Danske raises outlook after Q2 progress, Swedbank echoes peers

Jul 24th, 2014

Second quarter results for Danske, reported today (Thursday), reveal “good progress all over”, with a raised outlook for 2014 reflecting higher management confidence, while Swedbank results underline a Swedish trend, said a Kepler Cheuvreux analyst.

ThomasBorgen_jpegProfit before tax at Danske Bank amounted to Dkr5bn (Eu600m) in the second quarter, and net profit Dkr4bn, according to the bank, the latter representing a 44% increase on the first quarter. The bank also highlighted a 10% increase in total income, to Dkr11.4bn, which includes a positive effect from its divestment from Nets.

“There was good progress all over, and the quarterly results are indeed probably their best since the 2008 financial crisis,” said Mats Anderson, equity research analyst at Kepler Cheuvreux.

Net profit of Dk4bn was 8% ahead of consensus expectations, and while total income was slightly below expectations due to slightly disappointing trading gains, quality items, namely net interest income (NII) and commissions, “are good news”, according to Anderson.

Cost development, meanwhile, is “excellent”, he said, adding that impairments in core activities amounted to 16bp, showing good credit quality, and loan losses in non-core Ireland fell from Dkr632m to Dkr162m, “much better than expected”.

Based on its latest performance, the bank has raised its full year profit outlook, forecasting net profit for 2014 to be Dkr10bn-Dkr13bn, up from expectations for net profit at the higher end of a Dkr9bn-Dkr12bn range.

“The stronger outlook is owing mainly to improved developments in expenses and impairments as well as the positive effect relating to Nets,” said the bank.

Thomas Borgen, Danske CEO (pictured), said that the bank made “good progress in the first half of 2014” and is “moving steadily in the right direction”.

“Expenses are declining as expected, the positive trend in impairments is continuing, and we saw growing customer activity in the second quarter of 2014,” he said.

Anderson at Kepler Cheuvreux said that the raised guidance is a minor change given that the bank was already guiding toward the upper end of its previous forecasts, but that it nonetheless reflects increasing confidence among management.

Swedbank on Friday became the last of the four largest Swedish commercial banks to announce second quarter results. It reported profit after provisioning of Skr5.4bn (Eu585m), 6% more than consensus expectations, excluding a small impact from its acquisition of Sparbanken Öresund, according to Anderson.

“Commission generation was good and costs are under control, although, as the CFO remarked, when you take into account the Öresund acquisition the numbers may look a little bit too flattering.

“But underlyings are good,” he added.

Revenue development was similar to that at the other major Swedish banks, according to Anderson, with NII, of Skr5.5bn, slightly below consensus, reflecting the impact of a Swedish interest rate cut in December, while trading gains, of Skr800m, were ahead of consensus expectations.

“These should be seen in conjunction with the development of net interest income, i.e. Swedbank again accentuates the trend seen at its Swedish peers that have already posted second quarter results and which sets the trend for the second quarter of 2014,” said Anderson.

Swedbank chief executive officer Michael Wolf noted strong domestic demand in the second quarter and said that, for the first time in a while, there were signs of increased credit demand in the commercial sector.

“Swedbank’s profit for the second quarter was strong,” he said. “Lower market interest rates affected net interest income negatively, while increased lending and deposit volumes contributed positively.

“Notably, the quarter saw increased activity among our corporate customers and growth in urban areas.”

Fitch on Tuesday said that it expects continued robust performance from the major Swedish banks in the second half of the year, all while large capital and liquidity buffers are maintained.

“The first half of 2014 was no exception to the major Swedish banks’ strong track record,” said the rating agency.

Smaller Swedish banks have also announced second quarter results. Government-owned SBAB last Thursday (17 July) announced pre-tax operating profit, excluding net result from financial instruments, of Skr273m, NII of Skr514m, and expenses of Skr219m.

“The lending business remained affected by strong competition in the market, but SBAB still experienced positive volume growth in the quarter,” said Pers Anders Fasth, outgoing chief executive officer at SBAB. “New lending to households rose, while new lending to companies and tenant-owner associations were in line with the previous quarter.”

LF Bank results, meanwhile, include a 7% increase in NII to Skr624m in the second quarter, a 17% rise in operating profit, to Skr231m, and a 9% increase in lending, to Skr117bn, and a cost/income ratio before loan losses of 0.69.

“Länsförsäkringar continued to strengthen its position in the bank market with growing business volumes and strong net interest income and earnings,” said Rikard Josefson, president of Länsförsäkringar Bank.

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