Quant Corner: Danske Bank raised to positive, DNB goes to neutral
Danske Bank performed relatively well last week and today Saxo Bank's Quant Model raises Denmark's largest bank to positive. It replaces DNB, Norway's largest bank, which moves to neutral instead.
Danske Bank turning a corner
Danske Bank had good second quarter results which showed strong growth and activity in its markets division. Income from securities trading has become such a dominant component at Danske Bank that the Danish financial regulator issued reprimand over its lack of transparent risk controls concerning its VaR calculations, among other things. This is naturally a hot topic considering that the London Whale at JPMorgan Chase recently sparked renewed focus on risk management in major banks' trading securities divisions.
Despite good Q2 results, which were rewarded by the market, sell-side analysts have hesitated in revising up their return on Danske Bank's equity forecasts. As a result, the fundamental value of Danske Bank remains unchanged from the level at the time of its last quarterly earnings. Meanwhile, relative momentum has strengthened as investors are betting on more good results from the bank as the economy improves and the turnaround increases return on capital.
There are no changes to the banks in the Quant Model that have negative views. Commerzbank and Royal Bank of Scotland remain the model's two top negative picks.
It was another overall negative week when comparing our positive versus negative views. The long/short spread before costs is minus 1.2 percent. Commerzbank was again the best performing bank despite the model's negative view. However, our trade idea on Commerzbank from last week is still valid and technically it seems that momentum is beginning to stop.