(Bloomberg) --
Danske Bank A/S fell the most in three months in Copenhagen trading after cost-cutting measures by Denmark's biggest bank failed to yield the results expected by the market.
The shares slid almost 6% before regaining some ground to trade down 2.8% in the Danish capital. The bank's guidance on costs for this year was worse than expected, Jyske Bank analyst Anders Vollesen said.
Danske has struggled to keep expenses under control amid a series of crises, starting with a massive money laundering scandal, which have forced big investments in compliance, including the creation of a separate unit to address failures. The Copenhagen-based bank said on Thursday that costs in 2022 will be about 25 billion kroner ($3.8 billion), in part because of higher remediation expenses.
The cost guidance is 3% higher than market expectations and “raises doubts about the 2023 goal,” Vollesen said.
Chief Executive Officer Carsten Egeriis was forced to cut 2023 profit targets just three month ago in large part because of higher compliance costs tied to the fallout from the dirty money scandal. Egeriis sought Thursday to restore confidence in the bank's ability to hit next year a new, lower goal for return on equity and costs of 23.5 billion kroner.
“The momentum, the trajectory that we are seeing in our business supports the targets that we set in the third quarter,” Egeriis said at a press conference. “There is a significant amount of costs coming out between 2022 and 2023.”
Five years after the dirty money revelations, Danske has yet 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 the slew of smaller crises, from overcharging borrowers to misguiding investment clients.
Danske also took the unusual step on Thursday of saying that 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% of net profit while retaining “a high degree of flexibility in light of the Estonia matter.”
That measure likewise raises doubts about Danske's prospects, Thomas Eskildsen, an analyst at Handelsbanken, said in a note.
“We expect a negative share price reaction due to the communication around dividend distribution, as the market is likely to question Danske Bank's capital position versus a potential fine in the Estonia matter,” Eskildsen said.
What Danske will pay and how
- The bank says it'll pay out 7.5 kroner per share, or 50% of profit
- There will be an initial payment of 2 kroner per share
- The remaining 5.5 kroner will be paid out in three tranches after the publication of interim reports this year
- Danske reported a core tier 1 capital ratio of 17.7% at year-end, down from 18.3% a year earlier amid an increase in risk-weighted assets; the CET1 target is “above 16%”
Danske has a “significant capital cushion” measured against requirements but “capitalization remains vulnerable to any further adverse events, including the still potential significant fines related to ongoing investigations over money-laundering issues in the Estonian case,” Mario de Cicco, a vice president at DBRS, said in an emailed response to questions.
Egeriis sought to quell speculation that the changed policy meant Danske is anticipating a resolution of the Estonia case this year. The CEO told reporters that the bank doesn't have “any news on timing or outcome of the investigations.”
Danske forecast a 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 said net income will be 13 billion kroner 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.
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 the banks' earnings from giving out loans.
Danske ranks last among its big Nordic peers when it comes to returning profits to shareholders. Nordea Bank Abp, the region's largest, said on Thursday that it plans to increase return on equity to more than 13% by 2025, up from a current target of more than 10%.
©2022 Bloomberg L.P.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
