DNB "NII recovery expected in Q3 despite competition." (Sell) Ekblom

Research evidence excerpt

DNB "NII recovery expected in Q3 despite competition." (Sell) Ekblom

)

Costs were in-line, driven by outperformance on IT and other costs (within mgmt.

From To % ch Cons.

control), with higher than expected staff costs (not as controllable) (UBSe). While we do 12/26E 26.28 26.32 0 26.67

not make significant changes to our cost forecasts, we believe there is increased risk of 12/27E 27.84 27.66 -1 28.32

higher costs or sacrificing investment spend to meet current cost targets. DNB’s increase 12/28E 27.97 27.80 -1 29.29

in its inflation forecasts, the continued NIM pressure, and weak volume growth are

incorporated in our estimates, widening our deviation from cons. EPS. Johan Ekblom, CFA

Analyst

johan.ekblom@ubs.com

Competition remains a key concern for NII

+44-20-7568 3580

Despite a weak NII in Q2, mgmt. noted the positive tailwinds into Q3 for NII, with better

Joshua Humphreysvolume growth towards the end of the quarter raising the average volumes for Q3 and

Associate Analyst

repricing effects. However, it was again reiterated that the competitive environment joshua.humphreys@ubs.com

remains intense, with the intended benefits of higher fees at the expense of lower +44-20-7567 0385

lending income not fully visible (fees in-line with cons. despite the Q2 NII miss). With the

rate outlook in Norway ultimately resulting in lower rates than current, a highly

competitive environment, and the Norwegian Competition Authority investigating the

banking sector, concerns around NIM outlook remain well founded, we believe.

Valuation: Shares trade at 1.7x TNAV for a 15% sustainable ROTE.

DNB shares trade at a premium on an absolute basis but slightly cheaper relative to

sector (both vs. own history) despite lower earnings growth than historically. We believe