DNB Declines as Profit Trails Estimates Amid Climbing Costs

DNB ASA, Norway’s largest bank, fell the most in more than a year in Oslo as second-quarter profit growth trailed estimates amid rising costs.

Shares in DNB dropped as much as 5 percent, the biggest intraday decline since June 24, 2013, and traded 4.4 percent lower at 110.2 kroner as of 1:15 p.m. Net income rose to 4.65 billion kroner ($756 million) from 3.8 billion kroner a year earlier, missing the 4.82 billion-krone average of 10 analyst estimates compiled by Bloomberg.

DNB, under scrutiny for its dominant position in Norway as debt and home prices rise, has sought to cut costs to boost capital amid a global clamp-down on banking risks. Operating expenses rose 2.8 percent in the second quarter on marketing costs and property management. Total spending including restructuring and non-recurring costs slid 428 million kroner to 5.23 billion, the Oslo-based bank said.

“The cost-income ratio has actually stabilized significantly below 45 percent over the last three to four quarters and that’s a number we’re really pleased to see,” Chief Executive Officer Rune Bjerke said in an interview in Oslo. “It’s going up from last quarter to this quarter but that’s largely related to one-offs.”

DNB’s common equity Tier 1 capital ratio, according to transitional rules, rose to 12.1 percent from 10.8 percent a year earlier.

‘Broad Decline’

The Norwegian lender reported a return on equity of 12.7 percent in the quarter and a ratio of 14.4 percent under Basel III, it said today. It targets a return on equity of 12 percent and a common equity Tier 1 ratio of 13.5 percent to 14 percent under Basel III rules by 2016.

A “broad decline in European banks today appears to be magnifying the reaction in DNB,” Karl Storvik, an analyst at Arctic Securities ASA, said in an e-mail. The Stoxx Europe 600 Banks index fell as much as 3 percent, the biggest intraday decline since March 3.

“We were expecting a more neutral share price development compared to peers today, as we still see prospects of a positive net interest income path going forward, driven by deposit margin improvements and volume growth,” Storvik wrote. “With a solid capital base and outlook for further earnings growth, we continue to have a positive stance on the DNB share.”

Loan losses slumped 40 percent to 554 million kroner in the period while net interest income rose 5 percent to 7.87 billion kroner. Lower impairment losses on loans to large corporates and international businesses were the main reason behind the reduction from the second quarter of 2013, DNB said.

“You should look at the long-term trends and you’ll find that we have been competitive,” Bjerke said. “Long-term value creation for our shareholders has been very competitive and that will be the case going forward.”

Before it's here, it's on the Bloomberg Terminal.