Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — Q1 2011 Earnings Presentation
56 slides from Danske Bank A/S's earnings presentation, May 10, 2011
Slide 1: Financial results for Q1 2011
CONFERENCE CALL FOR ANALYSTS AND INVESTORS Financial results for Q1 2011 Peter Straarup CEO & Chairman of the Executive Board Henrik Ramlau Hansen CFO & Member of the Executive Board 10 May 2011
Slide 2: Agenda
AGENDA Agenda Slide • Group overview 3 • Result in details 5 • Funding and capital 15 • Macroeconomics 17 • Outlook 18 • Q&A session 20 • Appendix: Trends in focus areas & business units 21 2
Slide 3: Earnings boosted by strong trading income, but also marked by one-off costs
Earnings boosted by strong trading income, but also marked by one-off costs • Net profit of DKK 700 m in Q1 2011 Profit before tax • Adjusted PTP of DKK 2.4 bn DKK m Q1 2010 Q4 2010 Q1 2011 • Strong trading income Profit before tax 1,391 1,448 1,499 • Declining impairment charges State guarantee/Amg
Slide 4: Strong trading income and declining impairments, but lower NII and higher expenses
Strong trading income and declining impairments, but lower NII and higher expenses DKK m Q1 2010 Q1 2011 Index Q4 2010 Q1 2011 Index Net interest income 6,007 5,554 92 6,069 5,554 92 Net fee income 2,053 2,093 102 2,396 2,093 87 Net trading income 2,374 2,975 125 702 2,975 424 Other income 1,050 1,0
Slide 5: Banking Activities shows stable results
Banking Activities shows stable results DKK m Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Net interest income 5,900 5,811 5,854 5,976 5,469 Net fee income 1,692 1,822 1,741 1,774 1,677 Trading income 242 305 314 239 339 Other income 755 851 700 779 817 Total income 8,589 8,789 8,609 8,768 8,302 State gu
Slide 6: Net interest income was down 8% Q/Q mainly for technical reasons
Net interest income was down 8% Q/Q mainly for technical reasons Quarterly net interest income Quarterly change in net interest income DKK m DKK m 7,500 Y/Y 8% 6,200 Q/Q 8% 47 116 71 68 25 6,500 * * 130 * * 90 * 5,600 62 6,069 5,500 5,554 4,500 5,000 Allocated funding Deposit margin One-offs Len
Slide 7: Net fee income: Danske Capital's positive trend continues
Net fee income: Danske Capital’s positive trend continues Quarterly net fee income Quarterly fee income at Danske Capital DKK m DKK m 2,500 1,000 2,000 800 1,500 600 Total fee income 1,000 400 500 200 Fee income adj. for performance fees 0 0 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q110 Q210 Q310 Q410 Q111 Act
Slide 8: Net trading income: Danske Markets beats expectations with a strong start to the year
Net trading income: Danske Markets beats expectations with a strong start to the year Breakdown of net trading income Danske Markets income split - Q1 2011 DKK m Q1 2010 Q2 2010 *Q3 2010 Q4 2010 Q1 2011 5% Danske Markets 2,083 1,676 1,447 738 2,270 22% Group Treasury * 119 692 99 -195 257 Total 2,20
Slide 9: Net insurance income: Drop due to low investment return and postponed risk allowance
Net insurance income: Drop due to low investment return and postponed risk allowance Net income from insurance business DKK m Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Premiums (DKK bn) 6.5 5.7 5.5 6.4 7.1 Net income before postponed risk allowance 603 330 528 101 278 Postponed risk allowance 0 -177 1
Slide 10: Expenses were high owing to one-offs
Expenses were high owing to one-offs Expenses and number of employees Quarterly trend in expenses DKK m Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 DKK m Expenses 6,423 6,836 6,294 6,457 7,351 8,000 Integration expenses 46 46 47 45 45 57 Amortisation of intangibles 127 126 127 127 103 7,500 113 300 Seve
Slide 11: Impairment charges continue to trend downwards
Impairment charges continue to trend downwards Quarterly loan impairment charges Individual impairments bp - Group ex. Baltics DKK m DKK m 5,000 100 10,000 Total loan impairment 8,000 charges in basis points 6,000 3,000 50 4,000 2,000 1,000 0 0 -2,000 Total impairment charges Collective impairment c
Slide 12: SMEs continues to dominate impairment charges
SMEs continues to dominate impairment charges Impairments by customer segment Net exposures in rating categories 10 and 11 - SME impairments still dominate - Number of customers in default slowly decreases DKK m DKK bn 5,000 40 Rating category 10 30 3,000 Rating category 11 20 1,000 10 Rating catego
Slide 13: Nordic impairments: Denmark is gradually improving
Nordic impairments: Denmark is gradually improving *Acc. imp. DKK 15,385 m DKK m *Acc. imp. DKK 1,935 m DKK m 3.000 Denmark, 57% of Group’s lending - Individual 142 bp Finland, 8% of Group’s lending - Individual 123 bp 114 bp - Collective 21 bp - Collective 13 bp 110 93 bp 24 bp 2.000 62 bp 60 2.735
Slide 14: Other impairments: High in Ireland, but Northern Ireland is improving
Other impairments: High in Ireland, but Northern Ireland is improving DKK m DKK m *Acc. imp. DKK 3,319 m *Acc. imp. DKK 10,692 m 500 Northern Ireland, 3% of Group’s lending - Individual 623 bp 2.000 Ireland, 4% of Group’s lending - Individual 1,416 bp - Collective 52 bp - Collective 128 bp 303 bp 35
Slide 15: Funding markets accessible, with stable prices
Funding markets accessible, with stable prices New funding, 2008-11 Trading in Danske issues - Estimated funding needed in 2011: DKK 70 bn bp - Spread over 6M ASW DKK bn 200 150 150 100 100 50 50 0 0 2008 2009 2010 2011 Oct-2010 Jan-2011 Apr-2011 Issued funding, end-Q1 2011 2014 unsecured (A/A1) Est
Slide 16: Strong capital position has been strengthened further by the share offering
Strong capital position has been strengthened further by the share offering Capital ratios: CRD/Basel II Risk weighted assets % DKK bn 20 880 7 16 17.4% 16.7% 860 20 8 14.6% 13.9% 12 13.1% 12.4% 6 10.5% 10.5% 840 8 10.0% 855 844 820 4 0 800 Q4 10 Q1 2011 Pro forma Q1 11* Exposure Parameter update Cr
Slide 17: Economic recovery is still modest
Economic recovery is still modest GDP 2009-12E Public finances % - Growth Y/Y - Nordic economies are still robust 8 Gross public Budget bal. Sovereign rating 4 debt % of GDP % of GDP & outlook (S&P) 2010 2011 0 Norway Denmark 43.6 -4.1 AAA/Stable Euroland Sweden 42.0 0.3 AAA/Stable -4 Sweden Norway
Slide 18: Outlook for 2011: Recovery continues, and higher interest rates support net interest income
Outlook for 2011: Recovery continues, and higher interest rates support net interest income Macroeconomic recovery continues; rising short-term rates and share offering will favour NII Banking activities remain robust, although conditions are still difficult in some markets Focus on costs will conti
Slide 19: Q&A session
Q&A session Press 1 to ask a question Press “#” to cancel Press “Ask a question” in your webcast player www.danskebank.com/ir 19
Slide 20: Appendix
Bank Appendix 20
Slide 21: Adjusted tax rate close to normal, but actual rate fluctuates owing to Ireland and one-offs
Adjusted tax rate close to normal, but actual rate fluctuates owing to Ireland and one-offs Explanation of tax rate DKK m Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Pre-tax profit, Group 1,391 1,741 1,870 1,448 1,499 Pre-tax loss, BA Ireland 992 1,553 942 1,118 1,204 Non-taxable differences 32 649 57 4
Slide 22: Net interest income Q1 2010 and Q4 2010 vs Q1 2011
Net interest income Net interest income Net interest income - Q1 2010 vs Q1 2011 - Q4 2010 vs Q1 2011 DKK m DKK m 6,200 6,200 47 175 196 116 75 71 68 25 169 37 130 46 90 5,600 105 5,600 62 6,069 6,007 5,554 5,554 5,554 5,000 5,000 Allocated funding Allocated funding Deposit margin One-offs Lending m
Slide 23: Net interest income: NII margins by business unit
Net interest income: NII margins by business unit Net interest margins - Q1 2009 ‟ Q1 2011 (NII /loan stock) % 2.75 2.25 Northern Ireland Baltics 1.75 CB Finland Group Ireland 1.25 Sweden Norway Denmark 0.75 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 2009 figures are not comparable to Q1
Slide 24: Lending margins remain under pressure as competition grows
Lending margins remain under pressure as competition grows Quarterly lending margins - Q1 2010 ‟ Q1 2011 % 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 Denmark * Finland Sweden Norway Northern Ireland Baltics Corporate Ireland Banking * Including Realkredit Danmark. Note: Margin change in Q1 20
Slide 25: Deposit margins are benefiting from increasing short-term rates
Deposit margins are benefiting from increasing short-term rates Quarterly deposit margins - Q1 2010 ‟ Q1 2011 % 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00 -0.25 Denmark Finland Sweden Norway Northern Ireland Baltics Corporate Ireland Banking Note: Margin change in Q1 2011 affected by change of tra
Slide 26: Net interest income, Realkredit Danmark: Drop in Q1 2011 due to seasonality
Net interest income, Realkredit Danmark: Drop in Q1 2011 due to seasonality DKK m 750 2009 2010 2011 500 250 0 Q1 Q2 Q3 Q4 Note: Ex customer margin and interest on convertible government hybrid capital. 26
Slide 27: Danske Markets' income comes predominately from forex, fixed income and related products
Danske Markets’ income comes predominately from forex, fixed income and related products Income distribution Index VIX Volatility - 2010 8% 90 75 31% 60 23% 45 30 15 0 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 37% Income distribution - Q1 2011 5% Forex & money market 22% Bonds & DCM 34% Repo & deriv
Slide 28: Normalised market conditions for Danske Markets
Normalised market conditions for Danske Markets EUR/SEK 12M volatility Covered and mortgage bond ASW spreads % - High FX volatility boosts activity bp, mid - Spreads on Danish covered bonds remained low 20 475 Ireland 15 375 275 Spain 10 175 5 UK 75 Germany 0 -25 Denmark Jun-08 Dec-08 Jun-09 Dec-09
Slide 29: Impairments dominated by SMEs and commercial property in Ireland
Impairments dominated by SMEs and commercial property in Ireland 2008 – Q1 2011 Impairments, reversals and write-offs DKK m - Change from Q1 2008 to Q1 2011 - DKK 54 bn 8% 100,000 30% 17% SMEs 80,000 CRE 18,960 Personal 60,000 Financials 16% 20,770 Large corporates 76,305 29% 40,000 51 % of CRE impa
Slide 30: Commercial property exposure in Denmark, Ireland, Northern Ireland and Baltics
Commercial property exposure in Denmark, Ireland, Northern Ireland and Baltics DKK bn DKK bn 125 25 Denmark Ireland 100 20 0.2 NPL/total loans: 11% 0.1 NPL/total loans: 65% 75 15 112.2 50 10 20.8 8.5 78.5 4.8 13.6 25 5 6.7 6.1 6.1 2.8 12.5 2.8 0 0 Total loans Impaired loans (NPL) Total loans Impaire
Slide 31: Credit exposure to commercial property and construction segments
Credit exposure to commercial property and construction segments Commercial Portion from Construction and Sector in DKK bn property developers building materials total Denmark 109.4 0.8 5.9 115.4 Finland 11.4 0.5 2.8 14.2 Sweden 56.6 0.1 3.9 60.4 Norway 28.8 1.9 1.9 30.8 Northern Ireland 8.8 2.8 3.7
Slide 32: Residential mortgage exposure in Denmark, Ireland, Northern Ireland and Baltics
Residential mortgage exposure in Denmark, Ireland, Northern Ireland and Baltics DKK bn DKK bn 600 30 Ireland Denmark 0.2 0.0 400 NPL/total loans: 1% 20 NPL/total loans: 5% Avg. LTV: 65% Avg. LTV: 98% 505.9 25.6 200 417.4 10 20.2 1.2 0.9 6.2 4.5 0 0 0.9 0.9 0.2 0.2 Total loans Impaired loans (NPL) To
Slide 33: Credit exposure decreased by 3% Y/Y
Credit exposure decreased by 3% Y/Y Credit exposure from lending activity, end-Q1 2011 - DKK 2,284 bn, including DKK 1,840 bn in lending and repos Central and local governments 5% Subsidised housing companies 5% Banks 7% Personal customers 38% Commercial property 11% Construction, engineering and bu
Slide 34: Upgrades/downgrades ratio is close to 50/50 and improvement in Denmark is solid
Upgrades/downgrades ratio is close to 50/50 and improvement in Denmark is solid Relation between upgrades and total rating changes on the business loan book - 12-month moving average % 80 Upturn Downturn Upturn Upgrades > downgrades 60 40 Downgrades > upgrades Group 20 Banking Activities Denmark 0 2
Slide 35: Economic climate in Denmark is improving but lags the other Nordic countries
Economic climate in Denmark is improving but lags the other Nordic countries Business confidence indicator Bankruptcies Index - Denmark is rebounding - Denmark still high numbers but small companies Index 125 500 400 105 300 200 85 100 65 0 1995 1997 1999 2001 2005 2007 2009 2011 2003 1996 1998 2000
Slide 36: Danish agriculture sector pressured by lower property and output prices
Danish agriculture sector pressured by lower property and output prices Other 13% Agriculture Exposure to agriculture DKK bn Mixed 24% operations Realkredit Danmark 45 6% Retail Banking Denmark 10 Other business units 15 Agriculture 69 Agriculture LTV, Realkredit Danmark % Grocery trade 15% Q4 2008
Slide 37: Gross exposure subject to individual impairment test
Gross exposure subject to individual impairment test Gross exposure, rating categories 10 and 11 bp - Basis points of total loans 3,500 3,409 3,000 2,500 2,000 1,918 1,500 1,330 1,000 688 570 500 444 384 389 271 168 0 Denmark Finland Sweden Norway Northern Ireland Baltics Corporate Other Act. Group
Slide 38: House prices: Remain flattish in Denmark, rebounding in other Nordic countries
House prices: Remain flattish in Denmark, rebounding in other Nordic countries Danish house prices by regions House prices and consumption - Denmark Region Prices Change since Change in * Preview Price per sq m DKK bn peaked peak (%) Q410 (%) Q111 (%) 16,000 200 Copenhagen Q3 2006 -22.7 1.2 Zealand
Slide 39: Mortgages in Denmark: Low average LTV ratio, arrears declining
Mortgages in Denmark: Low average LTV ratio, arrears declining Breakdown of loans by LTV and rating category Danish mortgages - Residential & commercial mortgages, end-Q1 2011 „ 179 repossessed properties and 3,432 arrears out LTV/rating 1-3 4-7 8-11 Total of 407,821 loans at end-Q1 2011 (0.8%) 0-20
Slide 40: Liquid, highly rated bond portfolio
Liquid, highly rated bond portfolio Bond portfolio Rating distribution - DKK 427 bn AAA 82% Credit bonds AA+ 6% 3% Certificates 3% Quasi- AA 2% government 2% AA- 4% Danish Swedish mortgage bonds covered bonds 44% A+ 2% 14% A 1% A- 0% BBB+ 0% BBB 1% Other covered BBB- 0% bonds 5% Lower or NA 1% Level
Slide 41: Strong loan-to-deposit ratio and liquidity position
Strong loan-to-deposit ratio and liquidity position Loan-to-deposit 12-month liquidity* - Ratio (DKK) and gap (%) - Moody’s Financial Strength DKK bn % DKK bn 400 125 400 300 300 120 200 200 115 End-Q4 2009 100 End-Q4 2010 100 110 End-Q1 2011 0 End-Q4 2008 0 105 -100 Q209 Q309 Q409 Q110 Q210 Q310 Q4
Slide 42: Well-diversified funding position
Well-diversified funding position Funding position Funding sources - Total borrowing increased by DKK 6.9 bn in Q1 2011 % - Shift towards long-term funding sources Central banks, Equity, 4% 40 4% Q1 2011 Deposits, 33% Q4 2008 Repos, 6% 30 Banks, net, 5% 20 10 S-T bonds, 7% 0 Covered bonds Repo Credi
Slide 43: Funding in Q1 2011: Focus on covered bonds
Funding in Q1 2011: Focus on covered bonds • In Q1 2011 Danske Bank issued bonds for Issues by type and currency DKK 12.3 bn Issue type Currency DKK bn • 90% of the issuance was covered bonds and Covered bonds EUR 7.8 10% was senior debt NOK 1.5 • Longest maturity: 17 years CHF 1.7 Senior debt EUR 0
Slide 44: Retail Banking Denmark: Improvement from lower costs and impairments, but S-T rate hurts
Retail Banking Denmark: Improvement from lower costs and impairments, but S-T rate hurts Profit before loan impairment charges 5% Trend in lending volume - Declining NII is offset by drop in expenses - Average DKK m Q1 2010 Q1 2011 Index DKK bn Retail: Y/Y 0% Corporate: Y/Y 2% Net interest income
Slide 45: Retail Banking Finland: Stable income, but temporary high expenses
Retail Banking Finland: Stable income, but temporary high expenses Profit before loan impairment charges 74% Trend in lending volume - Income low due to low short-term rates - Average DKK m Q1 2010 Q1 2011 Index DKK bn Retail: Y/Y 5% Corporate: Y/Y 1% Q/Q 1% Q/Q 1% Net interest income 495 4
Slide 46: Retail Banking Sweden: Benefits from high activity in economy and low impairments
Retail Banking Sweden: Benefits from high activity in economy and low impairments Profit before loan impairment charges 16% Trend in lending volume - 27 % increase in profit before tax due to impairments halved - Average, %-change in local currency DKK bn Retail: Y/Y 8% Corporate: Y/Y 1% DKK m
Slide 47: Retail Banking Norway: NII under pressure, costs under control
Retail Banking Norway: NII under pressure, costs under control adjusted for one-offs and currency Profit before loan impairment charges 32% Trend in lending volume - Average %-change in local currency - High imp. in Q1 from a few customers; exp. up 6 % in NOK DKK bn Retail: Y/Y 7% Corporate: Y/Y
Slide 48: Banking Activities Northern Ireland: Soft NII, impairments still at elevated level
Banking Activities Northern Ireland: Soft NII, impairments still at elevated level Profit before loan impairment charges 24% Trend in lending volume - Average, %-change in local currency - Declining NII despite strong growth in deposits Retail: Y/Y 2% Corporate: Y/Y 7%* DKK bn DKK m Q1 2010 Q1
Slide 49: Banking Activities Ireland: Impairment charges remains high; cost cutting visible
Banking Activities Ireland: Impairment charges remains high; cost cutting visible Profit before loan impairment charges 19% Trend in lending volume - Income under pressure; cost reductions counterbalance - Average Retail: Y/Y 6% Corporate: Y/Y 10% DKK m Q1 2010 Q1 2011 Index DKK bn Q/Q 1% Q/
Slide 50: Banking Activities Baltics: Profitable again as loan impairment charges have declined
Banking Activities Baltics: Profitable again as loan impairment charges have declined Returns to profit after loan impairment charges Trend in lending volume - Strong return re-established - End-quarter DKK m Q1 2010 Q1 2011 Index DKK bn Retail: Y/Y 7% Corporate: Y/Y 16% Q/Q 2% Q/Q 4% Net in
Slide 51: Corporate Banking Activities: New strong business unit with profitable customers
Corporate Banking Activities: New strong business unit with profitable customers Profit before loan impairment charges 13% Trend in lending volume - Small increase in income and strong cost control - Average DKK bn Corporate: Y/Y 7 % DKK m Q1 2010 Q1 2011 Index 125 Q/Q 2 % Net interest income
Slide 52: Danske Markets: Strong Q1 after weak Q4
Danske Markets: Strong Q1 after weak Q4 Strong Q1 reflects high activity going into 2011 Trading activities – accumulated income - Increase of 16 % y/y - Fixed income and forex 18000 DKK m Q1 2010 Q1 2011 Index 16000 Total income 2,202 2,527 115 14000 2009 Expenses 661 742 112 12000 10000 Profit bef
Slide 53: Danske Capital: Net fees up 15% on higher volume and increasing margins
Danske Capital: Net fees up 15% on higher volume and increasing margins Profit before loan impairment charges 16% AuM – Customer breakdown - Net fees driven by 7 % increase in assets under management y/y DKK bn 600 Private equity DKK m Q1 2010 Q1 2011 Index Net fee income 365 420 115 Institutional
Slide 54: Danica Pension: Interest rate hike puts risk allowance into shadow account
Danica Pension: Interest rate hike puts risk allowance into shadow account Net income from insurance business 89% Investment returns, YTD - Postponed risk allowance of DKK 211m with profit effect of 175 m - Customers’ funds DKK m Q1 2010 Q1 2011 Index % Investment return Investments & liabilities
Slide 55: Danica's profit model
Danica’s profit model Profit model Condition / sensitivity 1 Q 2011 DKK m „ Risk allowance 69 bp of „ No usage of bonus potential of 1 technical prov. (DKK 174 bn.) paid-up policies and sufficient „ Risk allowance 264 investment income 1Q 2011 + „ Return on investment portfolio „ Equity markets, int
Slide 56: Investment allocation for Danica Traditionel groups
Investment allocation for Danica Traditionel groups New schemes (33% of AuM) Low (13% of AuM) - Guaranteed interest 0.5%-1.5% - Guaranteed interest 1.5%-2.5% 14% 11% 11% 16% 12% 18% Equities 58% 60% Bonds Intermediate (8% of AuM) High (46% of AuM) - Guaranteed interest 2.5%-3.5% - Guaranteed interes