Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — Q3 2013 Earnings Presentation
49 slides from Danske Bank A/S's earnings presentation, Oct 31, 2013
Slide 1: Financial results for Q3 2013
Financial results for Q3 2013 Thomas F. Borgen Chief Executive Officer Henrik Ramlau-Hansen Chief Financial Officer 31 October 2013
Slide 2: Agenda
Financial results for Q3 Q1 2013 Agenda Key messages on Q3 2013 and financial results 3 Update on strategy and execution 5 4 ROE target for 2015 and other financial targets 12 Business unit update and selected topics 15 Capital, liquidity and funding 23 Outlook for 2013 26 Q&A session 27 Appendix 28
Slide 3: Key messages on Q3 2013
Financial results for Q3 Q1 2013 Key messages on Q3 2013 Net profit & ROE DKK 1.5 bn for the quarter is unsatisfactory; ROE declined from 6.2% to 4.3% Income Core lines stable; strong improvement in insurance; large drop in trading income Impairments Impairments remained stable and low Capital Stron
Slide 4: Net profit: Solid improvement of 45% above 9M 2012
Financial results for Q3 Q1 2013 Net profit: Solid improvement of 45% above 9M 2012 Income statement & key figures (DKK m) Key points, 9M 2013 vs 9M 2012 9M 2013 9M 2012 Index Q3 2013 Q2 2013 Index • NII fell 3% owing to lower volume Net interest income 16,562 17,065 97 5,606 5,504 102 and lower dep
Slide 5: Our vision and mission are unchanged
Financial results for Q3 Q1 2013 Our vision and mission are unchanged VISION Recognised as the most trusted financial Customer Financial results partner satisfaction MISSION Setting new standards in financial Advisory Digitalisation Openness & services services Transparency 5
Slide 6: Strategy: Acceleration of execution
Financial results for Q3 Q1 2013 Strategy: Acceleration of execution Customer attention Simplicity Efficiency 360-degree review of accessibility Relief from administrative tasks Firm focus on costs and service level for customers for customer-facing employees Internal functions will be made
Slide 7: Our successes are the foundation for bringing the Bank forward
Financial results for Q3 Q1 2013 Our successes are the foundation for bringing the Bank forward Initiatives launched in 2013 More than 650,000 downloads of MobilePay since launch in Denmark in May 2013; Finland is next in line Customer Programme with 1.1 m customers registered in Denmark Onlin
Slide 8: Cost-savings programme: Accelerates savings through firm cost focus
Financial results for Q3 Q1 2013 Cost-savings programme: Accelerates savings through firm cost focus and FTE reductions in non-customer-facing functions Costs (DKK bn) Cost drivers and initiatives Restructuring of Ireland Q4 2013 Severance • Restructuring charges from Costs 1st wave discontinuing Pe
Slide 9: Ireland: Discontinuation of Personal Banking and Business Banking
Financial results for Q3 Q1 2013 Ireland: Discontinuation of Personal Banking and Business Banking Core: Breakdown of loan portfolio, Q3 2013* (DKK bn) Key points • Discontinuation of Personal Banking and Business Banking; existing customers will be moved to the Non- core unit for servicing and disc
Slide 10: Non-core Ireland: Status of divestments and new Non-core portfolio
Financial results for Q3 Q1 2013 Non-core Ireland: Status of divestments and new Non-core portfolio Property pipeline and sales (No. of properties) Key points Q113 Q213 Q313 • Sale of properties in Non-core unit is progressing well, and the pipeline of sales is increasing • During 9M 2013, a total o
Slide 11: SIFI: Key elements of political agreement in October 2013
Financial results for Q3 Q1 2013 SIFI: Key elements of political agreement in October 2013 Key elements Danske Bank’s total SIFI requirements, 2019 (% of RWA) Capital requirements CT1 SIFI requirement of 1% to 3% Total minimum requirement for SIFI banks of 11.5% to13.5% in 2019 CRD IV SIFI Pos
Slide 12: ROE target: 9% in 2015 on higher income, normalised trading
Financial results for Q3 Q1 2013 ROE target: 9% in 2015 on higher income, normalised trading and insurance, lower costs and much lower Non-core loss ROE drivers from 2013 to 2015 (%) ROE drivers and initiatives Income • New income initiatives, including 9M 2013 annualised 4.9 measures to expand sele
Slide 13: ROE target: Reduction of 2015 target from 12% to 9%
Financial results for Q3 Q1 2013 ROE target: Reduction of 2015 target from 12% to 9% owing to external factors ROE roadmap changes (%) Previous 2015 ROE target ROE above 12% Capital DKK 15 bn in higher average equity -1 Short-term rates Elimination of assumption of S-T rates of 2% -3 Management acti
Slide 14: Financial targets: Simplifying our 2015 targets, accelerating execution
Financial results for Q3 Q1 2013 Financial targets: Simplifying our 2015 targets, accelerating execution Year to be Status at 30 Target Previous ambition Comments achieved September 2013 9% Above 12% 2015 In progress after initiating Return on Equity 4.9% Above 12% Above 12% in 2015 Long-term additi
Slide 15: Personal Banking: Strong profit growth; positive impairment trend continues
Financial results for Q3 Q1 2013 Personal Banking: Strong profit growth; positive impairment trend continues Income statement & key figures (DKK m) Financial highlights for Q3 2013 Q3 2013 Q2 2013 Index • Profit before tax up 47%, and pre-tax ROE up 2.3 Net interest income 2,817 2,793 101 percentage
Slide 16: Business Banking: Increasing profit and stable impairments
Financial results for Q3 Q1 2013 Business Banking: Increasing profit and stable impairments Income statement & key figures (DKK m) Financial highlights for Q3 2013 Q3 2013 Q2 2013 Index • Profit before tax up 7% and pre-tax ROE up 1.1 Net interest income 2,252 2,191 103 percentage points to 11.5% Ne
Slide 17: Corporates & Institutions: Improvement in most income lines
Financial results for Q3 Q1 2013 Corporates & Institutions: Improvement in most income lines but lower trading income Income statement & key figures (DKK m) Financial highlights for Q3 2013 Q3 2013 Q2 2013 Index • Profit before tax down 52% and pre-tax ROE at 6.1% Net interest income 582 557 104 Net
Slide 18: Danske Capital: Profit up 7% and solid trend in AuM
Financial results for Q3 Q1 2013 Danske Capital: Profit up 7% and solid trend in AuM Income statement (DKK m) Financial highlights Q3 2013 Q2 2013 Index • Total income increased 3% because of higher margins Net interest income -12 -8 - in Q3 Net fee income 472 454 104 - portion from performance fees
Slide 19: Danica Pension: Improved income as a result of normalised market conditions
Financial results for Q3 Q1 2013 Danica Pension: Improved income as a result of normalised market conditions Income statement (DKK m) Financial highlights Q3 2013 Q2 2013 Index • Net income from insurance increased in Q3 owing to a Premiums (bn) 5,968 6,372 94 higher investment result Danica Traditi
Slide 20: Expenses: Firm cost control and seasonality led to drop of DKK 468 million
Financial results for Q3 Q1 2013 Expenses: Firm cost control and seasonality led to drop of DKK 468 million Total expenses (DKK m) Quarterly change in expenses (DKK m) Adjustments* Adjusted expenses Q2 13 6,013 6,591 5,905 6,013 5,680 Staff cost 5,545 128 incl. bonuses Consultants 69 Holiday 5,913 3
Slide 21: RD: Significant reduction of FlexLån F1 and F2 since 2011
Financial results for Q3 Q1 2013 RD: Significant reduction of FlexLån® F1 and F2 since 2011 and more to come with our new mortgage product FlexKort® Loan portfolio, FlexLån® F1 and F2 (DKK bn) Status on FlexKort® and Q4 2013 refinancing • RD launched a new floating rate mortgage based on the DKK 63
Slide 22: C&I: Trading income affected by high market volatility
Financial results for Q3 Q1 2013 C&I: Trading income affected by continuation of high market volatility in July and August Trading income (DKK m) Trading income split, Q313 (%) Market making Customer-driven Repos & derivatives Bonds & DCM 12 32 1,206 650 441 397 41 766 844 931 903 737 14 -66 Equitie
Slide 23: Capital: Solid ratios after partial implementation of IRB orders
Financial results for Q3 Q1 2013 Capital: Solid ratios after partial implementation of IRB orders Capital ratios, under CRD/Basel II (%) Capital drivers Total capital • Core tier 1 declined 1.4 percentage points because of Tier 1 (incl state hybrid) implementation of an IRB order regarding higher ri
Slide 24: RWA: Significant effect from implementation of IRB order
Financial results for Q3 Q1 2013 RWA: Significant effect on risk-weighted assets from implementation of IRB order Risk-weighted assets (DKK bn) Capital drivers • 13 percentage point increase in corporate risk weights from implementation of IRB order regarding corporate exposure Q412 819 • RWA effect
Slide 25: Liquidity and funding: Strong, stable liquidity position
Financial results for Q3 Q1 2013 Liquidity and funding: Strong, stable liquidity position; CDS spread is closing the gap to peers 5Y CDS spread, July - Oct 2013 (bp) Key points, end-Q3 13 Danske Bank Swedbank SEB • 12-month liquidity of more than DKK 240 bn 150 • Liquidity buffer of DKK 436 bn, with
Slide 26: Outlook for 2013: Full-year guidance of DKK 6-8 bn
Financial results for Q3 Q1 2013 Outlook for 2013: Full-year guidance of DKK 6-8 bn Macro Economic growth remains low NII NII expected to be below the 2012 level (DKK 22.8 bn) Fees Management initiatives expected to lift fee income above the 2012 level (DKK 8.9 bn) Trading and insurance Trading and
Slide 27: Q&A session
Financial results for Q3 Q1 2013 Q&A session Press 1 to ask a question Press “#” to cancel Press “Ask a question” in your webcast player www.danskebank.com/ir 27
Slide 28: Appendix
Financial results for Q3 Q1 2013 Appendix Income items and margin developments 29 Expenses 34 Impairments 35 Tax 38 Macro 39 Credit 41 Funding and rating 44 46 28
Slide 29: NII: Positive development from deposit margins and one extra day
Financial results for Q3 Q1 2013 NII: Positive development from deposit margins and one extra day Quarterly NII (DKK m) Quarterly change in NII (DKK m) Q2 13 5,504 5,698 5,713 5,452 5,504 5,606 Lending effect 58 Q312 Q412 Q113 Q213 Q313 Deposit effect 97 NII from RD, ex lending margins (DKK m) 2012
Slide 30: NII: Margin trends and short-term rates
Financial results for Q3 Q1 2013 NII: Margin trends and short-term rates Margins at Personal Banking* (%) Margins at C&I* (%) Q113 Q213 Q313 Q113 Q213 Q313 1.10 1.10 1.09 1.08 1.05 1.10 0.59 0.61 0.69 0.44 0.51 0.56 Lending Deposits Lending Deposits Margins at Business Banking* (%) Nordic short-term
Slide 31: Fees: Higher fee income in Q3 driven by C&I and Danske Capital
Financial results for Q3 Q1 2013 Fees: Higher fee income in Q3 driven by C&I and Danske Capital Quarterly net fee income (DKK m) Fee income drivers • Fees rose 9% from 9M 2012 to 2,671 9M 2013 from initiatives across business units • From Q2 to Q3, fee income was 2,265 2,278 up 3% from increased fee
Slide 32: Insurance: Solid investment result allows booking of risk allowance
Financial results for Q3 Q1 2013 Insurance: Solid investment result allows for booking of risk allowance for one group and part risk allowance for two groups Insurance income (DKK m) Booked income from shadow account 925 514 403 341 479 411 -346 Q312 Q412 Q113 Q213 Q313 32
Slide 33: Danica Pension's profit model
Financial results for Q3 Q1 2013 Danica Pension’s profit model Profit model Condition/ sensitivity Q1-Q3 2013 DKK m 1 Danica Traditionel. Mainly risk Can be booked only if investment Risk allowance 984 allowance 70 bp p.a. of return is high enough and if no use of Other -86 + technical provisions (D
Slide 34: Expenses: Adjusted expenses flat for 9M 2013
Financial results for Q3 Q1 2013 Expenses: Adjusted expenses flat for 9M 2013 compared to 9M 2012, while branch and FTE reductions continue Expenses (DKK m) FTEs, end of period (000s) 9M 2013 9M 2012 Index Q3 2013 Q2 2013 Index Expenses 17,463 18,051 97 5,545 6,013 92 -3% Revaluation of domicile pro
Slide 35: Impairments: Generally stable development from Q2 to Q3
Financial results for Q3 Q1 2013 Impairments: Generally stable development from Q2 to Q3 with a small increase in C&I Impairments by business unit (DKK bn) Impairment drivers Non-core • Impairments in Business Banking C&I stable and small decline in Personal Business Banking Personal • Increase of D
Slide 36: Impairments: Loan loss ratio of 20 bp for core activities
Financial results for Q3 Q1 2013 Impairments: Loan loss ratio of 20 bp for core activities and 24 bp for entire Group Individual loan impairment charges, ex Baltics (DKK bn) Loan loss ratio, annualised (bp) New Increased Reversals Q313 Q213 2012 3.5 Personal 21 23 31 2.7 Banking 2.1 Business 25 25 5
Slide 37: Impairments: Reduced to pre–financial crisis level
Financial results for Q3 Q1 2013 Impairments: Reduced to pre–financial crisis level Impairments, 2008 to Q3 13 (DKK bn/bp) Change in allowance account** (DKK m) Impairments Loan loss ratio* (rhs) 10 173 180 Allowance, end-2007 4,900 9 150 8 Gross impairments 125,698 7 120 6 99 5 90 Reversals 35,898
Slide 38: Tax: Actual tax rate declining owing to lower losses in Ireland
Financial results for Q3 Q1 2013 Tax: Actual tax rate declining owing to lower losses in Ireland Actual and adjusted tax rates (DKK m) Tax drivers Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 • Tax on the profit for the third quarter amounted to DKK 768 m, Profit before tax 2,304 2,679 2,215 2,256 2,220 or 33% of
Slide 39: Macro: Trends in the Nordics
Financial results for Q3 Q1 2013 Macro: Trends in the Nordics Bankruptcies (index 1996 = 100) Rating upgrades,* 12-month moving average (%) Denmark Finland Norway Sweden Business Banking C&I (incl. Financials) 400 100 300 Upgrades > downgrades 200 50 100 Downgrades > upgrades 0 1996 2000 2004 2008 2
Slide 40: Denmark: Affordability remains good as house prices stabilise
Financial results for Q3 Q1 2013 Denmark: Affordability remains good as house prices stabilise Danish house prices by region (%) Affordability index, quarterly data from1988–2012 Region Prices Change Change in q/q Preview* Fixed rate Mixed rate Average peaked since peak Q2 2013 Q3 13 140 Copenhagen
Slide 41: Realkredit Danmark: Portfolio overview
Financial results for Q3 Q1 2013 Realkredit Danmark: Portfolio overview Portfolio facts, Realkredit Danmark, end-Q3 13 Loans by LTV and rating, Realkredit Danmark, end-03 13 (%) • Approx. 390,000 loans (residential and commercial) Rating 1-3 4-7 8-11 Total Public • 2,521 loans in 3- and 6-month arre
Slide 42: Personal Banking Denmark: Limited exposure to high-LTV loans
Financial results for Q3 Q1 2013 Personal Banking Denmark: Limited exposure to high-LTV loans that start to amortise before end-2018 at end-Q2 2013 Credit exposure to households with an IO mortgage (DKK bn) Breakdown of loans with high LTV (DKK bn) Danske Prioritet (SDO mortgage) Credit exposure wit
Slide 43: Credit exposure: Limited agriculture and shipping exposure
Financial results for Q3 Q1 2013 Credit exposure: Limited agriculture and shipping exposure Agriculture, breakdown of loan portfolio, Q3 13 (%) Shipping, breakdown of loan portfolio, Q3 13 (%) Other Car carrier Other RO-RO Chemical tanker 10 7 15 Product tanker 2 7 Mixed operations 26 Agriculture 5
Slide 44: Non-core Ireland: Breakdown of loan portfolio
Financial results for Q3 Q1 2013 Non-core Ireland: Breakdown of loan portfolio Individual impairments Value of collateral CRE (DKK bn) Personal mortgages (DKK bn) Other* (DKK bn) Total (DKK bn) 11.5 7.8 7.3 26.6 10.0 5.8 18.7 5.9 3.2 10.4 2.9 1.2 4.1 2.5 8.3 1.7 Gross Impaired Gross Impaired Gross I
Slide 45: Ireland: Price trends and arrears
Financial results for Q3 Q1 2013 Ireland: Price trends and arrears Irish house price indices (index 100 = January 2005) Fall from peak (%) CSO index,* houses Residential real estate Internal price index for houses in Dublin Internal price index for houses outside Dublin Dublin 60 140 Non-Dublin 65 1
Slide 46: Funding: Structure and sources
Financial results for Q3 Q1 2013 Funding: Structure and sources Loan portfolio and long-term funding, Q3 13 (DKK bn) Funding sources (%) Q3 2012 Q3 2013 1,791 109 Senior debt 44 1,579 Bank loans 507 786 Deposits 20 Bank mortgages 342 166 Covered bonds 10 8 8 6 3 1 RD mortgages 730 730 Issued RD bond
Slide 47: Three different methods of rating banks
Financial results for Q3 Q1 2013 Three different methods of rating banks Rating methodology Danske Bank’s rating Anchor Extraord. Add. Issuer + 1 + 2 + 3 + 4 = SACP = + = SACP* Support factors Rating BBB+ +1 0 -1 0 BBB+ +2 -1 A- (Stable) 1=Business Position 2=Capital & Earnings 3=Risk Position 4=Fun
Slide 48: Recommendations from the Rangvid committee report
Financial results for Q3 Q1 2013 Recommendations from the “Rangvid committee” report Recommendations for large financial institutions “The committee therefore recommends that banks using internal models should also disclose what the regulatory capital requirement would have been using the IRB models
Slide 49: Disclaimer
Financial results for Q3 Q1 2013 Disclaimer Important Notice This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Danske Bank A/S in any jurisdiction, including the United State