S E B E N S K I L D A S E M I N A R. Investment products. Survival of the fittest

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1 S E B E N S K I L D A S E M I N A R Investment products Survival of the fittest Tonny Thierry Andersen CFO & Member of the Executive Board October 2006

2 The Challenge. every morning in Africa a gazelle wakes up. It knows that it must run faster than the fastest lion, or it will be killed. Every morning a lion wakes up. It knows that it must outrun the slowest gazelle, or it will starve to death. It does not matter whether you are a lion or a gazelle. When the sun comes up, you better start running. Friedman 2

3 Agenda The markets in general (historically) Clients Challenges Danske Banks Strategy Distribution channels Products and prices The Future 3

4 Equities, bonds or.? Equities percent percent Bonds Index : Beginning of 1992 = 100 4

250 200 250 200 percent 150 100 Bonds 150

5 Commission income in Swedish banks 5

6 Investment related fees in Danish banks Index Fees, investments Index Fees, investments Danske Bank Regional & local Danish Banks Danske Bank OMX OMX 80 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q H H H

Regional & local Danish Banks Danske Bank 125 120 OMX OMX

7 Danske Bank vs. peers - Danske Bank is in a relatively protected position Index Fee income, Nordic peers 140 SEB Handelsbanken 110 Nordea Danske Bank 80 15,0 Q205 Q305 Q405 Q106 Q206 Fee income, standard deviation of index value 7,5 0,0 DB Handelsbanken Nordea SEB 7

8 Portfolio and activity based fees - Where are you most exposed? DKr m Total fee income in the Danske Bank Group Average: DKr 770m Standard deviation: Average: DKr 838m Standard deviation: 71 0 Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 Fees generated by portfolios Fees generated by activities 8

500 Average: DKr 770m Standard deviation: 94 1.

9 Lower multiples for fee and commissions - Illustration Danske Bank SEB Sydbank P/E (2006 adj.) Current market value, bn Fees related to investments (H x 2), m 3,530 8,658 1,066 What if fees & commissions dropped by 20% 20% 20% Change in market value, m 5,236 14,337 1,673 In % of current market value Source: Danske Equities 9

7 Fees related to investments (H1 2006 x 2), m 3,530 8,658 1,066 What if fees & commissions

10 The position of the competitors - Increased pressure from specialized competitors from both sides Investment Advise Much Advisory heavy Little Internet investment banks Low High Cost for the customers 10

sides Investment Advise Much Advisory heavy Little

11 The Danske Bank strategy - Strong IT and stability in earnings secure client focused solutions Create value for clients To deliver segmented solutions adjusted the clients individual needs Relevant advices direct and through managed solutions Competitive in all client segments Still a strong advisory concept in branches and finance centres More focus on online clients, including price and applications More automated client focused managed solutions to secure surveillance, follow up and overview = safety More stability in earnings Bigger share of earnings must come from managed products and advisory products on simple transactions Whole clients Stronger pressure on margins mean that the clients accumulated portfolio becomes important Strong and efficient IT-platform secure low margin costs 11

applications More automated client focused managed solutions to secure surveillance, follow up and overview = safety More stability in earnings Bigger share of earnings must come from managed

12 Segmentation of retail clients (Europe) - Movement from validator to other behaviour segments Ignore advice Confidence to advicers Collect information Self-director 27 % 6 % Validator 19 % 10 % Dont collect information Avoiders 26 % Delegator 17 % 84 % Behaviour within the investment area in Danske Bank Dont know 11 % Source Europs consumers, Forrester, oct

Validator 19 % 10 % Dont collect information Avoiders 26 % Delegator 17 % 84 % Behaviour

13 New strategy for client segments on investment - The products focuses on the degree of advise and traffic Self-director No advice Analyses and business propositions from the bank is offered Danske Investering Online Validator Sparring and dialog Investment proposals Peace of mind from follow up and continuous dialogue Delegator Wishes help to put together the portfolio Managed products Continuous reporting Flexinvest Fri Both in branches and finance centres 13

Validator Sparring and dialog Investment proposals Peace of mind from follow up and continuous dialogue Delegator

14 Structured products - Global incidence results in new products Theme Focus Analysis Product design Oil-price rockets Structured product: Alternative energy Analysis and marked comment State of the nation: Focus on nations dependence on oil 14

rockets Structured product: Alternative energy Analysis and

15 Danske Banks structured products - A growing success Million DKK Outstanding volume 15

16 Flexinvest Fri is Surveillance Follow up Overview 16

17 Reason for launch Close to clients has already Puljeinvest or Flexinvest in their investment savings The obstacles disappears Possibility for a product that is not bound to pensions 17

18 The Investment profile is the foundation Investment profile The client determines his investment profile Split between bonds and stocks Choice of regions and sectors Choice of security the rest is covered by Danske Bank 18

Split between bonds and stocks Choice of regions and

19 Overview a closed cycle The customer can deposit on the account The client receive reports Flexinvest Fri account reinvest/ buy Flexinvest Fri custody X% short bonds X% Danske bonds X% foreign bonds The client make agreement on payment with advisor max. 5 settlement days Udbytte/ Salg X % stocks 19

custody X% short bonds X% Danske bonds X% foreign bonds The client make

20 Follow up The client receive an individual report each 6 month The investment profile The split between securities and cash A yield report Summary on trading, return, etc. Dictionary The client must react if his profile is changed The client get a statement each time he trades 20

21 Value for the clients Better yield than passive placement or than with bonds Replacement when the option is there do not need to follow the market Easy solution + economies of scale Peace of mind/no need for bad conscience No difficulty on reinvestment Reporting and trading notes 21

22 Danske Investering Online Investment advisor For the client that can handle their investments alone and not chooses to investment advise Expanded Investment universe module in Internet Bank Realtime rate of exchange Brokerage stairs 75 dkr./mdr. 5 EUR/mdr. 100 dkr./mdr. 22

23 What happened the last time? -Danish newspapers are monitoring pricing closely 23

24 Pricing - Price must reflect service and be competitive Validator and Self-director Delegator Price, bp Validator Validator with netbank Price depending on product and Individual solutions according to The clients investment profile Self-director Turn-over t.kr. 24

25 The competitive situation - Focus on price, innovation and targeted service from clients A decrease in online brokerage demands an effective ITplatform and cheap execution Size matters More focus on innovation Structured products Hedge funds Managed products Growing demand for a unique adviser service adapted and targeted the different client behaviour segments Implementation of rules from MiFID results in a competitive advantage for Danske Bank 25

26 The Challenge - Products are targeted client behaviour Investment advise High Low Pressure for advice Pressure on price Self director Validator Delegator Low High Client cost 26

27 Pricing strategy - Price according to behaviour, product and service Self-director Validator Delegator Brokerage staircase Lower brokerage contra a permanent monthly fee No advice Pays offline brokerage which matches the price for advice and service Pays a fee which matches the price of product and solution 27

28 IT strategy ensures efficiency, flexibility and differentiation Branches Credit Internet Asset Management Currency Payments Cards Customer output Mortgage Accounting Cash Management Brand Channel Product Core Customer Accounts Organization Dataware house Life & Pension Contact Center Approvals Risk Bonds & Equities Interests Fees Leasing ATMs FOREX Treasury Finance Centers 28

29 MiFiD results in changes of Client segmentation Marketing Documentation for agreements Information Advice Best execution Reporting Compliance Education => The entire business model within the investment area is subject for change 29

30 Final remarks "In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment." Charles Darwin 30

Further focus on retail banking

Further focus on retail banking Building a platform for future growth Tonny Thierry Andersen, CFO, Danske Bank 2 December 2004 Executive summary High rated retail bank focusing on the north European markets