Danske CEO Reveals Ambitions for Bank's $207 Billion Wealth Unit

  • Wealth management pretax down 25% amid market turbulence
  • CEO Thomas Borgen says bank has attracted new customers

Danske Bank A/S has created a wealth management unit that’s almost twice as big as Denmark’s largest pension fund and about two-thirds the size of the country’s economy.

The 1.35 trillion kroner ($207 billion) unit, which has existed in its current form since April 1 after the bank combined several divisions including its pension business, will target growth in one of the world’s richest corners as Scandinavians look for ways to generate returns on their growing pile of savings.

Thomas Borgen

Source: Danske Bank A/S

“We have very high ambitions long-term for it,” Chief Executive Officer Thomas Borgen said in a phone interview on Friday. “I don’t want to point to any particular area where we will invest, but the wealth area overall, as it has been lifted to an important strategic area for the bank, will get even higher attention going forward and to that extent we will make sure that we allocate enough resources.”

Borgen’s commitment to wealth management comes despite the unit’s rocky start to the year. Profit before tax slumped 25 percent from a year earlier as income fell 15 percent. Borgen said the first two months of the quarter were unusually turbulent and the broader outlook for investing clients’ money looks promising.

“The market was very complicated during particularly the first couple of months, which has a natural impact on the unit and also taking into account the first quarter of last year was extremely good,” he said. “But long term we are very comfortable with the wealth unit.”

Wealth management delivered the bank’s best profit before tax as a percentage of allocated capital, at 25.6 percent. The worst performing unit by that metric was corporates and institutions, at 10.7 percent. The result underscores the capital-light appeal of wealth management as regulatory requirements continue to stack up.

Negative Rates

No other major bank has experienced negative interest rates as long as Danske. Denmark has had its benchmark deposit rate below zero for the better part of four years and most economists don’t see policy going positive until 2018 at the earliest. The ability of Denmark’s largest bank to weather the monetary environment holds lessons for other countries with similar policies, according to the head of the Danish regulator, Jesper Berg.

Danske’s expansion of its wealth business opens the door to an alternative revenue stream as lending income dries up. But Danske’s experience also shows that negative rates aren’t all bad. The bank wrote back 130 million kroner in bad debt, compared with losses of 502 million kroner a year earlier.

Danske reported net income that slipped 1 percent last quarter to 4.78 billion kroner ($730 million) in the three months ended March 31, beating the 4.52 billion-krone estimate of analysts surveyed by Bloomberg. Net interest income was little changed while total revenue slipped 9 percent, Danske said on Friday.

The bank’s shares rose as much as 4.4 percent after the open and traded at 183.60 kroner as of 12:06 p.m. in Copenhagen. Danske’s stock is down about 1 percent this year, compared with a roughly 15 percent loss in the 39-member Bloomberg index of European financial companies.

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