Danske Bank Additional Tier 1 Capital. Investor Presentation February 2015

Transcription

1 Danske Bank Additional Tier 1 Capital Investor Presentation February 2015

2 Agenda Executive summary Overview Financial results Capital, liquidity & funding New issue Q & A

3 Executive summary: Danske Bank in brief Macro-economic operating environment Diversified business model Operates principally in AAA rated Northern European countries: the largest Danish commercial bank with a strong footprint across the Nordic space Diversified business position by line of business and country Profit Net profit before goodwill impairments of DKK 12.9 bn, corresponding to ROE of 8.5% Impairments Significant improvement in impairments. Loan loss ratio for 2014 of 15 bp for core activities and 20 bp for the entire Group Capital Danske Bank Group CET1 ratio of 15.1% and total capital ratio of 19.3% as of YE2014 Funding and liquidity Dividend Solid rating position Robust funding model with LCR of 129% as of YE2014 The Board of Directors is proposing a dividend of DKK 5.5 per share and has decided to initiate a share buy-back programme of DKK 5 bn in 2015 Moody s A3 (stable) / S&P A (negative) / Fitch A (stable) 3

4 Executive summary: Additional Tier 1 Notes Nature of transaction EUR RegS benchmark transaction Structure Perpetual, non-call [7] with temporary write-down conditions Trigger The notes will carry 7 % transitional CET1 trigger at both the Bank and Group level Distance to trigger Significant 12.1% distance to trigger at the Bank level and 8.1% at the Group level Distance to MDA restriction Expected rating of the notes (S/F) Rationale Significant distance to MDA restriction BB+ / BB+ Continued normalisation of capital structure to be efficient under CRD IV. 7.0% trigger allows for recognition in relation to Pillar II requirements. Adjust capital structure to optimise efficiency in relation to rating agencies. Supports total capital ratio in light of announced dividend and share buyback. 4

6 Overview: Danske Bank has a strong Nordic franchise Facts 3.7 million customers 329 branches* 15 countries 18,478 full-time employees Business units Personal Banking Business Banking Corporates & Institutions Danica Pension Danske Capital Non-core Non-core (Ireland & Conduits) Personal banking activities in the Baltics Northern Ireland Danske Bank market share** Norway 5% Denmark 19% 27% Sweden 5% Finland 10% Estonia 7% Latvia 2% Lithuania 6% * Excluding agricultural centres in Denmark. **Market share by lending Q

7 Nordic footprint across sectors Lending in Personal and Business Banking, Q (%) Credit exposure by industry, Q (%) Denmark 57 Personal customers Commercial property Other 9 Finland 9 Non-profit & Associations Investment funds 5 6 Sweden 11 Public institutions Other financials 4 4 Banks 4 Norway 8 Industrial Services etc 4 Agriculture 3 N. Ireland 3 Consumer Insurance 3 2 Baltics 1 Other commercial Energy & Utilities 2 2 Shipping 2 C&I 11 Total lending of DKK 1,564 bn Constr. & building products Credit Institutes 2 1 Total credit exposure of DKK 2,268 bn 7

9 Net profit: DKK 12.9 bn,* up 82% from 2013 Income statement & key figures (DKK m) Key points, 2014 vs Index Q Q Index Net interest income 23,107 22, ,880 5, Net fee income 10,491 9, ,966 2, Net trading income 6,562 5, , Other income 1,344 1, Net income from insurance business 2,362 1, , Total income 43,866 39, ,221 10, Expenses 22,641 23, ,090 5, Goodwill impairment charges 9, , Profit before loan impairment charges 12,126 15, ,968 5,403 - Loan impairment charges 2,788 4, Profit before tax, core 9,338 11, ,821 4,735 - Profit before tax, Non-core -1,503-1, Profit before tax 7,835 10, ,298 4,503 - Tax 3,989 2, , Net profit 3,846 7, ,285 3,272 - Net profit before goodwill impairments 12,945 7, ,814 3, Return on avg. shareholders' equity (%) ROE before goodwill impairments (%) Cost/income ratio* Common equity tier 1 capital ratio (%) EPS Lending (DKK bn) 1,564 1, ,564 1, Deposits (DKK bn) * Before goodwill impairment charges. Return on equity improved from 5.0% to 8.5% before goodwill impairments Total income up 10%, with gains in all income lines Insurance income improved owing to booking of full risk allowance and part of the shadow account Expenses down 5% Impairments down 32% Key points, Q4 14 vs Q3 14 NII decreased slightly, owing primarily to currency effects Fee income up 12% from higher activity and performance fees at Danske Capital Insurance income includes booking of DKK 0.6 billion from the shadow account Expenses up 10% owing mainly to restructuring charges and seasonality 9

10 Expenses: Reduced by 5% in 2014 as a result of continued cost-efficiency measures Total Group expenses ex goodwill charge (DKK m) Change in expenses ex goodwill (DKK m) Consultants etc. Severance payments Deposit scheme guarantee / bank packages Bonuses Write-down on Sampo name Other costs ,794 23, , , Staff costs 197 Severance payments Office expenses Property, rent etc ,835 20,627 19,810 Consultants etc. 239 Other costs ,

11 Impairments: Loan loss ratio for 2014 of 15 bp for core activities and 20 bp for the entire Group Group impairments, 2008 to 2014 (DKK bn/bp) Impairments (DKK m) Impairments 173 Loan loss ratio* (rhs) Index Q414 Q314 Index Personal Banking 1,412 1, Business Banking 1,007 1, C&I Other activities Total core 2,788 4, Non-core 930 1, Group 3,718 5, , Loan loss ratio, annualised (bp) Index Q414 Q314 Index Personal Banking Business Banking C&I Total core Non-core Group Q408 Q409 Q410 Q411 Q412 Q413 Q414 0 * The loan loss ratio is defined as annualised impairment charges as a percentage of loans and guarantees. 11

12 Bridge to above 12.5% ROE in 2018 with unchanged macro, CET1 ratio of around 14% and capital management actions Change in ROE (%, after tax) ROE 2015E* 9.5% Costs 0.5-1% Funding & ratings 0.5-1% Volume effect 0.5-1% Income initiatives 0.5% Loan losses & other Capital effect 0.5% ROE 2018E Above 12.5% 0.5-1% Comments (Q4 presentation for assumptions) ROE target of above 12.5% in 2018 at the latest Interest rates as per end 2014 Low growth and low credit demand Costs Efficiencies to mitigate cost inflation (2%) and increasing payroll tax, one-off saving from Sampo-related amortisation charge ending in 2017 Funding & ratings Assumes maturing funding refinanced at current prices. Further, assumes improved credit rating Volume growth 2% loan growth and 2% non-nii growth Income initiatives Danske Capital and Danica income growth Pricing optimisation Loan losses & other Lower loan losses, including Non-core exit Capital Higher nominal equity in 2018 net of effect of capital management * Based on our external 2015 ROE target of 9% adjusted for the goodwill write-down of DKK 9.1 bn. 12

14 Funding and liquidity: Successful capital issues and high issuance activity in 2014 Changes in funding, 2014 (DKK bn and bp*) Long-term funding ex RD (DKK bn) Cov.bonds Senior Tier 2 Tier 1 Funding plan Completed 108bp 51bp 31 62bp bp 586bp 56bp bp 1 19bp 25 39bp 478bp bp Redemptions 2015: DKK 65 bn Redeemed 2014: DKK 64 bn New 2014: DKK 64 bn E Maturing funding, (DKK bn and bp*) Liquidity coverage ratio** (%) Cov.bonds 95bp 98bp Senior Tier 2 Tier 1 41bp bp 50bp bp bp 196bp *** : DKK 58 bn : DKK 49 bn 2018: DKK 50 bn 100 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 * Spread over 3M EURIBOR. **LCR is calculated in accordance with the Danish FSA s specifications and includes holdings of covered bonds and Danish mortgage bonds, including own issued bonds. ***Minimum requirement of the Danish FSA. 14

15 Capital: Solid capital base, with CET1 ratio of 15.1% Capital ratios, under Basel III/CRR (%) Capital drivers Tier 2 Hybrid tier 1 / Additional tier 1 Common equity tier 1 In Q4 2014, total REA declined DKK 2 bn to DKK 866 bn, mainly because of developments in the portfolio Implementation of the remaining FSA orders has been postponed to H CRD IV leverage ratio: 4.1% according to the transitional rules; 3.6% fully phased-in Effect of CRR/CRD IV on fully loaded CET1 ratio is a decline of about 1.3 percentage points from the Q ratio Repayment of the state hybrid capital of DKK 24 bn caused the total capital ratio to drop in Q Pro forma 2014 incl. share buy-back Share buy-backs of DKK 5 bn in 2015 will cause a decrease of 0.6 of a percentage point in the CET1 ratio as of end

16 Capital: Strong build-up since 2009 Capital base, (DKK bn) Key points CET1 capital AT1 capital Tier 2 capital Strong capital build-up since 2009 with a CET1 ratio of 15.1% and total capital ratio of 19.3 at end State hybrid capital of DKK 24 bn was repaid in 2014 along with issuance of DKK 5.6 bn AT1 capital Danske Bank is focusing on an ongoing optimisation of the current capital instruments in relation to CRD IV s grandfathering of noncompliant CRD IV instruments 131 REA and capital ratios (DKK bn, %) REA CET1 ratio Q State hybrid Other capital increases and decreases Q Decrease in Growth in subordinated CET1 capital debt Q Tier 1 ratio Total capital ratio

17 Financial targets: Target for ROE of above 12.5% in 2018 Target Status at 31 December 2014 Comments 2015 ambition Return on equity Above 12.5%* 8.5% before goodwill Initiatives progressing 9.5% impairments as planned Ratings A ratings S&P/Moody s/fitch A/A3/A Negative/Stable/Stable In progress, upgrade from S&P in April 2014 and from Moody's in November 2014 S&P rating outlook improved to stable CET1 ratio Minimum 13% 15.1% Met since end-2012 Around 14% Total capital ratio Minimum 17% 19.3% Met since end-2012 Well above 17% Dividend payments Payout of 40-50% of net profit 43% of net profit before goodwill impairments (proposed) Met with payments (proposed) Payout of 40-50% of net profit * 2018 at the latest 17

19 New issue: Transaction Rationale Capital Optimisation under CRD IV - Strong CET1 position to be supplemented with Additional Tier 1 capital - Adjustment of our capital structure in line with capital targets - Continued normalisation of capital structure to be efficient under CRD IV - 7.0% trigger allows for recognition in relation to Pillar II requirements - Supports total capital ratio in light of announced dividend and share buyback Supporting Senior Creditors - Support for senior creditors and depositors by enhancing total capital in context of the Bank Recovery & Resolution Directive - Adjust capital structure to optimise efficiency in relation to rating agencies 19

20 Comparison with other Additional Tier 1 precedents Peer 1 Peer 2 Peer 3 Peer 4 Trigger Metric* Transitional CET1 Transitional CET1 Transitional CET1 Transitional CET1 Fully loaded CET1 Principal Loss Absorption Mechanism Temporary Write-down Temporary Write-down Temporary Write-down Temporary Write-down Conversion into Bank s ordinary shares PONV Risk Factor Risk Factor Risk Factor Risk Factor Risk Factor Capital Buffer at issue** Implied buffer to Trigger Trigger 8.100% 7.000% % 7.000% 5.600% 7.000% 9.845% 5.125% 8.200% 8.000% % 5.125% 7.200% 8.000% % 5.125% 4.300% 7.000% Group Bank Group Bank Group Bank Group Bank Consolidated Basel III End 2014 Basel III 1H2014 Basel III 3Q2014 Basel III 2Q2014 Basel III fully loaded 2Q2014 Source: Transaction documentation, Bloomberg, IFR; according to Issuers presentations, as understood. The numbers are calculated to the best knowledge of Danske Bank. However, investors should conduct their own analysis for their own purposes and Danske Bank takes no responsibility. * Transitional CET1 means Basel 3 CET 1 phased-in capital definition in the European Union. Fully-loaded CET1 means that all measures used shall be calculated on a fully loaded basis. ** Buffer to trigger relates to the latest AT1 transaction. 20

21 Mandatory distribution restrictions Key points Mandatory restrictions to discretionary distributions* will apply to all European banks under CRD IV. The Maximum Distributable Amount ( MDA ) is calculated in relation to the combined capital buffer requirement ( CBR ). CBR is defined as the capital conservation buffer extended by the systemic risk buffer and countercyclical capital buffer. Danske Bank s CBR of 5.7% consists of a 2.5% capital conservation buffer, a 0.2% countercyclical capital buffer reflecting the exposures in Norway and Sweden and a 3.0% systematic risk buffer. According to CRD IV, the Pillar II requirement is not relevant for MDA purposes. Danske Bank intends to manage its CET1 capital ratio to provide a prudent cushion to its CBR to mitigate against the risk of mandatory distribution restrictions under CRD IV *Dividends on ordinary shares, coupon payments on AT1 instruments and discretionary variable compensation 21

22 Mitigating mandatory distribution restrictions Estimated capital buffer structure, (%) Key points Countercyclical capital buffer (0.2% from 2015) Capital conservation buffer Systemic risk buffer CET1 min req. Sliding scale of restrictions MDA buffer* CET1 (End 2014) 15.1% Significant headroom to the MDA CET1 capital target min.13% CET1 trigger point 7% restriction point is anticipated, assuming that the min. 13% CET1 ratio target is maintained* Between now and 2017, the effective floor for mandatory restrictions on interest payments will be the 7% CET1 trigger, stepping up to 10.2% by 2019 when the CRD IV transitional rules are fully phased-in ,5 2,5 1, , ,2 1,8 2,4 3,0 3,0 4,0 4,5 4,5 4,5 4,5 4,5 4,5 Estimated MDA buffers* (DKK bn) A 2015E 2016E 2017E 2018E 2019E 2020E 2014A 2015E 2016E 2017E 2018E 2019E 2020E * MDA buffer capped by trigger level, if relevant. Assuming CET target of min. 13% and that min. requirements are covered by relevant capital instruments. 22

23 New issue: Terms and Conditions 1/3 Issuer Issuer s Senior Ratings (M/S/F) Instrument Ratings (S/F) Description Maturity Optional Redemption Interest Interest Cancellation Danske Bank A/S A3 (Stable) / A (Negative) / A (Stable) [BB+] / [BB+] (expected) EUR [ ] Perpetual Non-cumulative Resettable Additional Tier 1 Capital Notes (the Notes ) Perpetual [] April [2022] ( First Call Date ) at the Outstanding Principal Amount or on any interest payment date thereafter subject to regulatory approval [ ]% p.a. payable semi-annually in arrear up to the First Call Date Thereafter reset to a new fixed rate, payable semi-annually in arrear, based on the underlying swap rate plus the margin, in [2022] and every [seventh] anniversary thereafter Any payment of interest in respect of the Notes shall be payable only out of the Issuer s Distributable Items and (i) may be cancelled, at any time, in whole or in part, at the option of the Issuer in its sole discretion, or (ii) will be mandatorily cancelled to the extent the relevant payment would cause any Maximum Distributable Amount to be exceeded or if otherwise so required by the CRD IV*, including the applicable criteria for Additional Tier 1 Capital instruments Note: The terms are outlined in their entirety in the full terms and conditions of the Notes. In case of any discrepancy, the Base Prospectus prevails. * CRD IV means, as the context requires, any or any combination of the CRD IV Directive, the CRR and any CRD IV Implementing Measures. 23

24 New issue: Terms and Conditions 2/3 Status/Subordination Special Event Redemption Notes are eligible to constitute Additional Tier 1 Capital under CRD IV. Subject to any Loss Absorption Following a Trigger Event and Reinstatement of the Notes as detailed below, the Notes will constitute direct, unsecured and subordinated debt obligations of the Issuer, and will rank (i) pari passu without any preference among themselves, (ii) pari passu with any other Additional Tier 1 Capital of the Issuer (including the Existing Hybrid Tier 1 Capital Notes) and obligations or capital instruments that rank or are expressed to rank equally with the Notes, (iii) senior to all classes of Issuer s share capital and obligations ranking or expressed to rank junior to the Notes and (iv) junior to all other obligations of the Issuer The Issuer may redeem the Notes at the Outstanding Principal Amount at any time in case of a Tax Event (future additional amounts or loss of deductibility) or a Capital Event (exclusion from or reclassification to a lower form of regulatory capital) (each a Special Event ) subject to regulatory approval Substitution and Variation If a Special Event has occurred, the Issuer may substitute all (but not some only) of the Notes or vary the terms of all (but not some only) of the Notes, without any requirement for the consent or approval of the Holders, so that they become or remain Qualifying Capital Notes Qualifying Capital Notes must (i) comply with the then current Additional Tier 1 Capital requirements and provide the same amount of regulatory recognition as the Notes, (ii) carry the same rate of interest, (iii) have the same original and outstanding principal amounts, (iv) rank pari passu with the Notes, (v) not immediately be subject to a Special Event Redemption, (vi) have terms that are not materially less favourable to an investor and (vii) maintain listing Note: The terms are outlined in their entirety in the full terms and conditions of the Notes. In case of any discrepancy, the Base Prospectus prevails. 24

25 New issue: Terms and Conditions 3/3 Loss Absorption following a Trigger Event and Reinstatement PONV Governing Law Denominations/ Listing Neg. Pledge/ Cross Def. If at any time the Common Equity Tier 1 ( CET1 ) Capital Ratio of the Issuer and/or the Group has fallen below 7%, the Outstanding Principal Amounts shall be reduced (in whole or in part) Subject to CRD IV and BRRD requirements the amount of the write down shall be the lower of (i) the amount that would cure the Trigger Event taking into account first the CET1 generated by any instruments with a higher CET1 trigger than the Notes and second any CET1 generated pro rata by all Parity Trigger Loss Absorbing Instruments (if any), and (ii) the amount that would reduce the Outstanding Principal Amounts to EUR 0.01 Following any such reduction of the Outstanding Principal Amounts, the Issuer may, at its discretion, reinstate some or all of the principal amount of the Notes subject to compliance with CRD IV Reinstatement would be on a pro-rata basis with all other Parity Trigger Loss Absorbing Instruments with triggers at the same level and that feature similar reinstatement provisions The Notes may be subject to statutory loss absorption as more fully described in the risk factors in the Base Prospectus English Law, except subordination, interest cancellation, loss absorption and reinstatement, special event redemption and enforcement events which will be under Danish Law EUR 200k+1k/Irish Stock Exchange None Note: The terms are outlined in their entirety in the full terms and conditions of the Notes. In case of any discrepancy, the Base Prospectus prevails. 25

27 Q&A session 27

28 Contacts Henrik Ramlau-Hansen Chief Financial Officer, Member of the Executive Board Direct: Mobile: Christoffer Møllenbach Head of Treasury Direct: Mobile: Peter Holm Senior Vice President Direct: Mobile: Claus Ingar Jensen Head of IR Direct: Mobile: John Bäckman Chief IR Officer Direct: Mobile: Robin Hjelgaard Løfgren IR Officer Direct: Mobile: Bent Callisen First Vice President Direct: Mobile:

29 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, or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. The securities referred to herein have not been, and will not be, registered under the Securities Act of 1933, as amended ( Securities Act ), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. This presentation contains forward-looking statements that reflect management s current views with respect to certain future events and potential financial performance. Although Danske Bank believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of various factors many of which are beyond Danske Bank s control. This presentation does not imply that Danske Bank has undertaken to revise these forward-looking statements, beyond what is required by applicable law or applicable stock exchange regulations if and when circumstances arise that will lead to changes compared to the date when these statements were provided. 29