Danske Bank A/S plans to target staff-heavy operations such as personal banking for its 2,000 job cuts while divisions with more of a market focus are likely to be spared, Chief Executive Officer Eivind Kolding said.
“The areas with the most employees will be affected the most,” Kolding said in an interview in Copenhagen yesterday. “So primarily our personal banking with the high number of branches are seeing more effects of this than, for instance, our market operations, which are less people demanding.”
Kolding, who took over as CEO from Peter Straarup in February, last month told investors he’s bringing forward planned job cuts by one year to 2013 as Denmark’s biggest bank fights to compete with Nordic rivals such as Nordea Bank AB. (NDA) The lender’s shares have outperformed a benchmark of European peers this year and Citigroup Inc. this week told investors to buy the stock on bets its earnings potential may be underestimated.
“If you take a three-year view, the organization has already been reduced by 10 percent and now it is another 10 percent in terms of staffing,” Kolding said. “Of course, the effect is normally with a one-year delay so what we reduce this year, we will only benefit from next year. I’m quite comfortable that we will meet our targets.”
Danske said May 10 its first-quarter net income rose 10 percent to 783 million kroner ($131 million) after it booked higher income from lending and reduced costs. The bank is also winding down its Irish commercial and investment property portfolio, valued at 35 billion kroner, as it seeks to cauterize the loss-making unit. Danske would sell its Irish business if it could, Kolding said.
“Of course, one would say, ‘Why not get rid of the unhealthy loan book in Ireland?’ Yeah, excellent idea,” he said. “Who is going to take it? You also have to be realistic. If you have a poor-performing asset, it is not necessarily the asset you can shed.”
Kolding, who plans to rebrand the Irish business with the Danske Bank name by the end of the year, continues to face a number of hurdles in some of the lender’s main markets. Ireland is still relying on an international bailout to stay afloat while Denmark’s economy is struggling to emerge from a housing slump that’s sent prices tumbling 25 percent since a 2007 peak.
The central bank, which uses policy to defend Denmark’s krone peg to the euro, has cut rates to record lows and warned borrowing costs can drop below zero to keep speculators at bay. The bank has responded to a capital influx as investors fleeing the euro area’s crisis reward Denmark’s fiscal discipline.
Record-low rates are “another challenge,” Kolding said. “We need to work more on our margins to protect the income we otherwise would have. Interest rates came down and we raised our margins so you could say customers are paying the same, they don’t get the benefit of the extra low interest rates, but they are low to begin with.”
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