Danske Bank, a spectacular financial resurrection despite past scandals

After years of turbulence marked by the $200 billion money-laundering scandal, Danske Bank is making a stunning comeback. Buoyed by record results for 2024 and exemplary cost management, the Scandinavian bank could announce a dividend increase and further share buybacks. Is it too late to play the rebound, or is there still potential for investors?

There was once something rotten in the Kingdom of Denmark. Singularly battered by the subprime crisis - before the house of cards collapsed, Danske was making almost 50% pre-tax profit on these rotten products - the bank managed to bounce back a few years later thanks to the money of Russian oligarchs.

But you can't play with fire without getting burned. In 2018, the scandal broke. Like many of its Scandinavian peers, Danske was at the center of a vast fraudulent scheme, accused of having laundered no less than $200 billion of Russian money via its Estonian subsidiary, among others. The director of this subsidiary paid with his life, officially by suicide.

Subsequently, some would argue that Danske came out of the affair rather well. Condemned by the US Department of Justice, the bank had to pay $2 billion in penalties - less than a year's pre-tax profits. At the time, MarketScreener judged the penalty to be exceptionally lenient, and the news was welcomed by investors, with Danske shares gaining 11% in half a day.

Tonight, the publication of the financial statements for fiscal year 2024 should confirm the resurrection of the Danish group - this time on a sounder footing. Buoyed by rising interest rates, buoyant Scandinavian economies and an extremely low level of provisions, Danske should generate the best pre-tax profit in its history. A dividend increase is likely to follow the news.

The most spectacular development in recent times has been the rapid reduction in Danske's cost structure. Once higher than the average for other European banks, it is now in the top half of the rankings. The same is true of capitalization ratios and profitability, which are in the top bracket among its European peers.

Danske's return to favor had already been acknowledged by the financial markets. Last year, the resumption of its dividend propelled its valuation to its upper limit of one times shareholders' equity - better than BNP. It now seems too late to play catch-up; however, announcements of dividend increases and share buy-backs could still push the share price significantly higher.