Danske Earnings: No Surprises After Net Profit Guidance Lift Prior to Release of Results

Danske reported a good second quarter after the bank had already flagged a net profit guidance increase for the full year due to an improving macroeconomic outlook. Total income increased 1% to DKK 14.1 billion on a sequential basis. A good performance in net fee income driven by higher client activity, growing assets under management, and good traction in debt capital markets made up for a weaker performance in the more volatile net trading income line. From a structural income perspective, the dynamic in the quarter was good. Net interest income remained flat, which was within expectations. Net interest income is expected to come under pressure as central banks have started to lower interest rates. In the second quarter, good deposit volume growth did offset a weaker deposit margin. However, for the rest of the year competitive pressures on the lending side, potential further deposit mix shifts, and decreasing interest rates should drive net interest margins lower. Operating expenses increased 2% to DKK 6.5 billion. Impairments saw a DKK 0.2 billion reversal driven by the improving macroeconomic outlook, allowing the bank to recapture provisions taken for bad debts that are no longer expected to materialize. Danske will pay a DKK 7.5 per-share interim dividend supported by the improving net profit outlook. We maintain our DKK 233 per-share fair value estimate and narrow moat rating.