Danske Surges as Recovering Economies Trigger Profit Upgrade

Danske Bank A/S shares jumped after the Danish lender upgraded its full-year profit outlook, saying home markets in Scandinavia are emerging from Covid lockdowns with their economies in better shape than initially feared.

The stock gained as much as 4.7% in Copenhagen trading, making Danske the best performer in the Bloomberg European banks index.

The Copenhagen-based bank said net income will exceed 12 billion kroner ($1.9 billion) amid lower-than-expected impairments, high customer activity and cost-control measures. Danske previously had guided for profit in the range of 9 billion kroner to 11 billion kroner.

The economic recovery “has been faster than anticipated,” Chief Executive Officer Carsten Egeriis said in a statement. “We remain confident in our underlying cost development and still expect business conditions to improve further later in the year.”

Per Hansen, an investment economist at Nordnet AB, said Danske’s announcement was expected, following upgrades by other lenders. Still, its size “surprises on the positive side.”

Danske said cost-cutting is on track, with total expenses seen at 25 billion kroner or lower. Impairments probably will total “no more than 1.5 billion kroner” this year, because of improvements in the economy and better credit quality. That’s less than half of what the bank forecast in April, when it expected impairments of no more than 3.5 billion kroner.

Read More on Forecasts for the Nordics’ Fast Recovery

With highlights of the second quarter now out of the way, how Danske expects to fare in coming years is likely to take center stage when the bank reports second-quarter results on July 23. Maria Semikhatova, an analyst at Citigroup, said in a note that net interest income and the cost outlook will be in focus.

The turn of events could provide a much-needed boost for Egeriis who took over the scandal-beleaguered bank earlier this year after his predecessor, Chris Vogelzang, became the subject of a money laundering investigation tied to a former employer, ABN Amro Bank NV.

Danske itself is being investigated in the U.S. and Europe for its role at the center of a vast Estonian dirty-money scandal, after admitting that a large part of around 200 billion euros ($236 billion) in transactions were suspicious. The bank also has faced probes in Denmark for overcharging borrowers and providing incorrect advice to investing clients.

What Bloomberg Intelligence Says:

Danske Bank’s upgraded second-quarter and full-year earnings guidance could push consensus 10-15% higher, but it’s the quality of the uplift that’s key to us, driven by a strengthened revenue outlook as well as the more anticipated lower impairments.

-- Philip Richards, BI banking analyst

Notable Items:

  • Net income in the second quarter will be around 2.8 billion kroner, as total income climbs to 10.5 billion kroner, Danske said. It expects impairment charges for the quarter of around 200 million kroner.
  • A gain from the sale of its Luxembourg business will be eaten up by extraordinary tax-related items that it faces this year.
  • A gain from the planned merger of payment services provider MobilePay with other mobile payment providers isn’t included in the revised outlook.

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