Danske Bank Keeps Guidance Despite Profit Miss, Higher Costs

Danske Bank Keeps Guidance Despite Profit Miss, Higher Costs

COPENHAGEN (Reuters) – Danske Bank reported lower-than-expected first-quarter profits, citing higher costs and turbulent financial markets, sending its shares lower on Friday even as it maintained its full-year profit outlook.

Danske shares were down 3.65% at 0940 GMT after it reported first quarter net profit of 2.8 billion Danish crowns ($396.28 million), below an average of 3.2 billion forecast by analysts in a poll compiled by the company.

“Our core banking income continues to show progress and resilience in a very challenging environment, which of course also affects our other income lines,” Chief Executive Carsten Egeriis said in a statement.

Net interest income and net fee income for the first quarter both came in slightly above analyst estimates, while trading income dropped to 565 million crowns, below an average of 855 expected by analysts.

“They need to deliver on costs, as there’s already some scepticism about whether they can reach their targets,” Sydbank analyst Mikkel Jensen said, adding that income in the first quarter was “overall positive”, but costs underperformed.

Costs related to compliance and anti-money laundering are expected to peak this year and decline in 2023, Egeriis told Reuters. “But underlying costs are going in the right direction,” he said.

“We are on track. We are seeing increased lending and activity […] So we maintain our financial targets,” he added.

Denmark’s largest bank has been dogged by a money laundering scandal in its now shuttered Estonia branch since 2018, which has caused its compliance-related costs to skyrocket and trust in the lender to plummet.

On Thursday, it said it faced a potentially “material” fine over its involvement in the Estonia case, and would consequently not pay a dividend for the first quarter.

Danske firm maintained its full-year net profit guidance of 13-15 billion crowns and costs around 25 billion, but in a poll it compiled earlier this month, analysts expected Danske to miss both targets.

The bank also said the outlook did not include any effect from a potential settlement of the Estonia matter this year.

That means it would probably need to change in the event of a potential fine. Analysts have estimated fines from authorities could end at as much as 20 billion crowns.

($1 = 7.0658 Danish crowns)

(The story refiles to remove extraneous word in 1st paragraph.)

(Reporting by Nikolaj Skydsgaard; Editing by Jacqueline Wong and Tomasz Janowski)