Danske Bank sticks to guidance despite shortfall and higher costs By Reuters

© Reuters. FILE PHOTO: A Danske bank sign is seen at a bank’s headquarters in Copenhagen, Denmark October 22, 2019. REUTERS/Jacob Gronholt-Pedersen

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

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

“Our core banking revenue continues to grow and hold up in a very challenging environment, which of course also affects our other revenue lines,” chief executive Carsten Egeriis said in a statement.

Net interest income and net commission income for the first quarter were both slightly above analysts’ estimates, while trading income fell to 565 million crowns, below the 855 average expected by the analysts.

“They need to stick to costs as there is already some skepticism about their ability to meet their targets,” said Sydbank analyst Mikkel Jensen, adding that first-quarter earnings were “broadly positive” but costs underperformed.

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

“We are on track. We are seeing an increase in lending and activity () So we are maintaining our financial targets,” he added.

Denmark’s largest bank has been grappling with a money laundering scandal at its now-closed Estonian branch since 2018, which has sent compliance costs skyrocketing and confidence in the lender plummeting.

On Thursday, he said he faced a potentially “material” fine for his involvement in the Estonia case and would therefore not pay a first-quarter dividend.

Danske maintained its full-year net profit forecast of 13-15 billion crowns and costs around 25 billion, but in a poll it compiled earlier this month, analysts expected what Danske misses both goals.

The bank also said the outlook did not include any effect of a possible settlement of the Estonian case this year.

This means that it would probably have to be changed in the event of a potential fine. Analysts have estimated that fines from the authorities could amount to 20 billion crowns.

($1 = 7.0658 Danish kroner)

(The story refiles to delete the superfluous word in the 1st paragraph.)

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