Danske to slash fixed income, currency jobs as profits stall

Bloomberg

Danske Bank A/S will target its fixed-income and currencies unit for job cuts as part of a sweeping plan to revive profits amid rising compliance costs and entrenched negative interest rates.
Denmark’s biggest bank, which is being investigated
for money laundering across Europe and in the US, missed analysts’ profit estimates, third-quarter results showed. It acknowledged its result this year will probably only reach the lower end of a previously targeted range of 13 billion kroner ($1.9 billion) to 15 billion kroner. Danske’s shares fell as much as 5.8% in Copenhagen.
To rein in costs, acting Chief Financial Officer Jacob Aarup-Andersen signaled that more corners of the bank than just FI&C will need to endure cuts. “There is no doubt that when we get to 2023, we expect to be fewer staff than we are right now,” he said.
Danske is still dealing with the fallout of its $220 billion dirty-money scandal, and investors are bracing for fines potentially in the billions of dollars. Its market value has slumped almost 30% this year, after being halved in 2018. The bank said costs related to dealing with compliance will peak next year.
Details of the measures targeting Danske’s FI&C unit,
contained in a slide that accompanied third-quarter results, show the bank is planning “short-term cost reductions of up to 15% of direct staff costs.” Danske says it hopes most of the cuts will take place through “voluntary resignations” after it imposed a hiring freeze.

Challenging Times
“The first nine months of 2019 were characterised by challenging interest rate levels and margins as well as higher impairment levels and an increase in costs, related especially to compliance,” Chief Executive Officer Chris Vogelzang said. “We saw a good underlying business with high customer activity and lending growth, but overall, our performance is under pressure.”
The bank’s guidance “is very low” and will disappoint shareholders, Per Hansen, an investment economist at Nordnet, said in a note.
“Danske Bank is in a transition phase,” he said. “2019 won’t be great, 2020 will be worse and no one knows what will come in terms of US financial penalties.”
Danske said measures it’s taking to be more efficient “will have a significant effect on the result for 2020, for which we expect a return on shareholders’ equity in the range of 5-6%.” That’s considerably lower than previous goals.

Money Laundering
Danske’s costs for improving its anti-money laundering defenses and other compliance-related measures will rise next year to as much as 3.5 billion kroner. Costs will then drop, to around half that in 2023, it said. Danske’s compliance department currently has around 2,500 full-time employees.
The money-laundering case, which started in Danske’s now defunct Estonian unit, and compliance measures will lop off around 0.5 percentage points from the return on equity in 2020. Danske’s returns next year will be the lowest in seven years.
In its slide on fixed-income and currencies, Danske said the unit faces a variety of headwinds including a risk that monetary easing will reduce market volatility.
Danske is operating under an extreme monetary environment in its home market, where interest rates have been negative for more than seven years.
The central bank’s benchmark rate is now minus 0.75%, a record low that Denmark shares with Switzerland.