* Q4 pretax profit 615 bln DKK vs 1.03 bln forecast

* Q4 loan impairments 4.79 bln DKK vs 3.55 bln DKK forecast

* Says 2012 profit will stay at low level

* Says loan writedowns will remain high

* Shares rise 3.5 percent, outperforming wider market

By Mette Fraende

COPENHAGEN, Feb 9 (Reuters) – Danske Bank
warned on Thursday that 2012 earnings would remain low and loan
writedowns high after fourth-quarter pretax profits dropped 57
percent, below forecasts, hit by a spike in loan impairments.

The bank said it saw limited potential for economic growth
in Europe and loan losses in Denmark had been bigger than
expected and market conditions in Ireland and Northern Ireland,
where it also has operations, remained difficult.

Danske Bank shares rose after what was seen as a prudent
outlook by analysts, who also cited markets hopes that the
lender can bring costs down and earnings up under its new
management.

“They are being very cautious,” Sydbank analyst Bjorn
Schwarz said. “Income is on the right track, expenses are on the
right track, and recent economic indicators have shown that it
should be possible to turn around the rise in loan losses this
year.”

“Also, investors believe in the new management team, believe
that the bank can improve profitability,” he said, referring to
incoming Chief Executive Eivind Kolding who will replace Peter
Straarup who retires next week after 43 years with the Group, 14
as CEO.

The bank said in November it would cut expenses by about 2
billion crowns from 2012-14, axing 2,000 jobs in the process,
after quarterly profit was wiped out by a drop in trading
income, becoming the latest Nordic lender to combat slowing
revenue growth and higher funding costs.

“We believe that the group has the right foundation to
improve its earnings,” Danske Bank said in the statement.

Danske Bank’s stock was trading up 3.9 percent at 88.30
crowns at 1011 GMT, outperforming the Nordic banking sector
index which was up 1.8 percent, and a weaker Copenhagen
bourse’s bluechip index.

The lender’s pretax profits dropped to 615 million Danish
crowns ($109.67 million) in the fourth quarter from 1.45 billion
in the same period a year earlier, missing an average 1.03
billion crowns forecast in a Reuters poll of analysts.

“The second half of 2011 was characterised by considerable
financial turbulence and economic downturn,” Straarup said in
statement.

“Our results are therefore lower than expected at the
beginning of the year,” said Straarup.

Net interest income was steady in the fourth quarter at 6.18
billion crowns against 6.07 billion a year earlier, driven by
higher lending rates, in line with 6.17 billion forecast by
analysts.

Net trading income more than doubled from a year ago to 1.64
billion crowns, slightly above a 1.52 billion crowns forecast.

LOAN LOSSES SPIKE

The Nordic region’s second-biggest lender said
fourth-quarter loan impairment charges rose 61 percent from a
year earlier to 4.79 billion crowns, mainly due to adverse
trends in agriculture and shipping.

The loan writedowns exceeded analysts’ average 3.55 billion
crowns estimate.

“The really big disappointment is the loan losses which were
about 1 billion crowns higher than expected,” Nordea said in a
note to clients.

For 2011 as a whole, loan impairments related mainly to the
commercial property segments in Ireland and Northern Ireland and
to the agricultural, commercial property and personal customer
segments in Denmark, Danske Bank said.

Danske Bank owns National Irish Bank in the Republic of
Ireland and Northern Bank in Northern Ireland.

“Earnings look better than expected … but the level of
writedowns ruins the picture,” said Alm. Brand analyst Stig
Nymann.

“It is disappointing that the Irish writedowns rose in the
fourth quarter since they fell in the third quarter compared
with the first and second quarter,” Nymann said.

Two weeks ago, Nordea, the Nordic region’s biggest
bank, posted better-than-expected fourth-quarter operating
profits but net loan losses were higher than forecast,
particularly in Denmark.

Danske Bank said it would not propose to pay a dividend out
of 2011 earnings.