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UPDATE 2-Danske dividend at risk after regulator's capital demand
June 18, 2013 / 10:53 AM / 4 years ago

UPDATE 2-Danske dividend at risk after regulator's capital demand

* Biggest Danish bank told to hold more risk capital

* Says may not be able to pay dividend in full

* Shares slip nearly 6 percent (Adds quotes, details)

By Mette Fraende and Mia Shanley

COPENHAGEN/STOCKHOLM, June 18 (Reuters) - Danske Bank , Denmark’s biggest financial institution, said on Tuesday it may not be able to pay its 2013 dividend in full after the country’s regulator said it must set aside more cash to cover risk.

Danske shares fell nearly 6 percent.

Nordic regulators are among the toughest in Europe and their banks are as a result some of the best-capitalised, but Denmark has been a particular trouble spot in the region due to a burst property bubble. Danske, which has not paid a dividend for five years, was also hit hard by its exposure in Ireland.

In a recent regional crackdown on how banks calculate risk, Sweden’s regulator last month introduced a 15 percent floor on mortgage default risk. Mortgage lenders had maintained single-digit floors - among the lowest in Europe. Norway is considering imposing a 35 percent floor.

“It is still our intention to start paying a dividend for 2013 ... though perhaps not to the full amount,” Chief Financial Officer Henrik Ramlau-Hansen said on a call with analysts.

Danske said the regulator’s demand would result over time in a rise in risk-weighted assets - loans included in capital adequacy calculations - of about 100 billion crowns ($17.89 billion) compared with nearly 800 billion in the first quarter of this year.

Another consequence would be an increase of 8 billion crowns in Danske’s capital reserves to 72 billion crowns from the 64 billion calculated at March 31, it said.

Nordea cut its target price on Danske to 115 crowns a share from 130 crowns and its recommendation to “hold” from “buy”, saying the new rule cut the potential for future payouts.

Danske said in its statement that the FSA’s ruling would not change its financial outlook for 2013 or its targets for 2015 though an increasing focus would be on capital.

“The goal here for (20)13, (20)14 and (20)15 is to get the equity up and start paying dividends,” Chief Risk Officer Robert Endersby said on the call.

It was still aiming for a return on equity above 12 percent assuming higher policy rates and a Core Tier One target above 13 percent, he said.

“We believe that the obligations will put Danske Bank’s financial targets for 2015 under pressure, but the bank maintains its ambition to achieve them,” analysts at Alm. Brand brokerage said in a note.

Danske said it would comply with the FSA’s requirements immediately, but did not agree with them and is considering taking the decision to the Company Appeals Board.

Danske’s Core Tier One capital ratio of 15.1 percent at the end of the first quarter, compared with the 9 percent demanded by the European Banking Authority.

Danske shares were down 5.8 percent by 1029 GMT at 105.20 crowns, compared with a 0.4 percent fall in the Copenhagen stock exchange’s main stock index and a one percent rise in the benchmark EuroStoxx 600 Banks. (Additional reporting by Ole Mikkelsen; Editing by Louise Ireland)

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