Danske Bank raises profit forecast after beating expectations

Focus on Scandinavian expansion after getting fingers burned in Ireland

Denmark’s Danske Bank raised its full-year profit forecast after beating second-quarter pre-tax profit expectations on Thursday, supported by strong Nordic markets.

The increase was due partly to growth outside its core Danish market, as the bank continued to attract new customers in Norway and Sweden. In both countries, house prices have risen significantly for years, leading some to warn of a potential bubble.

“House prices in several large cities are at new higher levels, so we are very focused on having the right credit quality there,” chief financial officer Jacob Aarup-Andersen said. “We don’t want to build up new risks”.

Irish mistake

The bank burned its fingers in an expansion into Ireland in 2004, which ended up costing it billions when the global financial crisis a few years later hit that country especially hard.


Danske Bank said it now expected a 2017 net profit of 18 billion to 20 billion krone (€2.15 billion to €2.4 billion), up from earlier guidance of 17 billion to 19 billion krone.

However, the bank said its expenses this year would be at the same level as last year, whereas three months ago it had predicted they would be lower.

The higher expected costs, driven by IT-related regulatory compliance and digitalisation expenses, "partly takes the shine off the headline earnings upgrade," analyst Kapilan Pillai of Jefferies said.

Danske Bank's 1.9 per cent share price fall in mid-morning trading was mainly due to the higher expected costs, Jyske Bank trader Martin Munk said.

Munk said there could also be a spill-over impact on Danske Bank’s shares from the significant negative reaction to Swedish rival Nordea’s second quarter report, which was also published on Thursday.

Danske Bank’s pre-tax profit rose to 6.18 billion Danish krone (€831 million) for the three months to June 30th from 5.78 billion a year earlier. That topped the 5.83 billion krone expected by some analysts.

"Danske Bank is getting the full value from the current economic growth in the Nordic region," said Sydbank analyst Mikkel Emil Jensen, who has a "buy" recommendation on Danske.

Loan impairment levels remained at historically low levels for the bank due to strong credit quality, low interest rates, rising house prices and better profitability for farmers due to higher milk and pork prices.

Net interest income rose to 5.69 billion krone from 5.49 billion krone, but fell short of the 5.74 billion expected by analysts.

Return on shareholders’ equity was 13.5 percent, above Danske’s long-term target of at least 12.5 percent.

- (Reuters)