Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — H1 2010 Earnings Presentation
52 slides from Danske Bank A/S's earnings presentation, Aug 10, 2010
Slide 1: Financial results for H1 2010
FIRST HALF OF 2010 Financial results for H1 2010 Peter Straarup CEO & Chairman of the Executive Board Tonny Thierry Andersen CFO & Member of the Executive Board August g 10, 2010
Slide 2: Agenda
AGENDA Agenda Slide • Key messages 3 • Highlights 4 • Business trends 5 • B Basel l III / CRD IV 18 • Macroeconomics 19 • Outlook 20 • Q&A session 21 • Appendix: Trends in focus areas & business units 22 2
Slide 3: Improving profit, with positive results at most business units
Improving profit, with positive results at most b i business units i Profit before taxes DKK m (H1 2010) 1,000 • Net profit 135% Y/Y to DKK 1.7bn in H1 2010 0 • Tangible, encouraging results from sustained -1,000 cost management • Declining impairment charges -2,000 • Solid capital, leverage and l
Slide 4: Income at a more normal level; expenses and impairment charges continue to fall
Income at a more normal level; expenses and impairment charges continue to fall DKK m H1 2009 H1 2010 Index Q1 2010 Q2 2010 Index Net interest income 14,134 11,934 84 6,007 5,927 99 Net fee income 3,683 4,116 112 2,048 2,068 101 Net trading income 12,397 5,196 42 2,379 2,817 118 Other income 1,508 2
Slide 5: Net interest income down slightly owing to lower Danish short-term rates
Net interest income down slightly owing to lower Danish short short-term term rates Quarterly net interest income Quarterly trend in net interest income DKK m DKK m Y/Y 11%* 6,500 7,500 Q/Q 1% * * * 67 43 6,500 6,000 - 48 * 22 43 * 77 5,500 5,500 6,007 5,927 4,500 5,000 Q1 08 Q2 08 Q3 08 Q4 08 Q
Slide 6: Stable net fee income
Stable net fee income Quarterly fee income DKK m 2,500 2 000 2,000 1,500 1,000 500 0 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Activity based fees Y/Y 3% Q/Q 2% Portfolio based fees Y/Y 10% Q/Q 0% 6
Slide 7: Normal level of net trading income despite southern Europe turmoil
Normal level of net trading income despite southern Europe turmoil Breakdown of net trading income VIX Volatility DKK m Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 Index 2010 Index Trading Activities 7,534 4,410 3,194 1,791 2,013 1,665 90 Group Treasury -589 297 567 -152 119 692* 75 Institutional Ban
Slide 8: Insurance income affected by lower investment return but strong growth in market based products
Insurance income affected by lower investment return but strong growth in market based products return, Net income from insurance business DKK m H1 2009 H1 2010 Index Q1 2010 Q2 2010 Index Premiums (DKK bn) 9.7 12.2 125 6.5 5.7 88 Net income before postponed risk allowance 1,099 933 85 603 330 55 Po
Slide 9: Underlying cost base continues to decline
Underlying cost base continues to decline Expenses and number of employees Quarterly trend in expenses DKK m 7,000 DKKm H1 2009 H1 2010 Index 67 93 88 E Expenses 15 385 15,385 13 259 13,259 86 38 145 Integration expenses 181 92 51 Amortisation of intangibles 253 253 100 118 Severance payments 328 90
Slide 10: Impairment charges fell for sixth consecutive quarter
Impairment charges fell for sixth consecutive quarter Quarterly loan impairment charges bp DKK m 10,000 200 Total loan imp. charges in basis points 7,500 150 5 000 5,000 100 2,500 50 0 0 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Collective impairment charges Individual impairment charges 10
Slide 11: Upgrades/downgrades ratio improving, but Denmark lags
Upgrades/downgrades ratio improving, but D Denmarkk llags % Upgrades / total internal rating changes on the corporate book 80 Downturn Upturn Downturn 60 Upgrades > downgrades Downgrades > upgrades 40 Outside Denmark Denmark 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 H1 2010 Source: Moodys y
Slide 12: Loan impairment charges still dominated by SMEs but fewer customers in default
Loan impairment charges still dominated by SMEs but fewer customers in default SMEs, Impairments by customer segment Exposures in rating categories 10 and 11* - SMEs account for most of the Groups impairments - Declining trend in rating category 11 Exposure DKK m DKK bn 9,000 40 Rating category 11
Slide 13: Nordic impairments: Declining in all markets, but still high in Denmark
Nordic impairments: Declining in all markets, but still high in Denmark DKK m DKK m 5,000 1,250 *Acc. Acc. imp. DKK 18,563m *Acc Acc. imp. imp DKK 2 2,607m 607m Denmark, 59% of Groups lending - Individual 158 bp Finland, 9% of Groups lending - individual 149 bp 1,000 4,000 - collective 25 bp 216 b
Slide 14: Other impairments: Increasing in Ireland owing to declining asset values
Other impairments: Increasing in Ireland owing to declining asset values DKK m DKK m 750 2,100 *Acc. Acc. imp. DKK 2,545m *Acc Acc. imp. imp DKK 9 9,741m 741m Northern Ireland, 3% of Groups lending - individual 403 bp Ireland, 4% of Groups lending - individual 1,180 bp - collective 61 bp - collect
Slide 15: Danske Bank passed the CEBS stress test with healthy capital buffer
Danske Bank passed the CEBS stress test with h l h capital healthy i lb buffer ff andd ranking ki iin the h top quartile il Tier 1 ratio Danske Bank in the top quartile in the 14.1% Tier 1 ratio worst adverse scenario in 2011 13.1% 20% Full CRD 12.1% Transitional 11.7% 16% CRD rules 10.8% ** 10.0% *
Slide 16: Funding need for 2010 completed, duration extended
Funding need for 2010 completed, duration extended; d d also l very lilimited i d need d iin 2011 New funding 2008-11 Funding sources - Entire funding need of DKK 30bn for 2010 - Shift towards long-term funding sources DKK bn % already covered 40 200 Q2 2010 Q4 2008 150 30 Can be fully funded throug
Slide 17: Strong capital position maintained
Strong capital position maintained Capital ratios CRD/Basel II Trend in RWA (DKKm) % 20 8 27 17.2% 6 16 13.7% 12 11.8% 10 1% 10.1% 9.1% 879 8 838 4 0 Credit quality** Cha nge in et risk Q4 08 Q4 09 Q2 10 Q1 2010 Q2 2010 lending* Solvencyy ratio Marke Total tier 1 ratio Core tier 1 ratio incl. conv
Slide 18: Revised Basel III proposal is a step in the right direction, but there are still some issues
Revised Basel III proposal is a step in the right di direction, i b but there h are still ill some iissues • Revised proposal from the Basel committee has addressed dd d criticism iti i from f banks • The proposal is favourable for Danske Bank, but • Key concerns around the treatment of the unique D
Slide 19: Macroeconomic improvement, but growth is still fragile
Macroeconomic improvement, but growth is still fragile % GDP development Public finances 8 2010 estimates 4 Gross public G bli Budget B d tb bal.l Sovereign S i rating ti debt % of GDP % of GDP & outlook (S&P) 0 Denmark 42.1 -5.6 AAA/Stable Norway Sweden 43.6 -3.5 AAA/Stable -4 Euroland N Norway 26
Slide 20: Outlook for the rest of 2010 remains cautious
Outlook for the rest of 2010 remains cautious • Macroeconomic improvements, but growth is still fragile • Net interest income to remain under pressure due to low interest rate level • Lower trading and insurance income, dependent on market developments • Total expenses to decline in 2010; continued
Slide 21: Q&A session
Q&A session Press 1 to ask a question Press # to cancel Press A P Askk a question ti in i your webcast player www danskebank com/ir www.danskebank.com/ir 21
Slide 22: Appendix
APPENDIX Appendix 22
Slide 23: Net interest income - Realkredit Danmark
Net interest income - Realkredit Danmark DKK m 750 2010 2009 500 250 0 Q1 Q2 Q3 Q4 Note: ex. customer margin and interest on convertible govt hybrid capital. 23
Slide 24: Net interest income – NII margins by business unit
Net interest income NII margins by business unit Net interest margins Q1 2009 Q2 2010 % (NII /loan stock) 2.75 Northern Ireland 2.25 Finland Baltics 1.75 Norway Ireland Group 1.25 Denmark Sweden 0.75 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 24
Slide 25: Improving lending margins in all markets, but pressure is emerging
Improving lending margins in all markets, but pressure is emerging Quarterly lending margins Q1 2009 Q2 2010 % (loan stock) 2.5 2.0 15 1.5 1.0 0.5 0.0 Denmark * Finland Sweden Norway Northern Ireland Ireland Baltics * Incl. Realkredit Danmark 25
Slide 26: Narrowing deposit margins because of lower short-term rates and stiff competition
Narrowing deposit margins because of lower short term rates and stiff competition short-term Quarterly deposit margins Q1 2009 Q2 2010 % (deposit stock) 1.2 0.8 04 0.4 0.0 Denmark Finland Sweden Norway Northern Ireland Ireland Baltics 26
Slide 27: 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 - Very strong Danish covered bond market % bp, mid 20 425 375 Ireland 15 325 275 Spain 225 10 175 UK 125 5 75 Germanyy 25 0
Slide 28: Rise in balance sheet driven by depreciating euro and market volatility
Rise in balance sheet driven by depreciating euro and market volatility Trend in total assets DKK bn end of period 4,000 , Change Y/Y 3,000 Other assets +18% Trading & inv. +17% 2,000 portfolio Banks & repos - 4% 1,000 Lending - 2% 0 Total + 4% Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 28
Slide 29: Credit exposure down 2% Y/Y
Credit exposure down 2% Y/Y Credit exposure from lending activity, end-Q2 2010 (DKK 2,388bn, including DKK 1,882bn in lending and repos) Central and local governments Subsidised 7% housing companies 5% Banks 8% Personal customers 36% Commercial property 10% Construction, engineering and building pro
Slide 30: Much larger increase in bankruptcies in Denmark than in other Nordic countries
Much larger increase in bankruptcies in Denmark than in the other Nordic countries I d Index Number of monthly bankruptcies in the Nordics (indexed, Jan. 1996 =100) 400 Denmark 300 200 Norway 100 Sweden Finland 0 * H110 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
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 110 1 110.1 10 1.0 13 1 13.1 123 2 123.2 Finland 15.8 0.6 5.9 21.7 Sweden 54.6 0.2 5.1 59.8 Norway 33.7 2.6 2.1 35.9 Norther
Slide 32: Danish agriculture sector pressured by lower property and output prices
Danish agriculture sector pressured by lower property and d output prices i Other 7% Mixed operations 7% Agriculture Exposure to agriculture DKK bn 25% Realkredit Danmark 45 Grocery trade Banking Activities Denmark 13 14% Other business areas 14 Agriculture 72 Agriculture LTV, Realkredit Danmark % Q
Slide 33: Gross exposure subject to individual impairment test
Gross exp. subject to individual imp. test; reflects diffi l economic difficult i conditions di i iin certain i markets k Gross exposure subject to individual imp. test in basis points of total loans bp 3,000 2,734 2,500 2,000 2,000 1 787 1,787 1,500 1,015 1 000 1,000 590 434 447 500 301 179 0 Denma
Slide 34: Quarterly trend in gross exposure subject to individual impairment test
Quarterly trend in gross exposure subject to i di id l iimpairment individual i test Gross exposure subject to individual impairment test DKK bn 120 In basis points of gross lending 102.0 100 95.5 6.5 88.1 12.4 Other 2.000 bp 7.3 4.5 Baltics 1.787 bp 77.8 10.4 80 Ireland 2.734 bp 11 4 11.4 20.4 66.3
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 peaked Price fall Change in 16,000 16 000 200 since peak (%) Q210 (%) <= House prices Copenhagen Q3 2006 -25.9 3.4 12,000 180
Slide 36: Mortgages in Denmark: low average LTV ratio, arrears picking up, but still low
Mortgages in Denmark: low average LTV ratio, arrears picking i ki up, b but still ill llow Breakdown of loans by LTV and rating category Danish D i h mortgages Mortgage finance (residential & commercial) 114 repossessed properties and 4,304 arrears out End-Q210 of 413,926 loans at end-Q2 LTV/ratin
Slide 37: Safe, highly rated bond portfolio
Safe, highly rated bond portfolio Bond portfolio Rating distribution (DKK 414bn) AAA 82% AA+ 6% Credit bonds AA 2% 4% Certificates 3% AA- 4% Quasi- A+ 2% D i h Danish government 2% mortgage bonds A 1% 44% A- 0% Swedish covered bonds BBB+ 0% 18% BBB 0% BBB- 0 0% BB+ 0% BB 1% BB- 0% Lower 0% NA 1% Oth
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* Moodys Financial Strength DKK bn % DKK bn 500 130 450 400 125 300 End-Q4 2009 300 End-Q2 End Q2 2010 120 150 200 End-Q4 2008 115 0 100 0 110 -150 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q
Slide 39: Well-diversified funding position
Well-diversified funding position Equity q y Central banks 4% • 56% deposits and fully match- 5% Repos funded Danish mortgage bonds 5% (net) Banks, B k nett 4% Deposits 32% • Long-term bonds DKK 228bn • Issued covered bonds DKK 117bn S-T bonds 9% • Volatile funding markets due to southern Europe tur
Slide 40: Funding in 2010 completed with long duration and in the unguaranteed market
Funding in 2010 completed with long duration and i the in h unguaranteedd market k • YTD Danske Bank has issued bonds for DKK Issues by type and currency 30 bn, covering the estimated long-term funding g need for 2010 Issue type Currency DKKm Covered bonds EUR 17 • 65% of the issuance in covered bon
Slide 41: Banking Activities Denmark: Costs down, but hurt by lower short-term rate
Banking Activities Denmark: Costs down, but hurt by lower short short-term term rate and still high imp. imp charges Profit before loan impairment charges 24% Trend in lending volume - Declining NII reduces income, partly offset by drop in expenses (average) DKK m H1 2009 H1 2010 Index Net interest
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 charges, Profit before loan impairment charges 60% Trend in lending volume - Declining net interest income weights heavily (average) DKK m H1 2009 H1 2010 Index Retail: Y/Y 2% Corporate: Y/Y 14% DKK bn Net
Slide 43: Banking Activities Sweden: Higher income and lower imp. charges lead to improved profit
Banking Activities Sweden: Higher income and lower imp imp. charges lead to improved profit and RoE Trend in lending volume Profit before loan impairment charges 23% (average, % -change in local currency) - Affected by 11% appreciation of SEK against DKK DKK m H1 2009 H1 2010 Index DKK bn Retail:
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 g volume (average % -change in local currency) - Affected by 11% appreciation of NOK against DKK Retail: Y/Y 5% Corporate: Y/Y 15% DKK m H1 2009 H1
Slide 45: Banking Activities Northern Ireland: Resilient top line but spike in loan impairments
Banking Activities Northern Ireland: Resilient top line but spike in loan impairments in Q210 line, Profit before loan impairment charges 8% Trend in lending g volume (average, % -change in local currency) - Slightly declining NII despite higher lending margins DKK m H1 2009 H1 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 31% Trend in lending g volume - Income under pressure, partly offset by lower costs (average) DKK m H1 2009 H1 2010 Index Retail: Y/Y 7% Corporate: Y/Y 5% Net interes
Slide 47: Banking Activities Baltics: Significantly lower loan impairment charges
Banking Activities Baltics: Significantly lower loan impairment charges Profit before loan impairment charges DKK 206m Trend in lending g volume - Lower income , offset by tight cost control (average) DKK m H1 2009 H1 2010 Index DKK bn Retail: Y/Y 6% Corporate: Y/Y 18% Net interest income 273 24
Slide 48: Danske Markets: Income down to more normal level
Danske Markets: Income down to more normal level Profit before tax down to more normalised level Quarterlyy breakdown of income - Reflects exceptionally high income and imp. charges in H109 DKK m H1 2009 H1 2010 Index DKK m Q3 2009 Q4 2009 Q1 2010 Q2 2010 Total income 11,764 4,664 40 Trading Activit
Slide 49: Danske Capital: Increasing trend in assets under management
Danske Capital: Increasing trend in assets under management Profit before loan impairment charges 16% AuM Customer breakdown - Reflects change of business focus in Lux. and one-offs in H109 DKK bn 600 DKK m H1 2009 H1 2010 Index Private equity Total income 863 804 93 Institutional Expenses 476 4
Slide 50: Danica Pension: Lower investment return, but strong growth in market based products
Danica Pension: Lower investment return, but strong growth in market based products Net income from insurance business Investment returns, YTD DKK m H1 2009 H1 2010 Index Customers funds Premiums (DKK bn) 9.7 12.2 125 Investment return Investments & liabilities Share of technical provisions 538 555
Slide 51: Danica's profit model
Danicas profit model Profit model Condition / sensitivity H1 2010 DKK m Risk allowance 64 bp of No usage of bonus potential of Positive technical basis of DKK 1 technical prov. (DKK173bn) paid-up policies and sufficient 0.6bn but collective bonus- 555 investment income potential not sufficien
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