Saturday, 11 February 2012

DNB has good momentum going into 2012

Financial service group DNB ASA’s (OSE: DNB) fourth quarter 2011 was one of high activity. The behemoth managed to further increase its market share and with 15% deposit growth and 9.3% increase in total lending. Profit for the period was 4.1 billion Norwegian kroner resulting in an EPS of 2.51. Compared to 2010 these numbers were lower as write-downs increased by 400 million to approach 1 billion for the quarter. This is still considered a low number by the bank. Operating profit was 0.7 billion higher than in 2010 at 6.8 billion.

Full-year operating profit was 21.8 million and after tax profit 13 billion for an EPS of 7.98 NOK. DNB has no direct exposure to crisis countries in Europe but indirect effects in the form of share price declines affected it too. This was felt by the life insurance arm DNB Livsforsikring in particular. Keeping in mind the still-ongoing financial turmoil plus tighter capital adequacy requirements, proposed dividend is cut in half to 2 NOK.

Four fifths of DNB’s operations are in Norway. The bank expects further growth in 2012. The company says that profits may be under some pressure from rising funding costs but that positive trend should continue. Situation in the Baltic countries and Poland remains challenging although DNB forecasts improving conditions. Write-downs are expected to stay on par with 2011.

Tier 1 Capital ratio according to Basel II rules stood at 9.4% at years-end and at 10.8% proforma subject to full IRB implementation. These are close to 2010 numbers but a clear improvement on the end of Q3. The Board feels that related to group’s risk of operations it is well capitalized. The common equity Tier 1 capital ratio target by the end of 2012 is 10%.

The report was well received on the market as most of the numbers explained above, particularly profit and cost control, were better than expectations. There had been a lot of talk regarding the shipping segment loans after Nordea alluded to those in its report since DNB is a major player in the field. Certainly the amount of doubtful and non-performing loans was of some concern. On the reporting day Thursday the stock popped over 9%. For the week it was up by nearly 5%

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