largest lender to increase dividends.

DNB dropped as much as 4.5 percent to 94.90 kroner, the largest intraday decline since June 24, and traded 3 percent lower at the close in the Norwegian capital. That makes DNB the biggest decliner on the Bloomberg Europe 500 Banks and Financial Services Index today.

Norway can set stricter requirements in “several areas” in addition to cyclical and systemic buffers, Finansavisen reported, citing Morten Baltzersen, head of the country’s Financial Services Authority. It’s also important to keep the Basel-I floor that gives a 40 percent real risk-weight for new home loans, the newspaper said, citing Baltzersen.

“If the Basel I floor is kept in place for the Norwegian banks, we argue that they will be at a competitive disadvantage to their Swedish peers, which all also compete in the Norwegian market,” SEB said in a note today. “DNB would need to reduce lending growth and pay out a lower dividend than the market is expecting,” the Swedish bank said.

Investors will probably see payouts of 2.35 kroner a share in 2014, 2.7 kroner in 2015 and 3.1 kroner in 2016, according to Bloomberg dividend forecasts.

While DNB’s dividend next year will depend on regulatory changes, “we have no intention of lowering our payout ratio in 2014,” Chief Executive Rune Bjerke said in February.

Lagging Competitors

“Hopefully we can gradually increase the payout ratio” within a three-year period, he said at the time.

The Norwegian lender, 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 in an effort to meet a tightening of capital requirements under planned Basel III capital guidelines.

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, Nordea Bank AB said on July 3.

Shares in DNB have gained more than 37 percent during the last 12 months, giving the lender a market value of 156.7 billion kroner ($26.5 billion.) That makes DNB the best-performing large cap Nordic bank stock, according to SEB. Given that the stock is now within 10 percent of SEB’s 108 kroner price target, “we have downgraded our recommendation from buy to hold,” the bank said.

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