Danske Shares Surge After Bank Delivers ‘Phenomenal’ Results

  • Danske exceeds return on equity target two years early
  • CEO says results are in part due to more diversified banking

Shares in Denmark’s biggest bank soared the most since June last year after management unveiled a new buyback program, reported profit for the fourth quarter that beat estimates and predicted growth in net interest income despite negative rates.

Danske Bank A/S rose as much as 4.5 percent in Copenhagen and traded about 3.8 percent higher at 239.30 kroner as of 10:35 a.m. in the Danish capital. The bank has added about 12 percent to its market value this year, and is now just 5 percent below its pre-crisis peak 10 years ago.

The bank said it will buy back 10 billion kroner ($1.45 billion) in its own shares, after just completing a 9 billion-krone repurchase program. Danske reported net income of 5.59 billion kroner, beating analyst estimates compiled by Bloomberg, which had pointed to 4.59 billion kroner. Net interest income reached 5.79 billion kroner, exceeding analyst estimates for 5.58 billion kroner, with management predicting an even better result next year.

It was a “phenomenal end to 2016,” Kristin Dahlberg, an equity analyst at Jefferies International in London, said in a note to clients. Profit was “above consensus expectations” and Danske delivered an “unparalleled capital return.”

The bank’s return on equity was 13.1 percent in 2016 (in part following the sale of non-core assets). That surpassed its target of at least 12.5 percent two years early. Danske’s board proposed a dividend of 9 kroner per share, equivalent to 45 percent of net profit for the year. Including the share buyback program, the bank is actually returning about 100 percent of profits to shareholders, Dahlberg estimates.

Chief Executive Officer Thomas Borgen said the bank will keep its dividend stable no matter what the economic cycle, in an interview after the results were published. He said the bank has focused on diversifying its income streams, which has helped it cope with the world’s longest stint of negative interest rates. The Danish central bank first drove its benchmark deposit rate below zero in 2012.

Danske’s total income hit 12.9 billion kroner, beating the 12.1 billion kroner expected by analysts. It also reversed provisions for bad loans, when analysts had predicted it would book writedowns. Management said net profit will be in a range of 17-19 billion kroner in 2017.

To cope with the monetary experiment of negative rates, Danske and other banks in Scandinavia have relied less on traditional lending and more on handling clients’ money. The bank earlier this week unveiled a reorganization of its $145 billion wealth unit as it steps up focus on asset management.

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