DNB shares plunge as Norway’s largest bank misses profit

Bloomberg

DNB ASA’s shares slumped after Norway’s largest bank missed profit estimates amid a jump in loan losses.
Net income for the three months ended June 30 declined 10 percent to 4.45 billion kroner (US$525 million), missing the 4.85 billion-krone estimate in an analyst survey. Loan losses more than tripled to 2.32 billion kroner. Low interest rates drove net interest income down 2 percent to 8.54 billion kroner.
“It was much weaker than expected, a negative surprise, and the loan losses are the driver here,” Matti Ahokas, an analyst at Danske Bank, said by phone. “The figures had been holding up quite well for a number of quarters and now there’s a big deviation. The question now is whether this is one quarter or something else.”
The bank said that loan losses will likely rise above 6 billion kroner this year, higher than estimated earlier, even as it kept an outlook for losses of up to 18 billion kroner over the next three years. Norway is western Europe’s biggest oil producer and its economy has been hit hard by the drop in oil prices since 2014.
“We are satisfied with these figures” even amid “effects of historicallylow interest rates and a rise in losses,” said Rune Bjerke, DNB’s chief executive officer, in a statement. “The Norwegian economy is sound, even though oil-related industries are still under restructuring.”
Shares in DNB declined as much as 8.7 percent and were down 7.9 percent to 93.7 kroner. Trading volumes were more than 100 percent of the three-month average.
DNB faces a toxic cocktail of plunging oil prices and record low central bank rates. Extraordinary monetary policy is posing a challenge especially to lenders in the Nordic region, where authorities have imposed a negative monetary policy the longest. (Denmark lowered its key rate below zero for the first time in July 2012.) Norway’s central bank has signaled it may again cut its key rate from 0.50 percent when it meets again in September.
DNB is the first of the region’s biggest banks to report second-quarter results. Its shares had been the best performing compared with Nordic and European peers over the past month, as worries over the impact of oil’s plunge on the Norwegian economy fade amid the turmoil caused by the UK’s vote to leave the European Union.
Norway’s government can spend its way out of a softening economy, Mediobanca analysts said in a note last week as it reiterated its preference for DNB. Goldman Sachs named DNB among five stocks to buy after Brexit sent markets down in a June note. But other analysts warn of increasing dissatisfaction among customers poses a risk to plans to offset lower interest income with higher fees.
According to Ahokas, DNB was “too optimistic.”
“They’re saying now loan losses will be more than 6 billion kroner,” Ahokas said. “It’s tough. The visibility is so low. No one knows how the offshore market and the shipping market will react to these fairly big changes, and what the direct and indirect impact will be.”