Norway's Biggest Bank Falls as Profit From Trading Slides

(Bloomberg) -- DNB ASA dropped after third-quarter profit disappointed with income from its investment banking and trading declining.

Norway’s biggest bank’s third-quarter net income failed to rise from a year earlier, ending at 5.44 billion kroner ($652 million) and missing a 5.67 billion-krone analyst estimate compiled by the bank.

“There will be fluctuations from quarter to quarter, but regarding the investment banking division, we do not believe that the third quarter was representative as such,” Chief Executive Officer Rune Bjerke, said in an interview. “Looking at the pipeline, it looks better going forward.”

Shares fell as much as 6.8 percent, the most since April 25, and were down 4.2 percent as of 12:57 p.m. in Oslo, making it the worst performer on the STOXX 600 Banks Index.

DNB’s profit miss was “driven by weaker fees and trading and a modest miss on costs, partially offset with no impairments this quarter,” Pawel Dziedzic, an analyst at Goldman Sachs, wrote in a note. “All in all, we see this as a weaker than expected set of results and expect the share price to underperform peers today.”

A strong economy boosted by rising oil prices helped the bank increase lending to both households and businesses. It made “significant reversals” of loan losses in the oil and gas sector of 500 million kroner, paring losses for the quarter to a “modest” 11 million kroner, according to the report. That was offset by a drop in profit for its markets division to 345 million kroner from 835 million kroner a year earlier.

“We’re in a good shape,” Bjerke said. “Dividend capacity this year so far is up 15 percent compared with the same point in time last year.”

CEO Comment

  • We are seeing “a strong momentum in the Norwegian economy, a higher oil price, increasing investments and wage growth and unemployment numbers pointing in the right direction. A healthy development in the economy means lower losses in the banks. At the same time, the prospect of higher interest rates has had a favorable and calming effect on housing prices,” Chief Executive Officer Rune Bjerke said in a statement.

State of the Industry

  • Norway’s largest mortgage lender is now adjusting to higher interest rates after the central bank raised rates in September.
  • Market activity in bonds and stock sales is cooling after a boom.

Know More

  • Net interest income in the third quarter was 9.15 billion kroner.
  • Common equity tier 1 ratio at the end of September was 16.5 percent.
  • Return on equity in the third quarter was 10.9 percent, compared with the bank’s target of above 12 percent toward the end of 2019.

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