Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — Debt Investor Presentation (November 2019)
52 slides from Danske Bank A/S's debt investor presentation, November 2019
Slide 1: Debt investor update Q3 2019
Debt investor update Q3 2019 Bank
Slide 2: Agenda
Debt investor update – Q3 2019 Agenda 01. Group financial update and 2023 ambitions 2 02. Capital and funding 15 03. Covered bond universe and ratings 21 04. Appendix 24 1
Slide 3: Executive summary: Challenging first nine months; new ROE target for 2023
Debt investor update – Q3 2019 Executive summary: Challenging first nine months; net profit down 14% from 9M 2018; new target for ROE of 9-10% in 2023 DKK 10.0 bn Net profit, down 14% from 9M 2018 due to Lending growth of 3% y/y, driven by growth lower NII, higher expenses and higher loan impairment
Slide 4: We are a Nordic universal bank with strong regional roots
Debt investor update – Q3 2019 We are a Nordic universal bank with strong regional roots Norway (AAA) Finland (AA+) Challenger position 3rd largest Market share: 6% Market share: 10% Share of Group lending: 11% Share of Group lending: 8% GDP growth 2019E: 2.6% GDP growth 2019E: 1.2% Unemployment 201
Slide 5: We remain committed to becoming the Nordic Integrator
Debt investor update – Q3 2019 We remain committed to becoming the Nordic Integrator Our Nordic Integrator Our long-term promises Strategy We deliver strong returns to We put customers first our investors We care about and develop We contribute to society our employees Our ways of working We focus o
Slide 6: We have set ambitious 2023 targets for all of our key stakeholders
Debt investor update – Q3 2019 We have set ambitious 2023 targets for all of our key stakeholders What we want to accomplish by 2023 How we measure success "On average among the top 2 in customer ≤2.0 average CSAT rank satisfaction in everything we do" Customers "At least 90% of our employees are ≥9
Slide 7: AML and other compliance related costs to peak in 2020
Debt investor update – Q3 2019 AML and other compliance related costs to peak in 2020 Expenses for compliance-related activities (DKK bn, subject to roundings) Estonia case AML digitalisation AML programme, other compliance and regulation 3.3-3.5 2.9-3.0 2.4-2.6 1.8 1.8-1.9 1.7-1.9 1.5-1.7 1.0 1.4 0
Slide 8: ROE ambition of 9-10% in 2023 following significant investments
Debt investor update – Q3 2019 ROE ambition of 9-10% in 2023** with unchanged rates and FX following significant investments expected to peak in 2020 Change in ROE (%, after tax, subject to roundings) Gross cost take out of approximately DKK ~5bn compared to 2019 plus ~2.5bn non-recurring costs in 2
Slide 9: Net profit: DKK 10.0 bn, down 14% from 9M 2018
Debt investor update – Q3 2019 Net profit: DKK 10.0 bn, down 14% from 9M 2018, including DKK 1.3 bn gain on sale of Danica Pension Sweden Income statement and key figures (DKK m) Key points, 9M 2019 vs 9M 2018 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index • Return on equity of 8.5% Net interest income
Slide 10: NII: Down 8% y/y due to margin pressure and higher funding costs
Debt investor update – Q3 2019 NII: Down 8% y/y due to margin pressure, higher funding costs and transfer to Non-core Key points Change in net interest income, y/y (DKK m) Y/Y 17,676 427 • NII down 8%, lending growth of 3% offset by lower 966 margins, higher funding costs and transfer of Rus- 130 11
Slide 11: NII (cont'd): Volume growth of 3% y/y at Banking Nordic
Debt investor update – Q3 2019 NII (cont’d): Volume growth of 3% y/y (6% in local currency) at Banking Nordic; Banking DK grew 1% y/y Key points Lending volume and development* (DKK bn) • Banking Nordic lending up 3% y/y (6% in local currency) with 9M 2018 9M 2019 growth in Norway and Finland • Bank
Slide 12: Fee income: Up 3% y/y
Debt investor update – Q3 2019 Fee income: Up 3% y/y as high activity and SEB Pension DK acquisition more than offset margin pressure and negative one-off 9M 2018 +3% Key points Net fee income development, y/y (DKK m) 9M 2019 Y/Y • Fee income up 3%, benefiting from high -12% +30% 11,324 11,681 remor
Slide 13: Trading income: Down 22% y/y and 6% q/q
Debt investor update – Q3 2019 Trading income: Down 22% y/y and 6% q/q in challenging market conditions Key points Group net trading income (DKK m) Y/Y • Trading income down 22% from 9M 2018, reflecting challenging market conditions -22% • C&I affected by negative value adjustments on derivatives Q/
Slide 14: Expenses: Up 2% y/y due to upstaffing and investments in compliance and AML
Debt investor update – Q3 2019 Expenses: Up 2% y/y due to upstaffing and investments in compliance and AML, now totalling around 2,500 FTEs Key points Change in expenses, y/y (DKK m) Y/Y 130 39 • Expenses up 2% y/y, due mainly to upstaffing and investments 725 497 in compliance and AML activities, t
Slide 15: Impairments: Loan loss ratio of 6 bp in core activities
Debt investor update – Q3 2019 Impairments: Loan loss ratio of 6 bp in core activities in the first nine months, driven by Corporates & Institutions Key points Impairment charges by business unit, 9M 2019 (DKK m) Y/Y • Charge of DKK 813 m; core loan loss ratio of 6 bp − Impairments at C&I due to sin
Slide 16: Capital: Strong capital base; CET1 capital ratio of 16.4%
Debt investor update – Q3 2019 Capital: Strong capital base; CET1 capital ratio of 16.4% Capital ratios; under Basel III/CRR; % Capital highlights, Q3 2019 Tier 2 Pillar II component (total 4.5%) • REA up by DKK 20 bn to DKK 782 bn, driven by a technical Hybrid T1/AT1 CET1 change to market risk mode
Slide 17: Strong CET1 capital build-up since 2008
Debt investor update – Q3 2019 Strong CET1 capital build-up since 2008; Available Distributable Items (ADI) in excess of DKK 100bn Common Equity Tier 1, 2008 – 2018; DKKbn +DKK 50bn 130 134 133 133 126 127 119 107 79 85 77 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20181 REA, CET1, profit and
Slide 18: Update on MREL Requirement & Issuance
Debt investor update – Q3 2019 Update on MREL Requirement & Issuance Overview of MREL Considerations MREL resources and requirements; Q3 2019; % of REA Senior <1Y Own funds The Group has to meet both an MREL requirement and a separate debt Senior >1Y MREL requirement based on Q3 2019 req.* buffer re
Slide 19: Funding structure and sources
Debt investor update – Q3 2019 Funding structure and sources: Danish mortgage system is fully pass-through Loan portfolio and long-term funding, Q3 2019 (DKK bn) Funding sources (%) Q2 2019 Q3 2019 2,082 52 51 163 Senior & NPS bonds 1,818 Bank loans 636 926 Deposits Bank mortgages 370 181 Covered bo
Slide 20: Funding programmes and currencies
Debt investor update – Q3 2019 Funding programmes and currencies Covered bonds by currency, end-Q3 2019 Largest funding programmes, end-Q3 2019 EUR SEK NOK CHF Utilisation EMTN Programme 36% 1% Limit – EUR 35bn 17% Global Covered Bond 75% Limit – EUR 30bn 25% 58% ECP Programme 1% Limit – EUR 13bn To
Slide 21: Funding and liquidity: long-term funding issued in 9M 2019
Debt investor update – Q3 2019 Funding and liquidity: DKK 86 bn of long-term funding and capital instruments issued in 9M 2019; LCR compliant at 134% Changes in funding,* 2019 (DKK bn and bp) Long-term funding excl. RD (DKK bn)** Cov. bonds Senior Non-Preferred Senior Funding plan Completed Up to 17
Slide 22: Danske Bank covered bond universe, a transparent pool structure
Debt investor update – Q3 2019 Danske Bank covered bond universe, a transparent pool structure1 Residential mortgages from • Denmark, D-pool • Norway, I-pool + • Sweden, Danske Hypotek AB C-pool (AAA/AAA) • Finland, Danske Mortgage Bank Plc Commercial mortgages from Finland • Sweden and Norway, C-po
Slide 23: Danske Bank's credit ratings
Debt investor update – Q3 2019 Danske Bank’s credit ratings Long-term instrument ratings S&P revises outlook to stable On 23 October 2019, S&P revised the outlook on Danske Bank Fitch Moody’s Scope S&P and Danica to stable from negative, while affirming the ‘A/A-1’ AAA1 Aaa AAA AAA long and short-te
Slide 24: Danske Bank's ESG ratings
Debt investor update – Q3 2019 Danske Bank’s ESG ratings Danske Bank has chosen to focus on six providers, based on their importance to our investors 30 Sept 2019 31 Dec 2018 Range 1 C prime C prime D- to A+ (A+ highest rating) positive (B) positive (B) D to AAA (AAA highest rating) C Prime C Prime
Slide 25: Agenda
Debt investor update – Q3 2019 Agenda 01. Business units 25 02. Special topics 33 03. Macroeconomics 36 04. FI&C review 39 05. 2023 ambitions appendix slides 41 06. Contacts 50 24
Slide 26: Strong footprint within retail lending
Debt investor update – Q3 2019 Strong footprint within retail lending Lending by business unit1; %; Q3 2019 Credit exposure by industry; %; Q3 2019 Personal Customers 40 Banking DK Wealth Management Commercial Property 13 Banking Nordic Northern Ireland Co-ops & Non-Profit 8 C&I Other Public Institu
Slide 27: Lending growth: Growth of 1% y/y at Banking DK and 3% at Banking Nordic
Debt investor update – Q3 2019 Lending growth: Growth of 1% y/y at Banking DK and 3% at Banking Nordic Comments Banking Nordic: lending volume by segment and country* Banking DK • 84% of lending at Banking DK is at mortgage subsidiary Finland retail Sweden commercial Realkredit Danmark (RD) Finland
Slide 28: Banking DK: Lending growth of 1% y/y
Debt investor update – Q3 2019 Banking DK: Lending growth of 1% y/y; higher expenses and impairments Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 6,400 6,703 95 2,095 2,125 99 • Total income down 3% Net fee income 2,483 2,597
Slide 29: Realkredit Danmark: Portfolio overview
Debt investor update – Q3 2019 Realkredit Danmark: Portfolio overview 87% of new retail lending in Q3 was fixed-rate vs 43% of stock Portfolio facts, Realkredit Danmark, Q3 2019 Retail loans, Realkredit Danmark, Q3 2019 (%) • Approx. 354,000 loans (residential and commercial) Fixed rate (10 yrs-30 y
Slide 30: Banking Nordic: Lending growth of 3% y/y
Debt investor update – Q3 2019 Banking Nordic: Lending growth of 3% y/y but margins pressured by rising interest rates in Norway and Sweden Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 5,672 5,946 95 1,898 1,873 101 • NII dow
Slide 31: Corporates & Institutions: Challenging market conditions
Debt investor update – Q3 2019 Corporates & Institutions: Challenging market conditions and higher impairment charges Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 2,671 2,974 90 885 857 103 • NII down 6% adjusted for the port
Slide 32: Wealth Management: Profit before tax up 39%
Debt investor update – Q3 2019 Wealth Management: Profit before tax up 39% due mainly to the sale of Danica Pension Sweden; AuM flat adjusted for the sale Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 483 545 89 148 160 93 • A
Slide 33: Northern Ireland: Lending and NII up y/y
Debt investor update – Q3 2019 Northern Ireland: Lending and NII up y/y despite continued Brexit uncertainty Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 1,133 1,109 102 368 379 97 • Lending and NII up despite continued Net f
Slide 34: Credit quality: NPLs increased 3% y/y
Debt investor update – Q3 2019 Credit quality: NPLs increased 3% y/y driven by single-names in Corporates & Institutions Breakdown of core allowance account under IFRS 9 (DKK bn) Core allowance account by business unit (DKK bn) Stage 1 Banking DK Corporates & Institutions Northern Ireland 20.8 20.4
Slide 35: Credit exposure: Limited agriculture and directly oil-related exposure
Debt investor update – Q3 2019 Credit exposure: Limited agriculture and directly oil-related exposure Agriculture exposure (3.0% of Group exposure) Oil-related exposure (0.8% of Group exposure) • Pork prices continued their upturn towards record-high • Net exposure increased to DKK 18.8 bn from DKK
Slide 36: Non-core: Deleveraging according to plan
Debt investor update – Q3 2019 Non-core: Deleveraging according to plan; sale of retail portfolio in Estonia expected to finalise before end-November Non-core loan portfolio, Q3 2019 (DKK bn) Non-core REA* (DKK bn) Allowance account Non-core conduits etc. Non-performing credit exposure Non-core Bank
Slide 37: Nordic macroeconomics
Debt investor update – Q3 2019 Denmark Sweden Norway Finland EU Nordic macroeconomics Real GDP, constant prices (index 2005 = 100) Inflation (%) 2006 2008 2010 2012 2014 2016 2018 2006 2008 2010 2012 2014 2016 2018 Interest rates, leading (%) Unemployment (%) 2006 2008 2010 2012 2014 2016 2018 2006
Slide 38: Nordic macroeconomics
Debt investor update – Q3 2019 Denmark Sweden Norway Finland EU Nordic macroeconomics Current account (surplus+/deficit-); % of GDP Gross public debt; % of GDP 2006 2008 2010 2012 2014 2016 2018 Household debt burden; % of disposable income Household interest burden; % of disposable income 37
Slide 39: Nordic housing markets
Debt investor update – Q3 2019 Denmark Sweden Norway Finland Nordic housing markets Property prices (index 2005 = 100) House prices/nom. GDP (index 2005 = 100) 2006 2008 2010 2012 2014 2016 2018 2006 2008 2010 2012 2014 2016 2018 Apartment prices (index 2005 = 100) Apartment prices/nom. GDP (index 2
Slide 40: Trading income decline driven by lower income in FI&C
Debt investor update – Q3 2019 Trading income decline driven by lower income in FI&C as the result of both structural and cyclical headwinds FI&C total income, incl. xVA (DKK bn) Structural drivers of lower income 4.9 • Changed business model – from a ‘balance sheet- 4.5 driven’ to a ‘customer-drive
Slide 41: Agreed management actions to restore profitability in FI&C
Debt investor update – Q3 2019 Agreed management actions to restore profitability in FI&C • Invest in digitalising core value chains to bring down end-to-end costs • Review most capital-intensive activities in order to maintain ability to service Cost and capital customers under regime with higher c
Slide 42: 2023 ambitions appendix slides
Debt investor update – Q3 2019 2023 ambitions appendix slides 41
Slide 43: We face challenges, but have taken the first steps to get back on course
Debt investor update – Q3 2019 We face challenges, but have taken the first steps to get back on course Key challenges Steps taken so far On top of structural issues in the financial sector … We have a new and committed • Changing customer expectations Executive Leadership Team • Increased regulator
Slide 44: We are on a journey: In 2020 we pave the way towards 2023
Debt investor update – Q3 2019 We are on a journey: In 2020 we pave the way towards 2023 2023 We realise our 2020 ambitions We stop the downward trend and invest in our future 2019 We set our ambitions and change agenda 2021/22 We deliver on our agenda and show tangible results 43
Slide 45: In 2020 we will execute on the core pillars of our journey
Debt investor update – Q3 2019 In 2020 we will execute on the core pillars of our journey 1 Compliance under control Delivering in 2 Cost base under control the short term 3 Commercial momentum gained Complexity reduced, agility improved and the 4 business further digitised Investing in Accountabili
Slide 46: Delivering in the short term
Debt investor update – Q3 2019 Delivering in the short term 1 Compliance under control • Complete 'Conduct' review • Execute on AML and ODD programmes • Further refine risk and compliance operating model 2 Cost base under control • Reinforce Group-wide governance for non-personnel costs and reduce s
Slide 47: Investing in our success
Debt investor update – Q3 2019 Investing in our success 4 Complexity reduced, agility improved and the business further digitised • Simplify business and product portfolios • Digitise key customer journeys end-to-end • Launch broader enterprise agile journey 5 Accountabilities and leadership promote
Slide 48: Levers rolled out in 2020
Debt investor update – Q3 2019 Pushing operating efficiency crucial to delivering on our ambition 1 Create a simple and efficient business model Simplify product offering and steer towards more simple/efficient service model to harvest synergies Levers 2 Accelerate digital customer journeys for targ
Slide 49: Levers rolled out in 2020
Debt investor update – Q3 2019 Key strategic priorities to deliver on income growth 1 Improve digital customer experience to drive growth Digitisation of core customer journeys within banking (e.g. housing) as well as digital platforms at C&I and Wealth Management Levers 2 Revise service models to b
Slide 50: Underlying assumptions behind 19'-23' RoE development
Debt investor update – Q3 2019 Underlying assumptions behind 19'-23' RoE development Comments 9M 2019 to 2020 Comments 2020 to 2023 (continued) • Operational effects in 2020 include − Balance sheet optimisation Group-wide driven by Treasury − Lending growth which is more than offset by overhang from
Slide 51: Contacts
Debt investor update – Q3 2019 Contacts Christoffer Møllenbach Claus Ingar Jensen Head of Group Treasury Head of IR Direct: +45 45 14 63 60 Direct: +45 45 12 84 83 Mobile: +45 21 55 10 52 Mobile: +45 25 42 43 70 E-mail: [email protected] E-mail: [email protected] Bent Callisen John Bäckman Head of
Slide 52: Disclaimer
Debt investor update – Q3 2019 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 States,
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