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 Local bank with a global head office Strong platform for future growth Head wind from decreasing interest rates, but high volume growth supports development in net interest income Healthy growth in retail lending, SME picking up Reduction of stand alone whole-sale banking activities 2
Agenda Danske Bank profile & strategy Financial performance Increased focus on retail banking 3
Danske Bank profile & strategy Danske Bank - A leading Nordic bank Market cap: DKr110bn Legal structure Total assets: DKr1,914bn > 3m retail customers 150,000 corporate customers High ratings Mortgage Finance (Aaa)* (AAA)** (Aa1)* (AA-)** Life and Pensions (AA-)** * Moodys rating **Standard & Poors rating 4
Danske Bank profile & strategy Focused brand strategy - Master brand and sub-brands Distribution - Global banking Product areas DK - Global fixed income & forex S Danske Markets N LUX UK Mortgage Finance (US) FIN, D, PL Life & Pensions 5
Danske Bank profile & strategy Different brands one set of values - Five core values supports all activities in all brands Core values Integrity Accessibility Value creation Expertise Commitment in business conduct and in dealings with the community at large electronic and physical in business and communications for shareholders, customers and employees through high standards of quality and professionalism to customers financial affairs 6
Focus on retail banking - 91% of NII from Denmark, Sweden & Norway Distribution of Net Interest Income (Q3 2004) 9% 7% 9% 75% DB, BG & MF Sweden Norway Others 7
One Group One system - Supporting product innovation Fokus Bank 2001 London branch 1998 BG Bank 2002 Hamburg branch 1999 DBI Luxembourg 2003 ÖEB 2000 & 2002 DB Polska 2003 8
Danske Bank profile & strategy Product innovation - Banking - Crucial in a mature business Open plan products DKr 22bn in Q304 Substitute for mortgage lending LTV 80% Lower margin compared to traditional unsecured bank lending, but higher than traditional mortgage products DKr bn 24 20 16 12 8 4 0 Outstanding volume BG Bolig Plus Danske Prioritet M J J A S O N D J F M A M J J A S 2003 2004 Customer packages Bundled products customised to specific customer segments Launched in Denmark and exported to Sweden 600 500 400 300 200 100 0 Number of packages (000) BG Bank DB Brand Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2002 2003 2004 9
Danske Bank profile & strategy Product innovation - Mortgage Finance - Launch of a new product: FlexGaranti Combination of a floating rate loan (based on 6m CIBOR) and a fixed rate loan Automatically shifts from floating rate to fixed rate when interest reaches a certain level at no cost Advantage of being first mover Increasing remortgaging activity as early as in Q4 Higher margin Payment Danske Prioritet BG Bolig Plus FlexLån F1 (1Y floater) Low FlexLån F5 (5Y floater) FlexLån F3 (3Y floater) Guaranteed max payment 6% fixed rate loan 5% fixed rate loan FlexGaranti High Fixed rate loans can be converted to FlexGaranti on a risk-free basis and at a lower cost DKr30bn loan stock of fixed rate loans in focus due to pre-marketing Conversion of floating rate loans (FlexLån ) means higher initial costs but higher degree of safety DKr bn 180 150 120 90 60 30 0 Fixed rate mortgages, 6% and 7% coupon Total market Retail Retail > 0.5m RD Retail >0.5m 10
Danske Bank profile & strategy The Nordic markets - Platform for organic growth in Sweden and Norway Denmark >10% lending growth Recovery of market shares Good growth opportunities for Danica Sweden >10% growth No. 1 in customer satisfaction Market share target: 10% Good opportunities for organic growth Norway >10% growth No. 1 in customer satisfaction Market share target: 10% Good opportunities for organic growth Financial targets Solvency of about 9.5% Core (tier 1) of about 7.0% Payout ratio of about 50% Cost/income ratio of 50% Competitive return 11
Danske Bank profile & strategy The Danish market - Strong growth in retail lending and SME recovery Average loans DKr bn 125 100 Retail loans Corporate loans Y/Y Y/Y 45% 75 50 25 0 DKr bn 30 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 Retail loans Y/Y 3% Corporate loans Y/Y 23% DKr bn 800 700 600 Domestic bank lending - Denmark <= Domestic lendig & growth(y/y) => 40% 32% 24% 20 500 16% 10 400 300 8% 0% 0 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 200 jan-97 jan-98 jan-99 jan-00 jan-01 jan-02 jan-03 jan-04-8% Source: Danmarks Nationalbank 12
Danske Bank profile & strategy Banking Activities Sweden - Volume growth and successful launch of Duoflex SKr bn 110 Trend in lending volume (ex repos, end-period) Y/Y 19% 47 branches 100 90 80 70 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 Increasing market shares - Deposits and lending Volume growth focused on retail and mortgages DKr m Successful launch of Duoflex 400 - SKr1.5bn sold since the launch 300 600 500 Core earnings 35% 9M 03 9M 04 Adj. for rate decline Adj. for FX effects 49% 9M 04 adj. 13
Danske Bank profile & strategy The Norwegian market - Strong development in the right direction % Retail lending Y /Y growth % Corporate lending Q/Q growth 16 14 12 10 8 6 4 2 0 Fokus Bank Market Q1 Q2 Q3 2004 Increasing market shares - Corporate and retail 24 19 14 9 4-1 Fokus Bank Market Window of opportunity - The merger between DnB & Gjensidige NOR Plan to open app. 6 branches in 2005 Q1 Q2 Q3 2004 DKr bn 1.8 1.7 1.6 1.5 Core earnings 5% 9M 03 9M 04 Adj. for rate decline 9% 9M 04 adj. 14
Danske Bank profile & strategy Lower volatility than peers 15% Share price volatility Scandinavian banks (2004) 10% 5% 0% Danske Bank SHB FSB Nordea SEB DnB Annualised volatility based on daily share prices (ytd September 2004) 15
Agenda Danske Bank profile & strategy Financial performance Increased focus on retail banking 16
Financial performance First nine months of 2004 - Volume growth begins to feed through to core income Net profit for the period 1% to DKr6.8bn Core income declined 3% Operating expenses fell 5% Loan-loss provisions remain very low Core earnings up 10% Acceptable return on investment portfolios Banking lending ex repos 11% Retail lending remains the main growth driver Corporate lending growth was moderate Mortgage lending rose 4% Shareholders equity lower because of share buyback (DKr m) 9M 2003 9M 2004 Index Core income 20,392 19,805 97 Expenses 10,990 10,482 95 Core earnings before prov. 9,402 9,323 99 Provisions for bad debts 1,262 405 32 Core earnings 8,140 8,918 110 Earnings from inv. portfolios 1,459 726 50 Profit before tax 9,599 9,644 100 Tax 2,765 2,765 100 Net profit for the period 6,834 6,879 101 (DKr bn) Q3 2003 Q3 2004 Index - Corporate loans 277 285 103 - Retail loans 120 157 131 Bank loans ex repos 397 442 111 Repo loans 124 159 128 Mortgage loans 489 510 104 Bonds and shares 435 446 103 Deposits ex repos 417 446 107 Shareholders' equity 64 63 98 Total assets 1,768 1,914 108 Risk-weigthed assets 772 797 103 17
Financial performance Net interest income - Improved volume/margin relation throughout the year Net interest income 3% DKr m Net interest income % ST interest rate in Denmark fell from 2.55% to 2.16% - negative effect on income of Dkr400m Lower margins offset 64% of volume growth 70% of the margin pressure is due to product mix changes 14,000 12,000 10,000 8,000 6,000 4,000 2,000 YTD 2003 YTD 2004 03/04, rhs Q1 Q2 Q3 100 97 94 91 18
110 100 90 92 99 100 84 103 98 91 80 70 DB (DKK) SHB (SEK) Nordea (EUR) Jyske (DKK) DnBNOR (NOK) Swedb. (SEK) SEB (SEK) 110 105 100 95 90 103 100 Financial performance Performance compared to peers (1) - Strong development in net interest income Net interest income (Q/Q indexed) 102 101 99 99 100 19 DB (DKK) SHB (SEK) Nordea (EUR) Jyske (DKK) DnBNOR (NOK) Swedb. (SEK) SEB (SEK) m m Fees and commissions (Q/Q indexed)
m 110 100 90 80 93 98 99 100 97 99 95 25 20 15 10 21.6 15.7 15.8 16.2 15.6 11.3 5 0 20 13 DB (DKK) SHB (SEK) Nordea (EUR) Jyske (DKK) DnBNOR (NOK) Swedb. (SEK) SEB (SEK) DB (DKK) SHB (SEK) Nordea (EUR) Jyske (DKK) DnBNOR (N OK) Swedb. (SEK) SEB (SEK) Financial performance Performance compared to peers (2) - The cost story continues Operating costs (Q/Q indexed) % Return on Equity (YTD) 2003 2004
Agenda Danske Bank profile & strategy Financial performance Increased focus on retail banking 21
Increased focus on retail banking Wholesale banking - Which part of the value chain are you in? Products Type Products Pre-tax ROE Close correlation between complexity and profitability Aggressive pricing of commodity products Must offer the full product range in order to be profitable Danske Bank has neither size nor competencies to compete in the sophisticated product area in the US and in the UK Sophisticated Commodity M&A Underwriting Securitisation Transaction services Liquidity facilities Commercial Lending 15-25% 3-10% 22
Increased focus on retail banking Danske Bank brand: 9 regional centres Jutland North Zealand North Jutland Mid East Jutland Copenhagen Jutland South Greater Copenhagen Funen Zealand South 23
Increased focus on retail banking Net interest income a little lower than in 2003 Core income from Danica slightly higher than in 2003 Outlook for 2004 - Core earnings of DKr11bn to DKr12bn Core income in line with 2003 level Costs a little lower than in 2003, excluding restructuring costs of DKr300m Provisioning ratio lower than in 2003 Core earnings in the range of DKr11bn to DKr12bn Investment earnings in banking and insurance businesses depend as usual on the trend in the financial markets 24
www.danskebank.com/ir