Danske Q3 disappoints, but FY15 target maintained

Oct 30th, 2015

Danske Bank announced third quarter pre-tax profits of Dkr4.7bn (Eu630m) yesterday (Thursday), 9% below consensus expectations on the back of negative interest rates in Denmark and low activity, although the bank maintained its net profit guidance for the full year.

Danske EntranceAPPThe pre-tax profit was up 5% year-on-year, but disappointed, while total revenues of Dkr9.8bn were 8% below expectations.

Net interest income, down 7% y-o-y, was 2% below consensus expectations, while the net result of financial transactions was down 36% y-o-y and 33% below consensus.

“Similar to its Nordic peers, Danske bank has been hurt by the dual issue of a deposit margin squeeze and the low activity in the quarter,” said Mats Anderson, equity research analyst at KeplerCheuvreux.

Danske cut its revenue guidance for the full year but maintained its profit target of above Dkr16bn.

“In the first nine months, we continued to benefit from our diversified business model and posted a satisfactory result despite the ongoing adverse effects of the negative interest rate environment,” said Danske CEO Thomas F Borgen. “The result was driven by solid customer activity that was particularly high in the first half of 2015 and lower impairments.

“Our underlying business remains robust with good customer development and increased demand for our products in most of our markets that offset the adverse effects of the negative interest rate environment.”

Gwenaëlle Lereste, bank analyst at Crédit Agricole CIB, noted a substantial strengthening in Danske’s CET1 ratio, up 140bp quarter-on-quarter to 15.7% at end-September on a transitional basis. She said that this primarily reflects a significant reduction in risk exposure amount, with regulatory approval of the advanced IRB model for its Finnish loan portfolio, and continued de-risking, as well as the benefits of insurance subsidiary Danske issuing Eu500m of Tier 2 capital.

“In the coming quarters, the focus will be on the capacity of the bank to generate sufficient earnings, which is a key factor in assessing AT1,” said Lereste. “The two Danske EUR AT1 debts – among our favourites – have demonstrated good resilience post-Q315 results.

“While Danske has underperformed on the equity side, the underperformance in credit has been overall more minor, in both cash and CDS.”

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