DNB may have made provision for losses of NOK 10 billion in the first half of the year, which would then be a clear new negative record.
Norway’s by far the largest bank on Monday presents the figures for the first half of the year. DNB thus launches quarterly results among the truly large stock exchange companies together with Orkla.
In recent weeks, DNB has not released any news of significance that indicates something about what lies ahead. The bank announced in early April that the board has postponed the decision to pay a dividend for 2019.
The state is the biggest loser here with direct ownership of 34 percent and is missing out on several dividend billions.
If we look at one average of analysts’ expectations, there is still a good profit in DNB, the times considered. But the expected loss provisions are at a very high level and pull down the results in a completely different way than in more normal times.
Average expectations indicate that DNB earned NOK 2.98 billion in pre-tax profits in the previous quarter, but analyst estimates range from a low of NOK 1.13 billion to more than NOK 4.5 billion. This is an unusually large gap for one quarter, which can largely be attributed to uncertain loss provisions.
We are not talking about real loan losses for DNB, most of which are provisions for things that may emerge. Provisions can be reversed if the economy and the business sector fare better than expected.
The DNB analysts were taken to bed by the large provisions in the first quarter. When the group put in NOK 5.8 billion, which was historically high, and more than even the most pessimistic analyst had imagined.
The corona crisis was still fresh, and the uncertainty about the Norwegian economy was unusually high. In retrospect, it has been found that the recovery of the economy has gone faster than expected. True, growth was disappointingly low in May, but the retrieval speaks for lower provisions going forward.
But if we look at analysts’ expectations, new loan provisions in the second quarter could be just over NOK 3.6 billion. So we are talking about 9.4 billion for the first half of the year.
If the biggest analyst pessimist gets it right, DNB had to spend close to 4.9 billion in the previous quarter. Then we have made over 10 billion kroner in loss provisions in the first six months of the year, which in particular is a new negative record.
New loss record
Looking at the losses during the financial crisis in 2009, the loss provisions for the DNB group amounted to 7.7 billion for the whole year. DNB was probably smaller at that time, lending was lower, but we may have surpassed the 2009 losses in NOK by a solid margin when the results are published on Monday morning.
And the DNB Group took only NOK 2.2 billion in loan loss provisions for the entire 2019, which shows the enormous crisis and uncertainty the corona crisis has created. In the first quarter of this year, the oil and offshore industry alone accounted for almost half of the provisions.
In connection with the first quarter figures, DNB wrote that the corona virus and the fall in oil prices have given the Norwegian economy a double dose of concern. Infection protection measures in Norway and internationally affect both private individuals, the business community and banks. These measures have been partially reversed since April, most recently through the lifting of travel restrictions on Friday.
What about the price trend for the DNB share? Yes, as the graph below shows, the performance has not been particularly good and worse in the past year than the development of the main index.
Like other companies, DNB received a boost after the stock market reversed in March, but the DNB share has then dropped 13 percent. So far this year, the stock is down 21 percent (see graph below).
The DNB rate on Friday ended up 1.7 per cent to NOK 129.60. according to Finansavisen the brokerage ABG Sundal Collier has downgraded the price target for the DNB share over the twelve month term to NOK 126 from the previous NOK 130.
ABG reiterates the DNB sales recommendation, so there is no reason for investors to buy DNB shares now.
– We believe that 2020 is a lost year for DNB in terms of return on equity. We believe that the bank will still make losses early, so the bank starts on blank sheets into 2021 and 2022, among other things in an update from the brokerage.