Danske Bank to remove national brands and do away with geographical segmenting

Denmark’s largest bank Danske Bank (OMX: DANSKE) reported quarterly earnings today. Low economic growth in most of the countries where the bank operates leads to continuing difficulties and means the group was far from fulfilling its potential. Profit before tax of 1.6 billion DKK is 0.1 billion more than a year ago and 1 billion above Q4 2011. Net profit for the period printed at 783 million (EPS of 0.8 DKK). Total income grew 6% year-year and 4% sequentially to 12.35 billion largely on the heels of trading income gains. The group did not have a single loss-making day in Q1 in Danske Markets.

Expenses were up by 6% sequentially but that is mostly due to a 500 million one-off charge stemming from the decision to start using Danske Bank name for all of the group's banking operations by the end of 2012. This means that the bank stops operating in a geographically oriented manner and allows for a more agile bank and removes the need to carry regional headquarters in all geographies, allowing for some cost cuts. More cost cutting measures are ongoing, with couple thousand people on the way out. The program is also escalated into a two-year deal.

Sampo Bank name is disappearing and the goodwill associated to the brand was the aforementioned half a billion DKK. In combination with the change, Danske Bank will also start charging monthly expenses for some additional checking accounts, so certain very old former Postipankki/Leonia – migrated customers might want to look into that. Fokus bank name in Norway, Northern Bank and National Irish bank in Ireland will disappear as well.

Loan impairment charges of 3.9 billion is up from Q1 2011 but down vs. Q4. Nevertheless the number is too high. Impairment charges are likely to remain high in 2012 since challenges remain in majority of the group's markets. Therefore low earnings are expected despite underlying earnings development that is expected to be reasonable. Operational change means that there will be three business areas going forward: Personal Banking, Business Banking targeting SME customers and Corporates & Institutions. Investors cheered escalated cost cutting program and the fact that there weren’t any major negative surprises in the report. This meant the stock closed up by around 1%.