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Estonia Still The Big Unkwnown

30 April 2019 by jbchevrel

Danske Bank (DANBNK) CDS was not much changed on day despite stock -9.6%, after it missed in Q1. It’s delivered a -39% YoY decline in net profit, also 15% below Street’s consensus. The main driver of disappointment was the -7% YoY decline in NII. On the margin side of the equation, banking spreads got pressured there due to rate hikes in NOK (from 0.75% to 1.00% in MAR) and SEK (from -0.50% to -0.25% in JAN) while price adjustments have not completely come through. The cost of funding got higher also, due to NPS issuance, along with liquidity costs due to the AML ongoing story. Trading income was also down 9% YoY leaving total income -6% YoY. Costs rose +9% YoY, partly because of higher compliance/AML control efforts... All metrics going the wrong way, that resulted in a Q1-19 RoE down massively to 7.7% from 12.6% in Q1-18. The guidance for this year has been unchanged, DANBNK still sees net DKK14-16bn but this is now including the one-off profit from the sale of Danica Pension Sweden for an amount of cDKK1.3bn. The only good news, if any, is on the volume side of the equation. Indeed, in Sweden/Norway/Finland, DANBNK enjoyed volume growth, leading to a total lending up 1%. And in Denmark, customer base & market share were stable. The CDS was notably less reactive to those results (as opposed to stocks), in contrast with the jumpy price action we had seen due to the Estonian AML thing. On the latter, which is still ongoing, DANBNK repeated it is cooperating with the different authorities & regulators but doesn’t have a clue on the adequate cash flow timeline (times and amounts) …. That being said, it is worth nothing that there was no AML provisions in Q1. The Nordic-exposed bank remains well capitalized as things stand, and it is probably big part of why the credit market was not impressed today. Indeed, FL CET1 is 16.5% vs 14% required vs 16% MT target.