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Tuesday, May 21, 2024

DNB, Hydro profit amidst concerns

Not all of Norway’s companies are reporting dismal profits this week, as a flood of first-quarter results were being announced. Norway’s biggest bank, DNB, logged billions and exceeded all expectations, even as its own analysts predicted that housing prices are about to fall. Industrial firm Norsk Hydro, meanwhile, logged huge profit gains.

DNB towers over its competitors, dominates the market in Norway and announced another quarter with strong profits. PHOTO:
DNB towers over its competitors, dominates the market in Norway and announced another quarter with strong profits. It recently moved into these new headquarters in Oslo PHOTO:

“There’s clearly still good growth in the economy,” DNB’s boss, Rune Bjerke, said while releasing his bank’s results for the first three months of the year. DNB reported pre-tax profits of NOK 8.7 billion, up from NOK 7.9 billion last year.

DNB’s results also exceeded  the expectations of analysts by a good margin, reported TDN Finans, which had gathered analysts’ predictions and came up with an average expectation of NOK 8.4 billion.

The solid results were tied to low loan losses, the overall strength of the Norwegian economy despite the recent downturn in the oil and gas industry, and the positive effects of a weaker Norwegian krone. Loan volume increased by 8.6 percent in a climate of record low interest rates that kept real estate prices high and rising.

Analysts at DNB Markets, however, now predict that housing prices are topping out and that they’ll fall by 4.5 percent over the next three years. Prices this year are expected to jump by another 5.7 percent, but the analysts think the market will turn towards the end of the year.

The shift is tied to rising unemployment, a possible future rise in interest rates and government programs aimed at cooling off the real estate market, which has worried state finance officials and even real estate brokers. Finance Minister Siv Jensen has warned that the ongoing rise in housing prices is not sustainable.

DNB thinks measures like higher capital demands and stricter lending criteria will lower price growth, as will lower wage growth. Few labour groups in Norway are receiving raises this year, while jobs losses in the oil sector are already having ripple effects throughout the economy.

Svein Richard Brandtzæg has changed his mind and doesn't want to take over as chief executive of fertilizer firm Yara after all, just days after Yara's merger talks with a US rival were publicly confirmed. Brandtzæg will stay on as CEO at Norsk Hydro. PHOTO: Norsk Hydro
Svein Richard Brandtzæg, CEO at Norsk Hydro, claimed the company can’t rest on its laurels even after reporting record profits. PHOTO: Norsk Hydro

At Norsk Hydro, where CEO Svein Richard Brandtzæg announced record profits (external link) this week, he claimed no one could rest on the company’s good performance. Despite higher sales and positive effects from the weaker Norwegian kroner, which priced Hydro’s aluminum more competitively, Brandtzæg cautioned that competition from China poses a threat. If Chinese exports of aluminum continue to rise, they’ll put pressure on prices.

“There is no reason to relax and enjoy the ride,” Brandtzæg after announcing more than a doubling of pre-tax profits and a tripling of operating results.

As reported earlier, Hydro has absolutely benefited from the renewed strength of the US dollar against the krone, along with lower energy costs. Hydro sells its products in dollars and logs its costs in the krone, making for an attractive currency exchange situation. Without that, Brandtzæg noted, “we would have had weaker results.” The dollar was sliding this week, meanwhile, another reason why Brandtzæg claims his company can’t rest on first-quarter gains. Berglund



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