A valuation of Danske Bank: With a focus on how the risk-taking of the bank impacts its valuation

Mathias Holmstrøm

Student thesis: Master thesis


Danske Bank was in severe financial problems during the 2007-2009 crisis as it suffered from poor earnings and a lack of liquidity. While the bank has rebounded somewhat after the crisis, it’s still a much less profitable business than Nordea. In this thesis, the author attempts to gain an understanding of the causes of Danske Bank’s lack of profitability, while maintaining a strong focus on the link between risk-taking and the value of the bank. Through extensive empirical analysis, relationships between certain macroeconomic variables, the risk-taking of the bank and how they impact the earnings have been discovered. Based on the premise that the historical relationships will be maintained in the future, a valuation-model has been created. Danske Bank is analyzed and valued based on two different scenarios, and the bank can also choose between two types of strategies. In the first scenario, the economic growth rate is stable, while the economy in the 2nd scenario booms initially followed by a significant bust later on. In terms of strategies, it is assumed that Danske Bank can opt between a high-risk and a low-risk strategy. It was found that the scenario with a stable economic growth rate was by far the most attractive one for Danske Bank, regardless of which strategy was chosen. But perhaps more surprisingly, it was also discovered that the value of the bank was higher in both scenarios when it opted for the high-risk strategy. That’s mainly a consequence of the model-assumption that the Government would always bail out Danske Bank if it lacked liquidity or capital. However, without any type of intervention from the Danish Government, Danske Bank would likely go bankrupt with a high risk-taking under the boom-and-bust economy. In terms of the implications for investors, it was concluded that Danske Bank was slightly undervalued. If economic growth rate stabilizes at a modest rate and interest-rates increases, chances are that investors could get a decent return on their Investment.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2016
Number of pages101