Company Reports

Danske Bank reported second-quarter profit before tax of DKK 8.3 billion, up 10% on a sequential basis. Management lifted net profit guidance to DKK 23 billion-DKK 25 billion, a DKK 1 billion increase in the target range.

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Danske has been through a tumultuous decade, which saw it settle a $2 billion lawsuit with the US Department of Justice, leave the Baltic countries, refocus on the Nordics, and reduce its exposure to oil and gas borrowers. Now, the bank is finding its footing again, supported by a clear strategic focus. As a result, profitability has increased, despite inflated costs due to higher expenses related to improved anti-money-laundering processes.

Danske reported first-quarter profits before tax of DKK 7.6 billion, which are flat versus the same quarter a year ago.

European banks have declined around 10% from their highs as rising oil and gas prices and the prospect of higher-for-longer interest rates fuel fears that loan defaults will rise.

Danske has been through a tumultuous decade, which saw it settle a $2 billion lawsuit with the US Department of Justice, leave the Baltic countries, refocus on the Nordics, and reduce its exposure to oil and gas borrowers. Now, the bank is finding its footing again, supported by a clear strategic focus. As a result, profitability has increased, despite inflated costs due to higher expenses related to improved anti-money-laundering processes.

We update our views on Danske, lifting our net interest margin and profitability expectations in the midcycle.

Danske has been through a tumultuous decade, which saw it settle a $2 billion lawsuit with the US Department of Justice, leave the Baltic countries, refocus on the Nordics, and reduce its exposure to oil and gas borrowers. Now, the bank is finding its footing again, supported by a clear strategic focus. As a result, profitability has increased, despite inflated costs due to higher expenses related to improved anti-money-laundering processes.

Danske reported second-quarter net profit of DKK 5.454 billion, down 5% sequentially. The bank is on route to hit its DKK 21 million-DKK 23 million net profit guidance for the full year.

Danske reported first-quarter profits before tax of DKK 7.59 billion, up 1% versus the same period a year ago. Income generation was flat, with net interest income down marginally 1% to DKK 9.02 billion, but good performances in net fee income (up 8%) and net trading income (up 15%). Danske cited good customer activity in its fee products as well as favorable market conditions relative to the year-ago period as the drivers of the good non-interest-related income result.

For 2024, narrow-moat Danske Bank reported profits before tax of DKK 31.2 billion, versus our own DKK 28.5 billion estimate. The bank outperformed our expectations on both income and expenses slightly, but the largest delta came in the form of DKK 0.5 billion in loan loss reversals. Underlying credit losses remain low, which is good, but the strong performance was primarily driven by post-model adjustments. We don’t expect such post-model adjustments to benefit loan losses structurally. Danske also announced further shareholder distributions consisting of a second-half-year dividend of DKK 9.35 per share, a special dividend of DKK 5.35 per share, and a new share repurchase program worth DKK 5 billion. We maintain our DKK 233 per share fair value estimate and reiterate our narrow economic moat rating. Shares are fairly valued.

Danske reported a good third quarter carried by good developments for costs and loan losses. The better-than-expected performance of these two line items allowed the bank to raise its profit guidance to a range between DKK 22.5 billion and DKK 23.5 billion from a range between DKK 21 billion and 23 billion previously. We maintain our DKK 233 per-share fair value estimate and narrow moat rating.

Danske reported a good second quarter after the bank had already flagged a net profit guidance increase for the full year due to an improving macroeconomic outlook. Total income increased 1% to DKK 14.1 billion on a sequential basis. A good performance in net fee income driven by higher client activity, growing assets under management, and good traction in debt capital markets made up for a weaker performance in the more volatile net trading income line. From a structural income perspective, the dynamic in the quarter was good. Net interest income remained flat, which was within expectations. Net interest income is expected to come under pressure as central banks have started to lower interest rates. In the second quarter, good deposit volume growth did offset a weaker deposit margin. However, for the rest of the year competitive pressures on the lending side, potential further deposit mix shifts, and decreasing interest rates should drive net interest margins lower. Operating expenses increased 2% to DKK 6.5 billion. Impairments saw a DKK 0.2 billion reversal driven by the improving macroeconomic outlook, allowing the bank to recapture provisions taken for bad debts that are no longer expected to materialize. Danske will pay a DKK 7.5 per-share interim dividend supported by the improving net profit outlook. We maintain our DKK 233 per-share fair value estimate and narrow moat rating.

Danske published an improved guidance for its 2024 net profit, lifting the target from between DKK 20 billion to DKK 22 billion to between DKK 21 billion to DKK 23 billion. The bank flagged a continually strong credit quality and now expects small reversals of impairment charges for the second quarter of 2024. Previously, the bank guided for about 8 basis points of loan losses, or roughly DKK 1.4 billion, which would have been in line with its targeted through-the-cycle assumptions. Now, Danske believes that credit losses for the full year may not exceed DKK 0.6 billion. The better-than-expected credit quality outlook for this year is a positive development and may signal that although potentially strained, households and corporations will manage to service existing debts after a rapid rise in interest rates for the most part. We would also not be surprised if Danske's Nordic peers would show similar improved outlooks during their second-quarter earnings releases. We maintain our DKK 233 per share fair value estimate and narrow economic moat rating.

Danske has been through a tumultuous decade, which saw it settle a USD 2 billion lawsuit with the U.S. Department of Justice, left the Baltic countries, refocused on the Nordics, and reduced its exposure to oil and gas borrowers. Now, the bank is finding its footing again supported by a clear strategic focus. As a result, profitability has increased, despite inflated costs due to higher expenses related to improved anti-money-laundering processes.

Danske reported a good fourth-quarter 2023 and overall, a strong 2023. Profits before tax increased 12% in the fourth quarter on a sequential basis. Higher net fee income and significantly stronger net trading income more than offset slightly lower net interest income. Danske has seen pass-through rates increase, weighing on the deposit margin, while the lending margin continued to be under mild pressure since rates have started to increase in Denmark. Growing assets under management contributed to the positive quarterly development in investment fees. Net trading income benefited from a one-off release from a common equity Tier 1 foreign-exchange hedge.

Danske has been through a tumultuous decade, which saw it settle a USD 2 billion lawsuit with the U.S. Department of Justice, left the Baltic countries, refocused on the Nordics, and reduced its exposure to oil and gas borrowers. The bank, which emerged from the tumultuous decade, is finding its footing again supported by a clear strategic focus. As a result, profitability has increased, despite inflated costs due to higher expenses related to improved anti-money-laundering processes.

Narrow-moat Danske reported a good start to 2023 as the bank saw higher interest rates lift net interest income despite loans contracting slightly (down 2%). Deposit margins continued to widen across all segments, driving the bulk of 8% increase in net interest income. Although this dynamic is expected to slow as customers start shifting deposits into savings products, Danske still expects DKK 700 million per 25-basis-point rate changes for future interest-rate increases. Positive as well, lending margins have remained fairly stable, supporting the net interest income uplift. We maintain our DKK 170 per share fair value estimate.

Stress has returned to the European banking system less than a week after a solution for Credit Suisse had been announced. Shares in European banks have traded down through March 24 around midsingle digits, with Deutsche Bank taking the brunt of it, down 15% at its lowest point intraday. We maintain our fair value estimates and moat ratings across our European banking coverage. Allianz remains our Best Idea. Admiral is one of our top picks

With Credit Suisse shoring up liquidity, concerns around a banking crisis spreading in Europe have been firmly planted. While we expect that the next days and weeks will remain volatile, we do not currently see a liquidity crisis spreading through the European banking system. The issues at Credit Suisse are idiosyncratic in nature and we believe containable for now even in a worst-case scenario. With capital and liquidity levels high across the board, asset quality still good, and regulators much better equipped than 15 years ago to quell any sparks, we believe European banks are solid. The major caveat being that developments are currently happening at a rapid pace and views we form today may be stale tomorrow. We believe investors are best placed in European banks with a greater retail focus and a sound profitability outlook. We would highlight BBVA, Handelsbanken, ING, and Lloyds.