Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — Q3 2012 Earnings Presentation
62 slides from Danske Bank A/S's earnings presentation, Oct 30, 2012
Slide 1: Financial results for Q3 2012 – New strategy
CONFERENCE CALL Financial results for Q3 2012 New strategy Eivind Kolding CEO & Chairman of the Executive Board Henrik Ramlau-Hansen CFO & Member of the Executive Board 30 October 2012
Slide 2: Agenda
Financial results for Q3 2012 New strategy Agenda New strategy Financial results Capital, funding and liquidity Outlook for 2012 Q&A session Appendix: Trends in focus areas & business units 2
Slide 3: New Standards for Danske Bank
Financial results for Q3 2012 New strategy New Standards for Danske Bank 33
Slide 4: We are operating in a 'New Normal'
Financial results for Q3 2012 New strategy We are operating in a ‘New Normal’ New • Normal Customer behaviour Lack of trust Complexity Regulations Economic uncertainty 44
Slide 5: Recognised as the most trusted financial partner
Financial results for Q3 2012 New strategy New vision for 2015 Recognised as the most trusted financial partner 55
Slide 6: Nordic relationship bank with expertise
Financial results for Q3 2012 New strategy Nordic relationship bank with expertise Strategic units Finland • Danica • Danske Capital • Nordania Norway Sweden Estonia Latvia Denmark Lithuania Northern Ireland Ireland 6
Slide 7: Setting new standards in financial services
Financial results for Q3 2012 New strategy New mission Setting new standards in financial services 77
Slide 8: New Standards
Financial results for Q3 2012 New strategy New Standards Openness & Customer focus Advisory services Digitalisation responsibility 88
Slide 9: The most trusted financial partner
Financial results for Q3 2012 New strategy The most trusted financial partner Customer satisfaction 2015 Financial results 2015 We want to be in the top two in We want to be in the top three customer satisfaction among our among Nordic peers measured by prioritised customer segments return on equity
Slide 10: Financial targets
Financial results for Q3 2012 New strategy Financial targets Profitability Return on equity: Above12% in 2015 Capital & liquidity Core tier 1 ratio: 13% in 2013 Total capital ratio: 17% in 2013 Liquidity: Meet EU 2015 LCR ratio requirement already at end-2012 Ratings Ratings: Improve ratings at leas
Slide 11: Return on equity above 12% in 2015
Financial results for Q3 2012 New strategy Return on equity above 12% in 2015 - assuming more normalised market conditions Return on equity (ROE) after tax (%) 9M 2012 annualised 3.8% Own initiatives 4-6%-points Declining loan losses 5-6%-points Rising interest rates 4-5%-points Regulation, inflatio
Slide 12: One bank – one brand
Financial results for Q3 2012 New strategy One bank – one brand 12
Slide 13: New Normal
Financial results for Q3 2012 New strategy New Normal 13 13
Slide 14: Financial results: 9M 2012 shows strong improvement
Financial results for Q3 2012 New strategy Financial results: 9M 2012 shows strong improvement, Q3 showed stable development Income statement & key figures (DKK m) Key points for the first nine months 9M 2012 9M 2011 Index Q3 2012 Q2 2012 Index • Strong improvement in net profit Net interest income
Slide 15: Net interest income: headwind from lower short-term rates neutralised
Financial results for Q3 2012 New strategy Net interest income: Headwind from lower short-term rates neutralised by higher lending margins Quarterly net interest income (DKK m) Net interest income drivers Positive 6,218 • Increased lending rates, mainly in 6,182 6,198 6,172 Denmark 6,016 Negative •
Slide 16: Net fee income: growth in financing fees
Financial results for Q3 2012 New strategy Net fee income: Growth in financing fees because of repayment of state-guaranteed bonds Quarterly net fee income (DKK m) Fee income drivers Portfolio fees • Activity levels remain stable Activity fees • Increase in portfolio-based fees 2,218 driven by repay
Slide 17: Trading income: Q3 2012 within expectations
Financial results for Q3 2012 New strategy Trading income: Q3 2012 within expectations, strong improvement over Q3 2011 Quarterly trading income (DKK m) Trading income drivers • Solid trading income, mainly from bond 3,222 and derivatives activities • Q3 includes DKK 124 m realised loss from AFS por
Slide 18: Insurance: result closer to normal
Financial results for Q3 2012 New strategy Insurance: Result closer to normal, boosted by good investment returns Quarterly insurance income (DKK m) Key points • Risk allowance booked for three out 976 of four groups • Strong result for unit-linked products 699 • Danish and German interest rate spre
Slide 19: Expenses: elevated by restructuring costs
Financial results for Q3 2012 New strategy Expenses: Elevated by restructuring costs, but cost-savings programme on track Total expenses (DKK m) No. of staff, end of period (‘000) Adjustments (bonus, severance, dep. guarantee, asset write down) 24 Adjusted expenses 23 6,850 6,632 22 6,459 6,116 21 2
Slide 20: Impairments: declining trend continues
Financial results for Q3 2012 New strategy Impairments: Declining trend continues, mainly among personal customers and financials Impairments by customer segment (DKK bn) Impairment drivers Financials • Decline in impairments of DKK 230 SMEs m in Q3 4.8 Large corp. • Drop in impairments in Denmark P
Slide 21: Impairments: lower in Denmark, Finland and Northern Ireland
Financial results for Q3 2012 New strategy Impairments: Lower impairments in Denmark, Finland and Northern Ireland Impairments (DKK m) Loan loss ratio (bp, annualised) Q212 Q312 Q212 960 Q312 Denmark Denmark 30 40 737 151 Finland 48 Finland 12 39 61 Sweden 44 Sweden 9 13 7 Norway 34 Norway 9 2 260 N
Slide 22: Capital: earnings, tier 2 issue and sale of securitisation assets
Financial results for Q3 2012 New strategy Capital: Earnings, tier 2 issue and sale of securitisation assets boost capital ratios Capital ratios, under CRD/Basel II (%) Capital drivers Total capital • State hybrid represents 2.8 Tier 1 (including state hybrid) percentage points of the tier 1 and Cor
Slide 23: Equity issue: planning to raise approximately DKK 7 bn
Financial results for Q3 2012 New strategy Equity issue: Planning to raise approximately DKK 7 bn through an accelerated book-building Details on the issue • Amount: approximately DKK 7 billion • Price: To be determined • Method: Accelerated book-building without pre-emption rights to current shareh
Slide 24: Deposits and funding
Financial results for Q3 2012 New strategy Deposits and funding: Small improvement in deposits after rating downgrade, 2013 funding plan started Deposits, end of period (DKK bn) Long term funding Markets • Funding raised by end of Q3 2012: CIB • 43 % covered bonds BA, other • 48 % senior debt 789 79
Slide 25: Liquidity: strong liquidity buffer despite deposit outflow
Financial results for Q3 2012 New strategy Liquidity: Strong liquidity buffer despite deposit outflow 12-month liquidity*, end of period (DKK bn) Key points Q3 2011 Q2 2012 Q3 2012 • 12-month liquidity of more than DKK 150 bn 300 • 12-month liquidity curve remains positive for more than 2½ years • E
Slide 26: Outlook for 2012 as a whole
Financial results for Q3 2012 New strategy Outlook for 2012 as a whole: Earnings remain low but are moving in the right direction Macro Economic growth to remain low in most markets Income Improvement of income is an ongoing process Expenses Expected to increase 4% above 2011 level, including restru
Slide 27: Q&A session
Financial results for Q3 2012 New strategy 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 2012 New strategy Appendix Macro 25 NII and margin developments 27 Expenses 30 Tax 31 Credit 32 Funding and rating 41 Business units 44 28
Slide 29: Macro trends
Financial results for Q3 2012 New strategy Macro trends Bankruptcies (index 1996 = 100) Business confidence indicator (index 1996 = 100) Denmark Finland Norway Sweden Sweden Finland Denmark 400 160 140 300 120 200 100 100 80 60 1996 2000 2004 2008 2012 1996 2000 2004 2008 2012 Rating upgrades*, corp
Slide 30: Denmark: stabilisation of house prices
Financial results for Q3 2012 New strategy Denmark: Stabilisation of house prices Danish house price by region (%) Affordability index, quarterly data from1985 – 2011 Fixed rate Mixed rate Average Region Prices Change Change in Preview* 140 peaked since peak Q2 12 Q3 12 120 Above average = expensive
Slide 31: Net interest income: margin improvement visible in most markets
Financial results for Q3 2012 New strategy Net interest income: Margin improvement visible in most markets Quarterly change in net interest income (DKK m) Net interest margins, NII/loan stock (%) Q3 11 Q2 12 6,218 1.3 Q3 12 Denmark 1.3 Deposit margin 222 1.4 Finland 1.4 Equity 108 1.3 Sweden 1.5 Len
Slide 32: Higher lending margins are beginning to feed through
Financial results for Q3 2012 New strategy Higher lending margins are beginning to feed through Quarterly lending margins (%) Quarterly deposit margins (%) 1.17 0.60 Q4 11 1.31 0.29 Q1 12 Denmark* 1.35 0.33 1.38 0.09 Q2 12 0.68 0.36 Q3 12 0.77 0.16 Finland 0.66 0.38 0.64 0.36 1.17 0.75 1.32 0.57 Swe
Slide 33: Net interest income: trend in Realkredit Danmark
Financial results for Q3 2012 New strategy Net interest income: Trend in Realkredit Danmark Net interest income at Realkredit Danmark, excluding lending margins (DKK m) 2010 2011 2012 193 170 155 132 128 124 107 100 102 96 54 Q1 Q2 Q3 Q4 33
Slide 34: Expenses: cost-savings programme on track
Financial results for Q3 2012 New strategy Expenses: Cost-savings programme on track Expenses (DKK m) Quarterly change in expenses (DKK m) 9M 2012 9M 2011 Index Q3 2012 Q2 2012 Index Expenses 19,598 19,528 100 6,116 6,632 92 Q2 12 6,632 Perf. based compensation 656 446 147 199 172 116 Severance paym
Slide 35: Adjusted tax rate at 25%
Financial results for Q3 2012 New strategy Adjusted tax rate at 25%, but actual tax rate remains high owing to Ireland Actual and adjusted tax rates (DKK m) Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011 Pre-tax profit 2,220 2,510 1,581 615 10 Pre-tax loss, Ireland core and non-core 1,374 1,616 1,371 1,524
Slide 36: Impairment dynamics
Financial results for Q3 2012 New strategy Impairment dynamics Individual loan impairment charges, ex Baltics (DKK bn) Change in allowance account (DKK m) New Increased Reversals Allowance end-2007 4,900 5.4 3.8 3.5 3.1 3.5 Gross 107,027 impairments 1.5 Reversals 25,020 4.0 Write-offs 39,500 -2.0 Al
Slide 37: Loan quality
Financial results for Q3 2012 New strategy Loan quality Impairment-tested loans (%) Coverage, individual allowance /impairment-tested loans (%) Q2 12 Q2 12 Q3 12 Q3 12 5.8 31 Denmark Denmark 4.9 28 3.8 31 Finland Finland 3.3 30 2.0 34 Sweden Sweden 1.8 32 Norway 3.2 Norway 33 2.6 35 18.9 63 Northern
Slide 38: Retail Banking Denmark, including Realkredit Danmark
Financial results for Q3 2012 New strategy Retail Banking Denmark, including Realkredit Danmark Impairments at Retail Banking Denmark, Q3 2012 (DKK m) Loans by LTV and rating, Realkredit Danmark, end-Q3 2012 (%) Individual Collective Total Rating 1-3 4-7 8-11 Total Public LTV ratio guarantee Bank Pe
Slide 39: Mortgages: more risk-sensitive pricing
Financial results for Q3 2012 New strategy Mortgages: More risk-sensitive pricing is the name of the game Denmark, mortgage margins, 80 % LTV, owner occupied, (basis points) Margin increases All products Fixed rate Adjustable rate 2011-12 • Margin increase on personal 106 customers (Q1 12) 98 • Refi
Slide 40: Limited exposure to agriculture and shipping
Financial results for Q3 2012 New strategy Limited exposure to agriculture and shipping Agriculture: breakdown of loan portfolio, Q3 2012 (%) Shipping: breakdown of loan portfolio, Q3 2012 (%) Other Car carriers Other 14 8 Chemical tanker Agriculture Ro-Ro 11 Mixed 25 7 Product tanker 2 operations C
Slide 41: Denmark and Northern Ireland: loan exposure
Financial results for Q3 2012 New strategy Dividend Denmark and Northern Ireland: Loan exposure Individual impairments Value of collateral Residential mortgage exposure Commercial property exposure Denmark (DKK bn) Northern Ireland (DKK bn) Denmark (DKK bn) Northern Ireland (DKK bn) 519.0 121.7 16.6
Slide 42: Ireland: breakdown of loan portfolio
Financial results for Q3 2012 New strategy Dividend Ireland: Breakdown of loan portfolio Individual impairments Value of collateral Personal mortgages (DKK bn) Other (DKK bn) Total (DKK bn) Arrears*, private customers (%) 91-180 days Market 27.1 180+ days 15.6 10.9 11.6 2.3 1.8 0.2 0.5 1.3 0.7 0.6 3
Slide 43: Non-core Ireland
Financial results for Q3 2012 New strategy Dividend Non-core Ireland Individual impairments Value of collateral CRE (DKK bn) Personal mortgages (DKK bn) Other* (DKK bn) Total (DKK bn) 31.1 14.4 12.0 8.9 7.8 1.5 19.6 3.0 5.8 6.0 1.8 1.5 9.3 1.0 2.3 4.5 7.3 0.8 2.0 Gross Impaired Gross Impaired Gross
Slide 44: Update on conduits: exposure and risk reduced in 2012
Financial results for Q3 2012 New strategy Update on conduits: Exposure and risk reduced in 2012 Gross credit exposure 2007-12 (DKK bn) Credit exposure, rating categories, Q3 2012 (DKK bn) Rating category 10-11 Gross Credit Exposure Net Credit Exposure Rating category 1-9 62 66 56 48 44 40 31 3 3 28
Slide 45: Solid funding structure and liquidity position
Financial results for Q3 2012 New strategy Solid funding structure and liquidity position Loan portfolio and long-term funding, Q3 2012 (DKK bn) Maturing funding (DKK bn) Hybrid T1* 1,760 70 1,700 Subordinated T2* 121 Senior debt Senior Covered bonds 58 Bank loans 597 52 743 Deposits 48 41 Bank mort
Slide 46: Well-diversified funding position
Financial results for Q3 2012 New strategy Well-diversified funding position Funding position Q3 12(%) Funding sources (%) Q4 11 Q3 12 40 Equity Central banks 5 Subordinated debt 7 Deposits 30 3 29 Repos 20 12 10 Banks 7 1 0 S-T bonds Short-term bonds Due to credit inst. Mortgage finance 6 Sharehold
Slide 47: Danske Bank's ratings
Financial results for Q3 2012 New strategy Danske Bank’s ratings Danske Bank’s long term issuer rating Rating agency issues Moody’s S&P Fitch General focus • Profitability: a sustainable improvement in net profit Aaa AAA AAA will be positive • Asset quality: a significant decrease in non- Aa1 AA+ AA
Slide 48: Three different methods to rate banks
Financial results for Q3 2012 New strategy Three different methods to rate banks Rating method Danske Bank’s rating Anchor Business Capital & Risk Funding & Extraord. Issuer + + + + = SACP + = SACP* position Earnings position Liquidity Support rating 0 2 BBB+ +1 notch -1 notch -1 notch BBB A- notche
Slide 49: Retail Banking Denmark
Financial results for Q3 2012 New strategy Retail Banking Denmark: Higher NII owing to several margin increases, but higher impairments reduce the result Income statement (DKK m) Trend in lending volume, average (DKK bn) 9M 2012 9M 2011 Index Retail Corporate Net interest income 9,387 9,097 103 -2%
Slide 50: Retail Banking Finland
Financial results for Q3 2012 New strategy Retail Banking Finland: Visible increase in net interest income, but low result because of low margins and higher loan losses Income statement (DKK m) Trend in lending volume, average (DKK bn) 9M 2012 9M 2011 Index Retail Corporate Net interest income 1,650
Slide 51: Retail Banking Sweden
Financial results for Q3 2012 New strategy Retail Banking Sweden: High return held up by 19 % increase in net interest income partly due to stronger SEK Income statement (DKK m) Trend in lending volume, average (DKK bn) 9M 2012 9M 2011 Index Retail Corporate Net interest income 2,082 1,754 119 +3% N
Slide 52: Retail Banking Norway
Financial results for Q3 2012 New strategy Retail Banking Norway: Solid increase in total income; pre-tax profit more than doubles as impairments losses decline Income statement (DKK m) Trend in lending volume, average (DKK bn) 9M 2012 9M 2011 Index Retail Corporate Net interest income 1.544 1.149 1
Slide 53: Banking Activities Northern Ireland
Financial results for Q3 2012 New strategy Banking Activities Northern Ireland: Moving in the right direction with higher income and lower impairments Income statement (DKK m) Trend in lending volume*, average (DKK bn) 9M 2012 9M 2011 Index Retail Corporate Net interest income 916 845 108 -2% Net fe
Slide 54: Banking Activities Ireland
Financial results for Q3 2012 New strategy Banking Activities Ireland: Still higher expenses owing to restructuring of the continuing business Income statement (DKK m) Trend in lending volume, end of period (DKK bn) 9M 2012 9M 2011 Index Retail Corporate Net interest income 300 686 44 -82% Net fee i
Slide 55: Non-core Ireland: dominated by high impairments
Financial results for Q3 2012 New strategy Non-core Ireland: Dominated by high impairments Income statement (DKK m) Trend in lending volume, end-of-period (DKK bn) Retail 9M 2012 9M 2011 Index Corporate -19% Net interest income 298 - - Net fee income 2 - - -17% Other income 3 - - Total income 303 -
Slide 56: Banking Activities Baltics
Financial results for Q3 2012 New strategy Banking Activities Baltics: Higher income and impairment reversals raise pre-tax profit by 60 % Income statement (DKK m) Trend in lending volume, average (DKK bn) 9M 2012 9M 2011 Index Retail Corporate Net interest income 357 363 98 -19% Net fee income 114
Slide 57: CIB: solid NII growth but higher loan losses
Financial results for Q3 2012 New strategy CIB: Solid NII growth but significantly higher loan losses, mainly from shipping Income statement (DKK m) Trend in lending volume, average (DKK bn) 9M 2012 9M 2011 Index Net interest income 1,584 1,483 107 Net fee income 573 604 95 107 108 109 110 103 Other
Slide 58: Danske Markets & Treasury
Financial results for Q3 2012 New strategy Danske Markets & Treasury: Solid earnings due to high activity including Q3 Income statement (DKK m) Trading income split, Q3 2012 9M 2012 9M 2011 Index FX & money market Danske Markets 6,775 3,877 175 Repos & derivatives 5 9 Group Treasury -220 593 - Bonds
Slide 59: Danske Capital
Financial results for Q3 2012 New strategy Danske Capital: Lower fee income owing to change in asset mix and one-offs; margins remain flattish Income statement (DKK m) AuM – customer breakdown (DKK bn) 9M 2012 9M 2011 Index Private equity Institutional Retail* Life insurance Net interest income 87 8
Slide 60: Danica Pension: strong investment result
Financial results for Q3 2012 New strategy Danica Pension: Strong investment result and partially booked risk allowance Income statement (DKK m) Investment allocation for Danica Traditionel, end-Q3 2012 (%) 9M 2012 9M 2011 Index Equities Bonds Credit bonds Property Premiums (bn) 18.4 20.0 92 6 6 3 D
Slide 61: Danica Pension's profit model
Financial results for Q3 2012 New strategy Danica Pension’s profit model Profit model Condition/ sensitivity Q1-Q3 2012 DKK m Danica Traditionel. Mainly risk Can be booked only if investment Risk allowance 1,008 1 allowance 69 bp of technical return is high enough and if no use of Other -58 provisio
Slide 62: Disclaimer
Financial results for Q3 2012 New strategy 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