Danske slides as cost cuts fall short, dividend raises doubts

Bloomberg

Danske Bank falls the most in three months in Copenhagen trading after cost-cutting measures by Denmark’s biggest bank failed to yield the results expected by the market.
The shares slid almost 6% before regaining some ground to trade down 3.3% in the Danish capital. The bank’s guidance on costs for this year was worse than expected, Jyske Bank analyst Anders Vollesen said in a note before the market opened.
Danske has struggled to keep expenses under control amid a series of crises, starting with a massive money laundering scandal, which have forced big investments in compliance, including the creation of a separate unit to address failures. The Copenhagen-based bank said that costs in 2022 will be about 25 billion kroner ($3.8 billion), in part because of higher remediation expenses.
The cost guidance is 3% higher than market expectations and “raises doubts about the the 2023 goal,” Vollesen said.
Just three months ago, Chief Executive Officer Carsten Egeriis was forced to cut 2023 profit targets in large part because of higher compliance costs.
Five years after the dirty money revelations, Danske still has to emerge from the cloud that enveloped the bank after it admitted billions of dollars flowing through its Estonian business from 2007 to 2015 should be treated as suspicious. Investigations by US and European authorities are ongoing, and Danske also faces ramifications from a slew of smaller crises, from overcharging borrowers to misguiding the investment clients.
Danske also took the unusual step on Thursday of saying that it will spread out over the year payment of its proposed dividend so that it can keep to its commitment to return to shareholders 40-60% of net profit while retaining “a high degree of flexibility in light of the Estonia matter.” The bank normally doesn’t take such steps.
That measure likewise raises doubts about Danske’s prospects, Thomas Eskildsen, an analyst at Handelsbanken, said in a note.
Danske reported a core tier 1 capital ratio of 17.7% at year-end, down from 18.3% a year earlier amid an increase in risk-weighted assets; the CET1 target is “above 16%”
Danske Bank forecast a 2022 profit that’s higher than analysts are expecting, as Denmark’s biggest bank joins European peers in benefiting from rising activity among customers and resurgent economies.
Danske said net income will be 13 billion kroner to 15 billion kroner this year. That beat an average analyst estimate of 12.8 billion kroner. Net income for the fourth quarter rose to 3.65 billion kroner, also beating estimates.
European banks are emerging from the pandemic in better-than-expected shape after government support to the economy helped stave off the prospect of a surge in loan defaults. Many are now boosting profit forecasts — or introducing new targets — and boosting payouts on optimism about economic growth and the prospect of rising interest rates, which help the banks’ earnings from giving out loans.
Egeriis, promoted from chief risk officer after his predecessor was named a suspect in a separate money laundering scandal, has tried to stick to plans set in 2019 to return the bank to normal footing in 2023, announcing recently a reorganisation and replacing the last executive remaining from the period marked by the money laundering scandal.
Danske ranks last among its big Nordic peers when it comes to returning profits to shareholders. Nordea Bank Abp, the region’s largest, said on Thursday that it plans to increase return on equity to more than 13% by 2025, up from a current target of more than 10%.