Danske Bank dividend policy brings Estonia case back in spotlight

FILE PHOTO: A view of the Danske bank headquarters in Copenhagen
FILE PHOTO: A view of the Danske bank headquarters in Copenhagen, Denmark October 22, 2019. REUTERS/Jacob Gronholt-Pedersen/File Photo

February 3, 2022

By Nikolaj Skydsgaard

COPENHAGEN (Reuters) – Danske Bank on Thursday maintained its 2023 profitability target and said it expected to increase profits this year, but uncertainty over dividend payments brought potential money laundering fines back in focus.

Denmark’s biggest lender has been dogged by a money laundering scandal since 2018 in its former Estonia branch, and remains under investigation by authorities in Denmark, Estonia, France and the United States.

Danske Bank said it would propose a dividend of 2 Danish crowns for 2021, with another 5.5 crowns “intended” to be paid out in three tranches later in the year.

This approach was taken to ensure “a prudent capital management with a high degree of flexibility in light of the Estonia matter, where we remain unable to estimate any potential outcome or timing,” the bank said in a statement.

“We really believe that is the best thing to do for our shareholders and our stakeholders,” CEO Carsten Egeriis told reporters.

Although splitting dividend payments into tranches should not be a concern for investors, “it is an indication that a conclusion to the (Estonia) case is drawing closer,” said Jyske Bank analyst, Anders Haulund Vollesen.

Danske reported fourth quarter net profit slightly above expectations and said it expected net profit for 2022 between 13 and 15 billion Danish crowns ($1.97-$2.28 billion), compared to 12.9 billion last year.

Danske affirmed its aim of reaching a return on equity of between 8.5% and 9% in 2023, a goal it lowered in November.

“I feel fully comfortable with that, I very much believe that the momentum and trajectory that we are seeing in our business, supports the targets that we set,” Egeriis said.

Danske’s shares opened down nearly 6% and traded 2.4% lower at 0946 GMT, partly dragged lower by higher-than-expected operating costs in the fourth quarter.

“Danske Bank has cemented itself as by far the least profitable Scandinavian major bank, and this will not change in the coming years,” Nordnet analyst Per Hansen said in a note, adding that the results were in line with expectations.

($1 = 6.5859 Danish crowns)

(Reporting by Nikolaj Skydsgaard, additional reporting by Jacob Gronholt-Pedersen; editing by Jason Neely and Tomasz Janowski)