Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — 9M 2010 Earnings Presentation
52 slides from Danske Bank A/S's earnings presentation, Nov 2, 2010
Slide 1: Financial results for first 9 months of 2010
FIRST NINE MONTH OF 2010 - ROADSHOW Financial results for first 9 months of 2010 Peter Straarup CEO & Chairman of the Executive Board Lars Andreasen Acting CFO 2 November 2010
Slide 2: Agenda
AGENDA Agenda Slide • Key messages 3 • Highlights 4 • Business trends 5 • Basel III / CRD IV 18 • Macroeconomics 19 • Outlook 20 • Q&A session 21 • Appendix: Trends in focus areas & business units 22 2
Slide 3: Earnings recovery continues as impairments decline
Earnings recovery continues as impairments decline Profit before taxes (Q3 2010) DKK m 2,000 • Net profit 198% Y/Y to DKK 2.6bn in 9M 2010 1,000 • Q3 result shows strong improvement in Denmark 0 • Cost management continues to deliver Q3 2010 results Q2 2010 -1,000 • Declining impairment charges •
Slide 4: Declining expenses and impairments more than offset lower income
Declining expenses and impairments more than offset lower income DKK m 9M 2009 9M 2010 Index Q2 2010 Q3 2010 Index Net interest income 20,759 17,774 86 5,927 5,840 99 Net fee income 5,601 6,185 110 2,068 2,069 100 Net trading income 16,283 7,126 44 2,817 1,930 69 Other income 2,211 2,844 129 1,091 7
Slide 5: Stable quarterly net interest income not inflated by one-offs
Stable quarterly net interest income not inflated by one-offs Quarterly net interest income Quarterly change in net interest income DKK m DKK m Y/Y 12% 6,200 7,500 Q/Q 1% 82 * 28 * 65 * 52 9 6,500 5,800 201 * * * 5,927 5,500 5,400 5,840 4,500 5,000 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09
Slide 6: Stable net fee income despite slow summer season; strong performance at Danske Capital
Stable net fee income despite slow summer season; strong performance at Danske Capital Quarterly net fee income Quarterly fee income in Danske Capital DKK m DKK m 2,500 450 2,000 400 1,500 Total fee income 350 1,000 Fee income adj. for 300 performance fee 500 0 250 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q309
Slide 7: Net trading income at normalised level despite low activity
Net trading income at normalised level despite low activity Breakdown of net trading income VIX Volatility DKK m Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 Index 2010 Index Trading activities 4,410 3,194 1,791 2,013 1,665 1,420 90 Group Treasury 297 567 -152 119 * 692 99 75 Institutional banking (no
Slide 8: Insurance income up on strong investment return and improved unit-linked result
Insurance income up on strong investment return and improved unit-linked result Net income from insurance business DKK m 9M 2009 9M 2010 Index Q2 2010 Q3 2010 Index Premiums (DKK bn) 14.3 17.7 124 5.7 5.5 97 Net income before postponed risk allowance 1,840 1,461 79 330 528 160 Postponed risk allowan
Slide 9: Underlying cost base continues to decline; sharp reduction Q/Q owing to seasonality
Underlying cost base continues to decline; sharp reduction Q/Q owing to seasonality Expenses and number of employees Quarterly trend in expenses DKK m 7,000 DKKm 9M 2009 9M 2010 Index Expenses 21,723 19,553 90 Integration expenses 245 139 57 Amortisation of intangibles 380 380 100 Severance payments
Slide 10: Impairment charges fell for seventh consecutive quarter, down almost 50% Y/Y
Impairment charges fell for seventh consecutive quarter, down almost 50% Y/Y Quarterly loan imp. charges Loan impairment charges DKK m bp DKK m 10,000 200 25,000 7,500 150 20,000 Total loan imp. charges in basis points 5,000 100 15,000 2,500 50 10,000 0 0 5,000 Total impairment charges Collective
Slide 11: Loan impairment charges still dominated by SMEs, but fewer customers in default
Loan impairment charges still dominated by SMEs, but fewer customers in default Impairments by customer segment Net exposures in rating categories 10 and 11* - SMEs account for most of the Group’s impairments - Declining trend in rating category 11 Exposure DKK m DKK bn 9,000 40 Rating category 11 7
Slide 12: Nordic impairments: Strong improvement in Denmark, stable in other Nordics
Nordic impairments: Strong improvement in Denmark, stable in other Nordics DKK m DKK m 5,000 1,250 *Acc. imp. DKK 19,304 m *Acc. imp. DKK 2,674 m Denmark, 59% of Group’s lending - Individual 168 bp Finland, 9% of Group’s lending - individual 156 bp 4,000 1,000 216 bp - collective 24 bp - collective
Slide 13: Other impairments: Northern Ireland and Ireland are the most problematic
Other impairments: Northern Ireland and Ireland are the most problematic DKK m DKK m 750 2,400 *Acc. imp. DKK 2,839 m *Acc. imp. DKK 10,744 m Northern Ireland, 3% of Group’s lending - individual 472 bp Ireland, 4% of Group’s lending - individual 1358 bp - collective 53 bp - collective 119 bp 883 bp
Slide 14: Tax rate is inflated by losses in Ireland and adjustment of previous years
Tax rate is inflated by losses in Ireland and adjustment of previous years Explanation of tax rate Quarterly tax rate % 80 DKK m Q1 2010 Q2 2010 Q3 2010 Pre-tax profit, Group 1,391 1,741 1,870 Pre-tax loss, BA Ireland 992 1,553 942 60 Actual tax rate Gain on PBS-Nordito merger - 659 - A Pre-tax prof
Slide 15: Funding need for 2010 completed with duration extended; very limited need in 2011
Funding need for 2010 completed with duration extended; very limited need in 2011 New funding 2008-11 Funding sources - Entire funding need of DKK 30bn for 2010 - Shift towards long-term funding sources DKK bn % already more than covered 200 40 Q3 2010 Q4 2008 150 30 100 20 50 10 0 0 Repo Credit ins
Slide 16: Strong capital position maintained
Strong capital position maintained Capital ratios – CRD/Basel II Trend in RWA (DKK bn) % 20 17 17.4% 10 16 9 14.4% 12.6% 12 10.4% 9.8% 879 8 843 4 0 Credit quality Change in Q4 08 Q4 09 Q3 10 Market risk Q2 2010 Q3 2010 lending Solvency ratio Total tier 1 ratio Core tier 1 ratio incl. convertible hy
Slide 17: The new Basel III proposal is a step in the right direction, but there are still some issues
The new Basel III proposal is a step in the right direction, but there are still some issues • Danske Bank is already aligned with new minimum core tier 1 ratio of 7% • According to our preliminary assessment, Danske Bank’s core tier 1 capital will be reduced by 1 percentage point: • RWA will increa
Slide 18: The macroeconomic recovery is still modest
The macroeconomic recovery is still modest % GDP, 2009-11E Public finances 8 (Growth Y/Y) 4 Gross public Budget bal. Sovereign rating debt % of GDP % of GDP & outlook (S&P) 0 2010 2011 Norway Denmark 43.0 -4.4 AAA/Stable -4 Euroland Sweden 43.6 -4.1 AAA/Stable Denmark Sweden Norway 26.0 10.0 AAA/Sta
Slide 19: Outlook for the rest of 2010 remains cautious
Outlook for the rest of 2010 remains cautious • Macroeconomic improvement, but stable short-term rates and volumes • Income trend in line with first nine months • Focus on costs will continue • Fourth-quarter specifics relative to Q3: • Fee expenses of DKK 75 m for state guarantee on DKK 38 bn fundi
Slide 20: www.danskebank.com/ir
Bank www.danskebank.com/ir 20
Slide 21: Appendix
Bank Appendix el
Slide 22: Net interest income - Realkredit Danmark
Net interest income - Realkredit Danmark DKK m 750 2009 2010 500 250 0 Q1 Q2 Q3 Q4 Note: ex. customer margin and interest on convertible gov’t hybrid capital. 22
Slide 23: Net interest income – NII margins by business unit
Net interest income – NII margins by business unit Net interest margins Q1 2009 – Q3 2010 % (NII /loan stock) 2.75 Northern Ireland 2.25 Finland Baltics 1.75 Norway Ireland Group Denmark 1.25 Sweden 0.75 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 23
Slide 24: Lending margins under pressure as competition grows
Lending margins under pressure as competition grows Quarterly lending margins Q1 2009 – Q3 2010 % (loan stock) 2.5 2.0 1.5 1.0 0.5 0.0 Denmark * Finland Sweden Norway Northern Ireland Ireland Baltics * Incl. Realkredit Danmark 24
Slide 25: In some markets, deposit margins are benefiting from increasing short-term rates
In some markets, deposit margins are benefiting from increasing short-term rates Quarterly deposit margins Q1 2009 – Q3 2010 % (deposit stock) 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 Denmark Finland Sweden Norway Northern Ireland Ireland Baltics 25
Slide 26: Favourable market conditions for Danske Markets, but levelling off as expected
Favourable market conditions for Danske Markets, but levelling off as expected EUR/SEK 12M volatility Covered and mortgage bond ASW spreads - High FX volatility boosts activity - Maintained low spreads on Danish covered bonds % bp, mid 20 400 Ireland 300 15 Spain 200 10 UK 100 Germany 5 0 Denmark 0
Slide 27: Rise in trading and investment portfolio YTD driven by falling interest rates and increasing USD
Rise in trading and investment portfolio YTD driven by falling interest rates and increasing USD Trend in total assets DKK bn end of period 4,000 Change Y/Y 3,000 Other assets +12% Trading & inv. +18% 2,000 portfolio Banks & repos - 21% 1,000 Lending - 1% 0 Total + 2% Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q
Slide 28: Credit exposure decreased by 5% Y/Y
Credit exposure decreased by 5% Y/Y Credit exposure from lending activity, end-Q3 2010 (DKK 2,330bn, including DKK 1,846bn in lending and repos) Central and local governments 5% Subsidised housing companies 5% Banks 8% Personal customers 37% Commercial property 10% Construction, engineering and buil
Slide 29: Upgrades/downgrades ratio is improving, but Denmark continues to lag
Upgrades/downgrades ratio is improving, but Denmark continues to lag % Upgrades / total internal rating changes on the corporate book 80 Downturn Upturn Downturn 60 Upgrades > downgrades Downgrades > upgrades 40 Outside Denmark 20 Denmark 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 9M 2010 Source
Slide 30: Much larger increase in bankruptcies in Denmark than in the other Nordic countries
Much larger increase in bankruptcies in Denmark than in the other Nordic countries Index Number of monthly bankruptcies in the Nordics (indexed, Jan. 1996 =100) 500 Denmark 400 300 200 Norway 100 Sweden Finland 0 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 19
Slide 31: Credit exposure to commercial property and construction segments
Credit exposure to commercial property and construction segments Portion Construction Commercial from and building Sector in DKK bn property developers materials total Denmark 109.5 1.0 12.7 122.1 Finland 15.2 0.6 6.7 21.9 Sweden 57.0 0.2 4.8 61.8 Norway 32.7 2.4 2.4 35.1 Northern Ireland 9.8 3.2 4.
Slide 32: Danish agriculture sector pressured by lower property and output prices
Danish agriculture sector pressured by lower property and output prices Other 6% Mixed operations 7% Agriculture Exposure to agriculture DKK bn 26% Realkredit Danmark 45 Grocery trade Banking Activities Denmark 13 14% Other business units 14 Agriculture 71 Agriculture LTV, Realkredit Danmark % Q4 20
Slide 33: Gross exp. subject to individual imp. test; reflects difficult economic conditions in certain markets
Gross exp. subject to individual imp. test; reflects difficult economic conditions in certain markets Gross exposure subject to individual imp. test in basis points of total loans bp 2,990 3,000 2,500 1,986 2,000 1,801 1,500 1,097 1,000 595 511 500 429 281 183 0 Denmark Finland Sweden Norway Norther
Slide 34: Quarterly trend in gross exposure subject to individual impairment test
Quarterly trend in gross exposure subject to individual impairment test Gross exposure subject to individual impairment test DKK bn 120 In basis points 102.0 102.4 102.4 of gross lending 100 95.5 6.5 0.4 11.1 Other 1,986 bp 88.1 7.3 4.4 Baltics 1,801 bp 77.8 10.4 80 21.7 Ireland 2,990 bp 66.3 11.4 6
Slide 35: Signs of housing market stabilising
Signs of housing market stabilising Correlation between house prices Danish house price development by regions Price and consumption in Denmark per sqm. DKK bn Region Prices Price fall Change in 16,000 200 peaked since peak (%) Q310 (%) Copenhagen Q3 2006 -24.9 1.4 12,000 180 Zealand Q3 2007 -21.6 0
Slide 36: Mortgages in Denmark: low average LTV ratio, arrears picking up, but still low
Mortgages in Denmark: low average LTV ratio, arrears picking up, but still low Breakdown of loans by LTV and rating category Danish mortgages Mortgage finance (residential & commercial) • 145 repossessed properties and 3908 arrears out End-Q310 of 412,262 loans at end-Q3 (0.9%) LTV/rating 1-3 4-7 8-
Slide 37: Liquid, highly rated bond portfolio
Liquid, highly rated bond portfolio Bond portfolio Rating distribution (DKK 418bn) AAA 82% AA+ 7% Credit bonds AA 1% 5% AA- 4% Certificates 2% Quasi- A+ 2% Danish government 2% A 1% mortgage bonds 44% Swedish A- 0% covered bonds 15% BBB+ 0% BBB 1% BBB- 0% BB+ 0% BB 0% BB- 0% Other covered Lower 0% b
Slide 38: Strong loan-to-deposits ratio and liquidity position
Strong loan-to-deposits ratio and liquidity position Loan-to-deposit gap (DKK bn) and ratio (%) 12-month liquidity* Moody’s Financial Strength DKK bn % DKK bn 400 125 450 300 120 300 End-Q4 2009 200 115 150 End-Q3 2010 100 110 0 End-Q4 2008 0 105 -150 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 1 month
Slide 39: Well-diversified funding position
Well-diversified funding position Equity, 4% Central banks, 4% Deposits, 32% • 57% deposits and fully match- Repos, 6% funded Danish mortgage bonds (net) Banks, net, 6% • Long-term bonds DKK 186bn • Issued covered bonds DKK 117bn S-T bonds, 7% • Termination of state guarantee at end-September has no
Slide 40: Frontloaded on funding in 2010; all completed with long duration and without guarantees
Frontloaded on funding in 2010; all completed with long duration and without guarantees • YTD Danske Bank has issued bonds for DKK Issues by type and currency 40 bn, covering more than the estimated long-term funding needed for 2010 Issue type Currency DKK bn (DKK 30 bn) Covered bonds EUR 17 NOK 2 •
Slide 41: Banking Activities Denmark: Improvement due to lower costs and impairments, but s-t rate hurts
Banking Activities Denmark: Improvement due to lower costs and impairments, but s-t rate hurts Profit before loan impairment charges 21% Trend in lending volume - Declining NII reduces income, partly offset by drop in expenses (average) DKK m 9M 2009 9M 2010 Index Net interest income 12,075 10,015
Slide 42: Banking Activities Finland: Lower costs and imp. charges, but declining NII reduces profit
Banking Activities Finland: Lower costs and imp. charges, but declining NII reduces profit Profit before loan impairment charges 53% Trend in lending volume - NII pressured by low interest rates despite strong deposit growth (average) DKK m 9M 2009 9M 2010 Index Retail: Y/Y 3% Corporate: Y/Y 12
Slide 43: Banking Activities Sweden: Benefits from increasing short-term rates and low impairments
Banking Activities Sweden: Benefits from increasing short-term rates and low impairments Trend in lending volume Profit before loan impairment charges 21% (average, %-change in local currency) - Affected by 11% appreciation of SEK against DKK DKK m 9M 2009 9M 2010 Index DKK bn Retail: Y/Y 17% Co
Slide 44: Banking Activities Norway: Lower loan imp. charges lead to improved profit before taxes
Banking Activities Norway: Lower loan imp. charges lead to improved profit before taxes Profit before loan impairment charges 14% Trend in lending volume (average %-change in local currency) - Costs 4% in local currency. 10% appreciation of NOK against DKK DKK m 9M 2009 9M 2010 Index DKK bn Retail
Slide 45: Banking Activities Northern Ireland: Resilient top line, but loan impairments still high
Banking Activities Northern Ireland: Resilient top line, but loan impairments still high Profit before loan impairment charges 12% Trend in lending volume (average, %-change in local currency) - Slightly declining NII despite higher deposits (in local currency) DKK m 9M 2009 9M 2010 Index Retail:
Slide 46: Banking Activities Ireland: Still high impairment charges for commercial property segment
Banking Activities Ireland: Still high impairment charges for commercial property segment Profit before loan impairment charges 24% Trend in lending volume - Income under pressure, cost reduction not fully visible until 2011 (average) DKK m 9M 2009 9M 2010 Index Retail: Y/Y 7% Corporate: Y/Y 5
Slide 47: Banking Activities Baltics: Profit turns positive as loan impairment charges normalises
Banking Activities Baltics: Profit turns positive as loan impairment charges normalises Profit before loan impairment charges turns positive Trend in lending volume - Increased efficiency and profitability due to tight cost control (average) DKK m 9M 2009 9M 2010 Index DKK bn Retail: Y/Y 6% Corpor
Slide 48: Danske Markets: Income down to more normal level
Danske Markets: Income down to more normal level Profit before tax down to more normal level Quarterly breakdown of income - Decline reflects exceptionally high income in 9M09 DKK m 9M 2009 9M 2010 Index DKK m Q4 2009 Q1 2010 Q2 2010 Q3 2010 Total income 15,575 6,237 40 Trading activities 1,791 2,01
Slide 49: Danske Capital: Net fees up 23% due to higher volume in assets under management
Danske Capital: Net fees up 23% due to higher volume in assets under management Profit before loan impairment charges 4% AuM – Customer breakdown - Lower total income reflects change of business Luxembourg DKK bn DKK m 9M 2009 9M 2010 Index 600 Private equity Net fee income 873 1,074 123 Instituti
Slide 50: Danica Pension: Investment return secure full risk allowance
Danica Pension: Investment return secure full risk allowance Net income from insurance business 42% Investment returns, YTD DKK m 9M 2009 9M 2010 Index Customers’ funds Premiums (DKK bn) 14.3 17.7 124 Investment return Investments & liabilities Share of technical provisions 809 837 103 % 12 Health
Slide 51: Danica's profit model
Danica’s profit model Profit model Condition / sensitivity 9M 2010 DKK m • Risk allowance 64 bp of • No usage of bonus potential of • Positive technical basis of DKK 1 technical prov. (DKK 174 bn) paid-up policies and sufficient 3.6 bn 837 investment income + • Return on investment portfolio • Equit
Slide 52: Disclaimer
Disclaimer 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 or an inducement to enter into investment activity. No part of this presentat