How To Make A Rat Look Like A Puppy

Norway‘s leading bank, DnB NOR, got standing ovations Thursday after reporting a net result of NOK 2,6 billion, about 700 million more than expected.  and rewarded their loyal shareholder (manly the Norwegian state) with a surprising dividend of  NOK 1,75. Some analysts say they are impressed by the quality of the Bank’s loan portfolio. CEO Rune Bjerke describes DnB NOR as a shining star among European banks.

“We are one of the few banks in Europe which has delivered a surplus throughout the whole financial crisis.”

Rune Bjerke


I guess it’s fair to say that the media, with a little help from their friends among the stock brokers, make the Q 4 report from DnB NOR look even more cute than the Bank’s CEO Rune Bjerke does. After all, he does give a vague warning that there could be trouble ahead.

And the investors at Oslo Stock Exchange seems to have caught the message, sending the share price down 0,1% on a day when most stocks gained and the benchmark index rose nearly 1%.

What made the headlines was the net result of NOK 2 689 million. The consensus estimate was 1 999 million.

But the biggest surprise was the purposed dividend of NOK 1,75. No one saw that coming. (Maybe except for Mr, Bjerke’s good buddy, prime minister Jens Stoltenberg, who also represents the biggest group of shareholder with 34 percent; the Norwegian state).

The better-then-expected result is said to be a result of lower-than-expected write downs.

Some analysts have made remarks on the good quality of the Bank’s loan portfolio.

So, let’s have a look at the portfolio.

Less loans = Less Losses

It looks like this:

According to the report net lending has been reduced from NOK 1 187.7 million as of 31th of December 2008 to 1 115.7 at 31th of December 2009.

And the quality?

What this figure shows is that the amount of low-risk loans has decreased during 2009, and the amount of high-risk loans has increased.

Loans of the highest risk class (the non-performing and impaired commitments) has increase by almost 60% in 2009.

A Floating Portfolio

DnB NOR’s biggest trouble at the moment is their daughter bank DnB NORD who is regisered in Denmark but operates mainly in the Baltic countries and in Poland.

At year-end 2009, DnB NORD was the third largest bank in Lithuania and number four in Latvia, measured by total assets. In Estonia, the bank was number five in terms of total lending.

DnB NOR have estimated the total losses – including the Baltic write downs   – to be between NOK 8 and 10 billion in 2009.

The Q4 reports shows a total loss of NOK 7,7 billion.  4,289 related to DnB NORD.

The funny thing is; the write down ratio in Latvia, Lithuania and Poland has more than doubled over the year – collective write downs is up from NOK 410 million to NOK 827 million (up from 782 million in Q3).

The main reason for the lower-than-expected write downs at DnB NORD is a massive decrease in the banks loan portfolio.

Measured in Norwegian kroner – 31,1%. Measured in Euro – 18,9%.

So, have they put a full stop to lending in the Baltic countries?

Of course not – they just moved the loans.

“Measured in NOK, lending volumes declined by 31.1 per cent from end-December 2008 to end-December 2009. The decrease in other units was partly due to transferral of a portfolio of loans in Denmark and Finland, amounting to NOK 7.6 billion, to DnB NOR at end-2009,” DnB NOR mention in a footnote.

Q3 Adjusted

In addition the Norwegian main bank have adjusted their Q3 figures related to Latvia.

The lending volume for Latvia is changed from NOK 4 081 million per 31th. of September 2009 to 2 783 million at 31th of December.

The percentage of  net non-performing and impaired commitments is reduced from 20,4% to 13,9%.

Well, everything helps.

The Dr.Feelgood Method

It might seem as DnB NOR is trying to remove it’s problems from the region, and things are shaping up.

But that would be an illusion.

The figures suggest the opposite – they are bringing home the good stuff and leave the rest to be bailed out by the authorities. (Ultimately the tax payers).

What this picture tells us, is that the overall net lending volume is falling sharply, and that amount of “good” loans has been cut in half while the amount of “bad” loans has doubled.

I assume it’s unthinkable to see this an example moral hazard in practice?

Nordic Central Banks Agree On Baltic Bank Bailout

A Shining Star

“We are one of the few banks in Europe which has delivered a surplus throughout the whole financial crisis. It could also throughout 2009 because we have very skilled and dedicated employees who have been good bank crafts all parts of the business. The result means that we can start normalization of our dividend policy, “ chief executive at DnB NOR, Rune Bjerke, says in a statement.

The fact that one of the richest governments in the world owns 34% of the bank, might also have something to do with it.

Anyway – Mr. Bjerke is of the opinion that the worst is over for his  Baltic daughter bank, and he may be right.

“The Baltic States have experienced a serious economic cool-down over the past few quarters, but on a macro level there are some early indications of stabilization of the economies. DnB NORD expects the level of write-downs on loans to decrease somewhat in 2010, from a very high level in 2009,” the report states.

According to the Norwegian press, he is most worried about DnB NOR’s shipping portfolio.

“It is too early to assume that the danger is over, there are still major risks associated with lending to the shipping-related businesses. Although we see that parts of the industry, such as dry bulk and tanker market is getting better, there are still many unresolved issues within the container shipping sector, ” the CEO Rune Bjerke says to the Norwegian web site E24.

Looking at the charts, it’s easy to see why he’s worried about the shipping portfolio of totally NOK 150 billion.

To sum it up:

Pre-Tax Operating Profit: NOK 11 032 million  (2008: 12 170)

Profit after taxes: NOK 7 026 million  (2008: 8 918)

Earnings Per Share: NOK 6,43 (2008: 6,91)

Return on Equity: 10,6% (2008: 12,4%)

Write downs on loans and guarantees: 7 710 million (2008: 3 509)

Write down ratio, Norway: 38,78% (2008: 37,21%)

Write down ratio, International: 48,03% (2008: 31,54%)

Write down ratio, DnB NORD: 38,78% (2008: 37,93%)

Net profit: NOK 7 026 million (2008: 8 918)

Most analysts maintain their “BUY” recommendation on DnB NOR ASA.

Here’s the full Q4 report, with  supplementary information.

Here’s DnB NOR’s market statement.

Related bt the Econotwist:

“The Baltic Lab Rat”

“Not Grounded In Reality”

The Relative Reality

Baltic Loan Losses Could Double

More Billions Lost In The Baltics

East European banks needs $304bn

How Sweden sent Estonian economy into free fall

Baltic losses of Swedish banks at 3.7 billion dollar

Swedbank Reports Record Loss of SEK 10,5bn

Swedbank In Estonia: “Daylight Robbery”

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