First half of 2007: Better than expected and earnings upgrade. 9 August 2007

Transcription

1 First half of 27: Better than expected and earnings upgrade 9 August 27

2 AGENDA Agenda Slide Executive summary 3 Highlights 4 Business trends 6 Business area highlights 16 Outlook 17 Appendix A: Trends in Danske Bank Group 19 Appendix B: Trends in business areas 26 2

3 EXECUTIVE SUMMARY First half of 27 in brief - Result better than expected; upgrade of earnings guidance First half 27 News Q2 27 Outlook 27 Result better than expected NII growth continue Double-digit growth in lending and deposits Improved ROE at units outside Denmark Successful introduction of new products in Denmark and Sweden Strong income from customer-driven trading NII up 1% Q/Q on adjusted basis Guidance upgrade net profit now at same level as in 26, including Sampo Bank Higher trading and insurance income Higher expenses now expected to rise 8%-9% Danish economy slows Underlying cost base up 3% Low credit loss expenses Lower fee income due to lower refi activity Expenses up 14% due to integration costs Effective tax rate reduced from 27% to 25% Underlying RWA growth of 13% Solvency ratio within targets Underlying cost base up 4% 3

4 HIGHLIGHTS Performance highlights - 11% earnings growth driven by NII, trading and insurance income Net profit 11% to DKr 7.6bn Income statement & key figures Result better than expected Double-digit lending growth in all banking activities Income up 12%, fuelled by strong NII growth Trading and insurance income exceed estimates Lower growth in fee income due to CDSs Pro forma DKr m H1 26 H1 27 Index Net interest income 1,631 11, Net fee income 4,469 4, Net trading income 3,78 4, Other income 1,332 1, Net income from insurance business Total income 2,245 22, Expenses 11,131 12, Profit bef. credit loss exp. 9,114 1,67 11 Credit loss expenses Profit before tax 9,591 1,62 15 Tax 2,716 2,433 9 Net profit for the period 6,875 7, Expenses up 13% Tax rate in Denmark lowered from 28% to 25% Earnings per share (DKr) Return on equity, p.a. (%) Cost/income ratio (%) Cost/income ratio (%) ex integration Core (Tier 1) capital ratio ex hybrid capital (%) Risk-weighted assets (DKr bn) 1,152 1, Total loans ex repos (DKr bn) 1,422 1, Deposits ex repos (DKr bn)

5 HIGHLIGHTS Underlying profit - Profit higher when adjusted for total integration costs Underlying profit 12% higher than reported profit Total integration costs: DKr 1.1bn Tax on integration costs: DKr 118m DKr m Adjusted profit H1 27 9, , 557 7, 7,629 8,533 6, Reported net profit Amortisation of intangibles Integration costs Tax Adjusted net profit 5

6 BUSINESS TRENDS Net interest income (1) - Good volume growth and higher interest rates boost NII line Net interest income 11% NII growth, despite financing costs of Sampo Bank acquisition Double-digit lending and deposit growth continued Increase of 25 bp in short-term interest rate would raise NII by DKr 425m, including DKr 225m from shareholders equity DKr m 12, 1, 8, Net interest income Y/Y 11% H1 26 H1 27 % Retail Corporate Total Lending growth Y/Y (end period) DK RD FI SE NO NIR IRL Baltics DKr m H17/H16 Q27/Q17 Net interest income 1,631 5,724 Loan volume Lending margins Deposit volume Deposit margins Allocated equity Number of days % Other % Total *) Finland & Baltics 347 Other banking activities Mortgage Finance Other changes Net interest income 11,777 6,53 * Total includes DK, SE, NO, NIR and IRL Q/Q, but only DK, SE and NO Y/Y 6

7 BUSINESS TRENDS Net interest income (2) - 14% underlying groth Breakdown of NII Y/Y DKr m 12,5 Reported growth +11% Underlying growth +14% 11,5 1,5 9,5 11,777 1, ,349 11,777 NII H1 27 NII H1 26 Funding Sampo Bank Sampo Bank amort. Change of capital structure Danica NII H1 26 adj NII H1 27 7

8 BUSINESS TRENDS Net fee income - Lower refi activtiy, but good traction in other business areas Net fee income 2% Double-digit growth in most business areas Down 9% in Denmark Refi activity lower Y/Y Large amount of investment fees in 26 did not recur in 27 DKr 138m increase in fee expenses for CDS DKr bn 6 3 H1 26 Net fee income Y/Y 2% Sampo Bank Portfolio fees Activity fees H1 27 DKr m 4,6 Net fee growth Y/Y DKr m 2,5 Net fee growth Q/Q 4,3-2% +1% +1% 68-1% ,396 4,469 4,331 4,396 2, 2,214 2,182 2,245 2,214 4, NFI H1 27 NFI H1 26 CDS NFI H1 26 adj NFI H1 27 1,5 NFI Q2 27 NFI Q1 27 *BA FI and BA Baltics CDS One month Sampo Bank* NFI Q1 7 adj NFI Q2 27 8

9 BUSINESS TRENDS Net trading income - Increasing customer-driven activity Net trading income 11% Result better than expected Trading activities improved 12 % because of increased customer-driven activity Prop trading profit improved due to successful positions in mortgage bonds 14% growth in trading activities Q/Q Driven by interest rates and currency Net trading income breakdown DKr m H1 26 H1 27 Index Trading activities 2,156 2, Proprietary trading Investment portfolio Institutional banking Total, Danske Markets 3,157 3, BA Denmark Other trading activities Net trading income 3,78 4, DKr m 5, 3, 1, DKr m 4,5 4, 3,5 3, Net trading income Y/Y 11% H1 26 H1 27 Fees and customer-driven trading income per quarter Q/Q 6% -Y/Y 9% Q2 Q3 Q4 Q1 Q

10 BUSINESS TRENDS Other income and insurance - Sale of five Norwegian branches; higher investment return at Danica Other income 17% Growth due mainly to DKr 199m gain from sale of five Norwegian branches Good growth in operational leasing DKr bn 2, 1, Other income Y/Y 17% Sale of branches Other Real estate NO & SE Leasing Net income from insurance DKr 636m Health and accident result improved, but was still unsatisfactory; combined ratio 118% Risk allowance of DKr 526m, or.59% of technical provisions. DKr bn H1 26 H1 27 Net income from insurance Y/Y DKr 636m 1 2 H1 26 H1 27 1

11 BUSINESS TRENDS Expenses - Increase reflects integration of banks and higher activity Expenses 13% Total integration costs: Integration expenses: DKr 465m Amortisation of intangibles: DKr 557m C/I ratio maintained at 55% DKr bn Expenses & C/I ratio % H1 26 H1 27 Underlying cost base 3% DKr m H1 26 H1 27 Index Expenses 11,131 12, Integration expenses Amortisation of intangibles Costs ex one-offs 1,386 11, Bonuses Operational leasing, Nordania Real Estate - Nylander 43 - Pensions Norway -2 - Capitalisation of development costs Underlying cost base 9,884 1, DKr m 7, 6, 5, 6,663 5,867 Breakdown of expenses Q/Q +14% +4% Costs Q2 27 Costs Q1 27 *BA FI and BA Baltics 274 One month Sampo Bank* 2 47 Integration costs Holiday payment 6,388 Costs Q1 27 adj 6,663 Costs Q

12 BUSINESS TRENDS Integration expenses and cost synergies - Synergies on track Integration expenses DKr m DKr m DKr m 2, 1,8 4 1, Remaining Booked in H1 27 1,2 3 To be used in To be used in 28 1, 1,157 5 Synergies Booked in 25 and To be used 28 To be used in H2 27 Booked in H To be used in H2 27 Booked in H1 27 FTEs reduced by 24% at NB and 11% at NIB since 25 DKr 317m achieved, with full effect in 28 DKr 6m in synergies expected in 27 Majority to be achieved after the migration at Easter 28 DKr 135m (of Dkr 3m) expected in 27, with full effect in 28 Branch mergers are ahead of plan 5 extra to be merged to 25 in 27 12

13 BUSINESS TRENDS Synergies and performance in NB & NIB - Business growth and FTE-reduction at the same time Index Index 3 Migration to IT-platform 3 Migration to IT-platform +158% % +41% 1 +15% 2% -24% 1 +4% -11% Q1 5 Q2 5 Q3 5 Q4 5 Q1 6 Q2 6 Q3 6 Q4 6 Q1 7 Q2 7 Q1 5 Q2 5 Q3 5 Q4 5 Q1 6 Q2 6 Q3 6 Q4 6 Q1 7 Q2 7 Total lending (Q1 5 = index 1) Total lending (Q1 5 = index 1) Total income (Q1 5 = index 1) FTEs (Q1 5 = index 1) Profit before credit loss expenses ex total integration costs (Q1 5 = index 1) Total income (Q1 5 = index 1) FTEs (Q1 5 = index 1) Profit before credit loss expenses ex total integration costs (Q1 5 = index 1) NB adjusted for divestment of Isle of Man and netting effect on lending 13

14 BUSINESS TRENDS Credit loss expenses - Credit loss expenses still below average for business cycle Good macroeconomics and strong credit book Benign macroeconomic conditions DKr 5m in credit losses expenses Increase in new impairment charges bp Credit loss expenses Hensættelser i bp. af lån og garantier Avg. for business cycle -5-1 Q2 6 Q3 6 Q4 6 Q1 7 Q2 7 DKr bn Accumulated impairment charges & coverage ratio (26 ex Sampo Bank) % DKr m Credit loss expenses by business unit (Q2 27) Q2 Q3 Q4 Q1 Q DK FI SE NO NIR IRL Baltics RD Other 14

15 BUSINESS TRENDS Solvency and RWA - Capital ratios within new targets; CDSs mitigate RWA growth Ratios within capital targets Core capital ratio ex hybrid: 5.8% CDS securitisation reduced RWA by DKr 114bn in H1 27 RWA growth including CDS reduction at 4% Y/Y Underlying RWA growth 13% Y/Y Capital targets (as % of RWA) Target Q2 27 Core capital ex hybrid capital Hybrid capital Core capital Supplementary capital Solvency % Annual growth in RWA % Core capital ratio, ex hybrid capital Underlying organic growth -1 5 NB & NIB H Sampo Bank acquisition 33 CDS % ex equity issue H

16 BUSINESS AREA HIGHLIGHTS Update on J curve at units outside Denmark - Growth continues, with profitability on the rise Sweden ROE before credit losses and tax 2% ROE before credit losses and tax 21% 16% 16% 14% 17% 13% 11% H H1 27 Profit before loan losses: H14 vs. H17 up 1.8x (CAGR 22.5 %) Profit before loan losses: H14 vs. H17 up 3.x (CAGR 43.8 %) ROE before credit losses and tax 38% ROE before credit losses and tax 18% 9% 3% % 1% H1 27 H1 27 ex -2% total integration costs H1 27 H1 27 ex total integration -8% costs Profit before loan losses: H15 vs. H17 up x (CAGR %) Profit before loan losses: H15 vs. H17 up 2.x (CAGR 42.8 %) 16

17 OUTLOOK Outlook for 27 - Earnings guidance upgraded Assumptions and underlying conditions Sound macroeconomic conditions in our core markets expected to continue in 27 Two more eurozone interest rate hikes of 25bp in H2 27 (September and December) Remortgaging at lower level than in 26 Double-digit lending growth, but intense price competition to continue Guidance NII 8%-1% higher than in 26 Fee income up 1%-3% Net trading income up 3%-7% Other income 5%-7% lower as no property sales are expected Expenses up about 8%-9% Tax rate 25% Net profit at same level as in 26 DKr m 26 * 27 guidance Net interest income 22,61 Up 8%-1% Net fee income 8,877 Up 1%-3% Net trading income 7,28 Up 3%-7% Other income 2,952 Down 5%-7% Insurance 1,355 Down 2%-5% Total income 43,74 Slightly higher Expenses 22,64 Up 8%-9% Profit bef. credit losses 2,434 Up %-2% Expected development in expenses Increase (%) Expenses 8-9 Portion attributable to integration costs 5 Other expenses 3-4 Bonuses 1 Increased operational leasing, Nordania 1 Pensions Norway 1 Underlying cost base -1 Net profit 15,369 Same level *26 pro forma figures incl. Sampo Bank 17

18 Q&A SESSION

19 TRENDS IN DANSKE BANK GROUP Appendix A Trends in Danske Bank Group 19

20 TRENDS IN DANSKE BANK GROUP Performance highlights Income lifts earnings NII up 11% Increase in other income is mainly from trading and insurance income Large net reversal of credit loss expenses is not recurring in 27 Positive effect from lower tax rate DKr m 1, Breakdown of profit growth Y/Y 8,5 7, 1,146 1,26 1, ,5 6,875 7,629 4, H1 26 NII Other income Expenses Credit losses Tax H1 27 2

21 TRENDS IN DANSKE BANK GROUP Net interest income Q/Q - Like for like growth of one percent DKr m Breakdown of NII Q/Q 6,5 Reported growth Underlying growth +6% % 6, ,5 6,53 5,724 5,989 6,53 5, NII Q2 7 NII Q1 7 One day more One month Sampo Bank* Funding Sampo Bank Sampo Bank amort. NII Q1 7 adj NII Q2 7 *BA FI and BA Baltics 21

22 TRENDS IN DANSKE BANK GROUP Expenses - Capitalisation of costs for software developed in-house Danske Banks development model Capitalisation of development costs, according to IAS 38 Case: integration of Sampo Bank H1 28 (expected) Net capitalisation of development costs DKr m Q H Full year H2 27 (expected) H1 27 Capitalisation phase Planning -Pre-analysis Development -Design -Construction - Tests of system - Technical implementation Operation - User tests - Organisational implementation - Project management 22

23 TRENDS IN DANSKE BANK GROUP Real estate market Houses Flats Danish real estate market: Rising interest rates + 3,6% -16,9% + 2,1% -44,5% Square metre price Q/Q 3Y: from 4.5% in Q1 6 to 5.6% in Q2 7 1Y: from 3% in Q1 6 to 4.8% in Q2 7 Number of sales Y/Y Housing prices up 8.1% Y/Y,.4% Q/Q Flats down 2.% Y/Y, 2.2% Q/Q Sales down 4% from peak (Q3 5) Houses + 2,4% -23,8% Flats + 1,4% -32,2% Houses -1,9% Flats -2,7% Outlook according to Danske Markets: Flat to slightly declining prices -4,1% -35,4% Houses Flats + 3,7% + 4,% Houses Flats -19,6% -41,2% + 1,8% + 1,5% -34,3% -38,4% Source: Assoc. of Danish Mortgage Banks. 23

24 Profit before tax Y/Y DKr m DKr m 1,5 5,5 1, 24 9,591 1,62 9,5 9, H1 26 BA DK BA FI BA SE BA NO BA NIR BA IR BA Baltics Mortgage Finance Danske Markets Danske Capital Danica Pension Other H1 27 Q1 27 BA DK BA FI BA SE BA NO BA NIR BA IR BA Baltics 5,294 4,768-5, 4,5 4, Mortgage Finance Danske Markets Danske Capital Danica Pension Others Q2 27 TRENDS IN DANSKE BANK GROUP Change in profit by business area Profit before tax Q/Q Due to credit loss expenses

25 TRENDS IN DANSKE BANK GROUP Geographic distribution of income - International diversification continues Distribution of income Banking activities and Mortgage Finance 1% 17% 26% 3% 41% 42% 5% % ex Sampo Bank Y/Y 15% Non-Danish activities Y/Y 3% Danish activities 26 pro forma H

26 TRENDS IN BUSINESS AREAS Appendix B Trends in business areas 26

27 TRENDS IN BUSINESS AREAS 16, 12, 8, Banking Activities Denmark - High profitability continues Profit before tax - Down 3% due to lower fees and credit loss reversals DKr m H1 26 H1 27 Index Net interest income 4,72 5, Net fee income 2,59 2, Other income Total income 7,676 7, Total integration costs 68 - Expenses ex total intgr. costs 3,937 4,64 13 Profit bef. credit loss exp. 3,739 3, Credit loss expenses Profit before tax 4,45 3,99 97 ROE before credit loss exp New product launches 24/7 and high-interest account New advisory customers New customers DKr bn 2 1 DKr bn 2,8 2,6 Retail: Y/Y 18% Q/Q 2% Trend in lending volume (average) Corporate: Y/Y 17% Q/Q 3% Q2 Q3 Q4 Q1 Q Breakdown of net interest Income Q/Q 2% % , 2,4 2,612 2,552 2,61 2,612 5-Jun 12-Jun 19-Jun 26-Jun 3-Jul 1-Jul 17-Jul 24-Jul 31-Jul 24/7 2,2 NII Q2 7 NII Q1 7 1 day more Deferred hikes NII Q1 7 adj NII Q2 7 27

28 TRENDS IN BUSINESS AREAS Banking Activities Finland - Result slightly better than expected; good economic outlook Profit before tax - Up 5% ex total integration costs and amortisation of fair value adjustments DKr m H1 26 H1 27 Index Net interest income ex FV 1,284 1, Amortisation of fair value Net fee income Other income Total income 1,915 2,1 14 Total integration costs Expenses ex total intgr. costs 1,15 1, Profit bef. credit loss exp Credit loss expenses Profit before tax ROE before credit loss exp DKr bn Retail: Y/Y 14% Q/Q 5% Trend in lending volume (average) Corporate: Y/Y 11% Q/Q 3% Q2 Q3 Q4 Q1 Q DKr m Quarterly profit before tax % GDP growth Incl. /ex total integration costs and amortisation of - Benign macro economic outlook 8 fair value adjustments 6 Note: Finland Q17 = 2 months Euroland Q27 = 3 months 4 2 Q2 Q3 Q4 Q1 Q E 28E Source: Danske Research. 28

29 TRENDS IN BUSINESS AREAS Banking Activities Sweden - High volume growth and increasing ROE Profit before tax - Up 27% on volume growth and improved C/I ratio; successful launch of high-interest deposit account, XL DKr m H1 26 H1 27 Index Net interest income 834 1,9 121 Net fee income Other income Total income 1,186 1, Expenses Profit bef. credit loss exp Credit loss expenses Profit before tax ROE before credit loss exp New product launch High interest deposit account, XL DKr bn Retail: Y/Y 17% Q/Q 3% Trend in lending volume (average) Corporate: Y/Y 14% Q/Q 3% Q2 Q3 Q4 Q1 Q % ROE before credit losses & C/I ratio - Improved profitability and cost efficiency % 6, New customers , 4, 3, , 1, 15-May 29-May 12-Jun 26-Jun 1-Jul 24-Jul H

30 TRENDS IN BUSINESS AREAS Banking Activities Norway - Solid profit growth and market share gains Profit before tax - Up 15% on high volume growth; ROE improves further DKr m H1 26 H1 27 Index Net interest income Net fee income Other income Total income 1,125 1, Expenses Profit bef. credit loss exp Credit loss expenses Profit before tax DKr bn Retail: Y/Y 8% Q/Q 2% Trend in lending volume (average) Corporate: Y/Y 31% Q/Q 6% Q2 Q3 Q4 Q1 Q2 ROE before credit loss exp % Market shares % ROE before credit losses & C/I ratio - Improved profitability and cost efficiency % 6 Lending Deposits Q2 Q3 Q4 Q1 Q H

31 TRENDS IN BUSINESS AREAS 4 Banking Activities Northern Ireland - Double-digit lending growth and synergy target achieved Profit before tax - Up DKr 186m on both lending and deposit volume growth; synergies keep cost base unchanged DKr m H1 26 H1 27 Index Net interest income Net fee income Other income Total income 1,98 1, Total integration costs Expenses ex total intgr. costs Profit bef. credit loss exp Credit loss expenses Profit before tax ROE before credit loss exp DKr m Quarterly profit before tax Incl. /ex total integration costs DKr bn % 5 Trend in lending volume (average) Y/Y 13% Q/Q 4% Q2 Q3 Q4 Q1 Q ROE before credit losses and taxes -Normalised ROE at 38% 2 25 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Reported Ex integration Ex amortisation Normalised 31

32 TRENDS IN BUSINESS AREAS Banking Activities Ireland - High growth begins to pay-off Profit before tax - Up DKr 224m, with lending growth at 51% Y/Y DKr m H1 26 H1 27 Index Net interest income Net fee income Other income Total income Total integration costs Expenses ex total intgr. costs Profit bef. credit loss exp Credit loss expenses Profit before tax ROE before credit loss exp New product launches LTV mortgage DKr m % 2 Quarterly profit before tax Incl. /ex total integration costs Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q ROE before credit losses and taxes -Normalised ROE at 18% 1 DKr 6.3bn in total sales of LTV product Average LTV 55% Reported Ex integration Ex amortisation Normalised 32

33 TRENDS IN BUSINESS AREAS Banking Activities Baltics - Strong lending growth and improved profitability Profit before tax - Up 37% owing to strong lending growth DKr m H1 26 H1 27 Index Net interest income Net fee income Other income Total income Expenses Profit bef. credit loss exp Credit loss expenses Profit before tax ROE before credit loss exp DKr bn Retail: Y/Y 57% Q/Q 1% Trend in lending volume (average) 26 Corporate: Y/Y 6% Q/Q 1% Q2 Q3 Q4 Q1 Q2 27 Distribution of loans (end-period) Total DKr 22.6bn % ROE before credit losses & C/I ratio - Higher profitability and good C/I performance % 3 7 Lithuania Estonia Q2 Q3 Q4 Q1 Q2 5 Latvia

34 TRENDS IN BUSINESS AREAS Mortgage Finance - Earnings growth despite slowing market Profit before tax - Up 2%; income up whilst expenses unchanged DKr m H1 26 H1 27 Index Net interest income 1,755 1, Net fee income Other income Total income 1,797 1, Expenses Profit bef. credit loss exp. 1,21 1, Credit loss expenses Profit before tax 1,264 1, ROE before credit loss exp DKr bn Retail: Y/Y 8% Q/Q 2% Trend in lending volume (nominal value, average) Corporate: Y/Y 6% Q/Q 1% Q2 Q3 Q4 Q1 Q New product launch Covered Bonds (SDOs) DKr bn Gross lending, nominal volume and market share % 75 Market share Q2 Q3 Q4 Q1 Q

35 TRENDS IN BUSINESS AREAS Danske Markets - Better-than-expected earnings on increased customer activity Profit before tax - Down 1%, better than expected Distribution of income - Up 7%, reflecting increasing demand for our products DKr m H1 26 H1 27 Index Total income 3,157 3, Expenses 1,16 1, Profit bef. credit loss exp. 1,997 2,11 11 Credit loss expenses Profit before tax 2,3 2,6 99 ROE before credit loss exp DKr m H1 26 H1 27 Index Trading activities 2,156 2, Proprietary trading Investment portfolio Institutional banking Total, Danske Markets 3,157 3, Days 9 Prop trading Distribution of daily P&L (1/3/26 3/6/27) Trading activities DKr m 1,2 Average quarterly income (Q2 25 Q2 27) High Average Low 6 1, DKr Trading act. Prop trading Inv. portfolio DM! 35

36 TRENDS IN BUSINESS AREAS Danske Capital - Double-digit profit growth Profit before tax - Up 12%, or 16% ex amortisations. Underlying costs growth of 11%. DKr m 65 AuM - Customer breakdown (26 ex Sampo Bank) Private equity Institutional DKr m H1 26 H1 27 Index Total income Expenses Profit bef. credit loss exp Credit loss expenses Profit before tax Mutual funds Insurance & pension pools Q2 Q3 Q4 Q1 Q % Margins (Total income/aum, end-period) % AuM Asset breakdown (26 ex Sampo Bank).4 1 Cash Equities.3 5 Bonds.2 Q2 Q3 Q4 Q1 Q Q2 Q3 Q4 Q1 Q

37 TRENDS IN BUSINESS AREAS Change in share prices Danica Pension - Underlying profit up; Health and Accident slowly improving Net income from insurance business DKr m H1 26 H1 27 Index Premiums (DKr bn) Share of technical provisions etc Health and accident (insurance result) Insurance result on unit-linked etc Investment result Financing result Net income before risk allowance Postponed risk allowance Net income from insurance business Net income as % p.a. of allocated cap Possibility of booking full risk allowance Base: end-q Risk allowance possible Change in interest rate Risk allowance not possible % Investment return -3.7 Investment returns, YTD Customers funds 1.2 Investments & liabilities H1 26 H1 27 Equities, non-danish Properties Asset allocation Customers funds Equities, Danish 21% 4% 9% 66% Bonds 37