DBRS: Danske Reports Strong 3Q14 Results

Summary:
• Net income for 3Q14 doubled YoY to DKK 3.3 billion and increased 7% QoQ when excluding the one-off revaluation gain from Nets in 2Q14
• Improvement in non-core business with DKK 1 billion loss for the 9M14 period, down from DKK 1.4 billion loss 9M13
• Capital strength supported by results of AQR and EBA stress tests
• DBRS rates Danske Bank at ‘A’, Stable trend

DBRS Ratings Limited views Danske Bank A/S’s (Danske or the Bank) 3Q14 results as strong, with a doubling of quarterly net income year-on-year (YoY) to DKK 3.3 billion, and a 7% quarter-on-quarter (QoQ) increase when excluding the one-off effect related to the valuation of Nets in 2Q14. This good result reflected higher net interest income (NII) which benefited from loan re-pricing, a lower overall cost of funding and improved investment income from the Bank’s liquidity profile. Fee and trading income (after adjusting for Nets) was also up, benefitting from the positive trend at Danske Capital and higher volumes of client trades, particularly in equity markets. The Bank has also maintained good cost control, with total operating expenses increasing by 1.5% to DKK 6.2 billion, as well as a 30% decrease in impairment costs to DKK 805 million QoQ, including non-core and reflecting improved credit conditions, particularly in Denmark.

Asset quality improved with total non-performing loans down to 3% from 3.3% the previous quarter. In the non-core business, Danske continued to progress on the winding down of the Irish assets. The Unit reported a net loss of DKK 1 billion for the nine months ending September 2014 down from DKK 1.4 billion for the nine months ending in September 2013.

Danske Bank passed the asset quality review (AQR) conducted by the Danish FSA, as well as the EBA baseline and adverse scenario stress tests. Incorporating AQR adjustments of 20 bps (DKK 1.6 billion total, of which DKK 900 million has already been recognised over 9M14), Danske Bank reported a CET1 ratio of 13.7% as of January 2014. At end-September the Bank reported a CET1 ratio of 15% and a total capital ratio of 19.3%. Under the adverse scenario of the EBA stress test, Danske reported a fully loaded CET1 ratio of 11.1%. DBRS continues to view Danske as appropriately capitalized to manage the impact of the evolving regulatory environment. Nonetheless, given management’s indication that the Bank will consider returning future excess capital to shareholders, DBRS will continue to monitor this closely.

DBRS rates Danske Bank A/S at ‘A’ with a Stable trend for Senior Unsecured Debt & Deposits.

Notes:
All figures are in DKK unless otherwise noted.