Danske sees rising 2022 profit on cost cuts, higher activity

[COPENHAGEN] Danske Bank A/S gave a forecast for 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, which faces likely penalties for its key role in one of Europe's biggest money laundering scams, said net income will be 13 billion kroner (S$2.7 billion) 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.

Income from core banking activities will climb this year "due to good economic activity and progress towards our 2023 financial ambitions", chief executive officer Carsten Egeriis said in a statement. "Our cost/income ratio thus improved significantly." Yet, 5 years after the dirty money revelations, Copenhagen-based 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 U.S. and European authorities are ongoing, and Danske also faces ramifications from a slew of smaller crises, from overcharging borrowers to misguiding investment clients.

Danske said on Thursday 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 per cent of net profit while retaining "a high degree of flexibility in light of the Estonia matter". The bank normally doesn't take such steps.

The bank says it'll pay out 7.5 kroner per share, or 50 per cent of profit. There will be an initial payment of 2 kroner per share. The remaining 5.5 kroner will be paid out in 3 tranches after the publication of interim reports this year. Danske reported a core Tier 1 capital ratio of 17.7 per cent at year-end, down from 18.3 per cent a year earlier amid an increase in risk-weighted assets; the CET1 target is "above 16%".

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 support the banks' earnings from giving out loans.

Just 3 months ago, Egeriis was forced to cut 2023 profit targets in large part because of higher compliance costs.

The CEO, promoted from chief risk officer after his predecessor was named a suspect in a separate money laundering scandal, has otherwise 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, the region's largest, said on Thursday that it plans to increase return on equity to more than 13 per cent by 2025, up from a current target of more than 10 per cent.

Meanwhile, Danske leads Nordic peers in issuance in green bonds, according to data compiled by Bloomberg, and is targeting sustainable finance as a growth area. Danske will "continuously be developing our offerings to meet the growing sustainability needs and expectations of our customers", Egeriis said on Thursday.

The measures have generated some traction for Danske. Its shares closed out 2021 with a 12 per cent gain, after falling for 3 consecutive years. BLOOMBERG