Danske Bank Seen Unveiling Sixfold Increase in Investor Rewards

Danske Bank may be about to make its investors very happy.

Denmark’s biggest bank is now in a position to buy back as much as 30 billion kroner ($4.4 billion) in shares over the next three years, according to Nordea. That’s six times its latest program, announced in February.

The shareholder rewards would mark a stunning turnaround for a bank that not so long ago was a laggard in Scandinavia, measured by shareholder returns.

“If you go back five years ago, Danske was caught in the perfect storm,” 
said Christian Hede, an analyst at Nordea. “Now that Denmark is catching up and coming back to normal, that helps Danske more than others.”

(Click here for a primer on Danske Bank.)

Danske looks poised to reap the full benefits of a recovering economy, a rebounding housing market and a central bank that’s moving out of the extreme negative rates that have dominated since mid-2012.

Taking Danske’s buyback potential into account, the bank will probably give shareholders more than its major rivals in Scandinavia, according to Hede. Danske isn’t building its loan book so returning excess capital to shareholders makes the most sense, he said.

Danske is the top pick among Nordic banks at Credit Suisse. Analyst Jan Wolter says he expects the lender to deliver a 6 billion-krone program this year. “Investors worry ultra-low rates pressure Danske’s” net interest income, Wolter said. “But we argue the worst is already priced in.”

Denmark’s negative rates -- the central bank raised the benchmark deposit rate to minus 0.65 percent from minus 0.75 percent earlier this month -- have eroded traditional lending income. But they’re also making it easier for customers to repay their debts.

DNB Markets says Danske’s annual loan losses will probably drop to their lowest level since the financial crisis started. That will help the bank buy back 10 billion kroner in shares in 2016 alone, DNB estimates.

Kristin Dahlberg, an analyst at Jefferies International Ltd. in London, estimates Danske will buy back at least 5 billion kroner in 2016, “but most likely well above.” The bank is “in a good position to deliver a good shareholder return over the next couple of years.”

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