Danske Beats Consensus Estimates on Loan-Loss Reversals; We Maintain Our FVE

Narrow-moat Danske Bank reported third-quarter profit before tax of DKK 4.27 billion, 12% ahead of consensus estimates polled by Danske before the earnings release. The beat was driven primarily by a better-than-expected loan-loss provision line with a reversal of DKK 151 million in the third quarter versus consensus expectations for a loan impairment of DKK 238 million on average. We have seen more positive loan-loss results across European banks broadly speaking this earnings season but would highlight that the current mix of loan-loss provisions taken last year not materializing to the extent feared together with a continuing benign credit default environment should not be extrapolated into the future. Danske’s guidance of below DKK 0.75 billion in loan losses for the full year suggests much the same for the fourth quarter, but we expect credit defaults and provision reversals to normalize throughout next year. We maintain our fair value estimate of DKK 170 per share.