Profits soar at Danske as it cuts costs and reduces loan losses

Profit at Danske Bank rose in the first quarter of 2014 as the company cut its impairments, reduced costs and stepped up efforts to wind down its unprofitable business in Ireland.

The firm said pretax profit for its core activities was 4.3 billion kroner, or €570.9 million, while net profit was up 91 per cent to 2.8 billion kroner (€376.7 million) compared with the same period in 2013.

Impairments sank 55 per cent to 641 million kroner, the bank said.

"Our financial performance in the first quarter of 2014 is encouraging," chief executive Thomas Borgen said. "Although our income is challenged by the subdued economic activity, our financial results show a number of positives. Our cost programme is driving the fall in expenses and impairments continue to decline."

The bank also raised its outlook for the year and now sees profit at the higher end of a previously targeted range of 9 billion kroner to 12 billion kroner.

Mr Borgen, who replaced Eivind Kolding in September, has reorganised Danske’s management team after a spate of consumer satisfaction surveys suggested the bank was falling out of favour. The 50-year-old has also focused on cutting debt, which this week paid off as Danske had its credit rating raised one step to A at Standard & Poor’s.

The rating company cited Danske’s efforts to wind down its unprofitable business in Ireland and improvements in its loan book for the upgrade. The Danish group planned to close its personal and business banking operations in the Republic in the first half of 2014, and has already begun the process.

“We consider that risks in Danske Bank’s Irish portfolio have decreased meaningfully and expect group losses to continue to decline, remaining well below our normalized loss level,” S&P said on April 29th.

In Northern Ireland, Dankse recorded a pre-tax profit of £17.2 million for the three months to the end of March. The bank highlighted that profit before impairments had risen by 30 per cent to £19.8 million while loan impairment charges in the same period fell to £2.6 million.

Core operating income in the market increased by 11 per cent year on year, lending volumes continued to stabilise and deposit balances were 3 per cent higher than the same time last year.

The bank maintains its overall deposit to loans ratio is maintained well above 100 per cent. Danske Bank UK chief executive Gerry Mallon said the latest results added up to the bank’s fourth consecutive quarter back in profit.

“The underlying performance of the business has significantly improved while at the same time impairments have continued to fall. Total income is up 13 per cent on last year and our underlying cost base is lower as a result of a tight control of expenditure.

“The first quarter of the year has been a particularly strong one for business banking. As the economy continues to recover we are seeing an increase in demand from new and existing customers wishing to invest in their businesses to support further growth,” Mr Mallon said.

Group-wide Danske reported a common equity Tier 1 capital ratio of 14 per cent, while its total capital ratio was 18.1 percent. Danske’s redemption last month of hybrid capital raised from the Danish state reduced its total capital ratio by 2.7 percentage points at the end of March, it said.

(Additional reporting: Bloomberg)