Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — 9M 2019 Earnings Presentation
50 slides from Danske Bank A/S's earnings presentation, Nov 1, 2019
Slide 1: Financial results – first nine months 2019
Financial results – first nine months 2019 Chris Vogelzang Chief Executive Officer Jacob Aarup-Andersen Chief Financial Officer 1 November 2019
Slide 2: Agenda
Financial results – first nine months 2019 Agenda 01. Executive summary and Group P&L 2 02. Review of FI&C 4 03. New 2023 ambitions and 2020 guidance 6 04. Q&A 19 05. Group financials 9M 2019 20 06. Appendix 30 1
Slide 3: Executive summary: Challenging first nine months; net profit down 14%
Financial results – first nine months 2019 Executive summary: Challenging first nine months; net profit down 14% from 9M 2018; new target for ROE of 9-10% in 2023 DKK 10.0 bn Net profit, down 14% from 9M 2018 due to Lending growth of 3% y/y, driven by growth lower NII, higher expenses and higher loa
Slide 4: Net profit: DKK 10.0 bn, down 14% from 9M 2018
Financial results – first nine months 2019 Net profit: DKK 10.0 bn, down 14% from 9M 2018, including DKK 1.3 bn gain on sale of Danica Pension Sweden Income statement and key figures (DKK m) 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Net interest income 16,336 17,676 92 5,445 5,371 101 Net fee inco
Slide 5: Trading income decline driven by lower income in FI&C
Financial results – first nine months 2019 Trading income decline driven by lower income in FI&C as the result of both structural and cyclical headwinds FI&C total income, incl. xVA (DKK bn) Structural drivers of lower income 4.9 • Changed business model – from a ‘balance sheet- 4.5 driven’ to a ‘cu
Slide 6: Agreed management actions to restore profitability in FI&C
Agreed management actions to restore profitability in FI&C • Invest in digitalising core value chains to bring down end-to-end costs • Review most capital-intensive activities in order to maintain ability to service Cost and capital customers under regime with higher capital requirements efficiencie
Slide 7: New 2023 ambitions and 2020 guidance
Financial results – first nine months 2019 New 2023 ambitions and 2020 guidance 6
Slide 8: We face challenges, but have taken the first steps to get back on course
Financial results – first nine months 2019 We face challenges, but have taken the first steps to get back on course Key challenges Steps taken so far On top of structural issues in the financial sector … We have a new and committed • Changing customer expectations Executive Leadership Team • Increas
Slide 9: We remain committed to becoming the Nordic Integrator
Financial results – first nine months 2019 We remain committed to becoming the Nordic Integrator Our Nordic Integrator Our long-term promises Strategy We deliver strong returns to We put customers first our investors We care about and develop We contribute to society our employees Our ways of workin
Slide 10: We have set ambitious 2023 targets for all of our key stakeholders
Financial results – first nine months 2019 We have set ambitious 2023 targets for all of our key stakeholders What we want to accomplish by 2023 How we measure success "On average among the top 2 in customer ≤2.0 average CSAT rank satisfaction in everything we do" Customers "At least 90% of our empl
Slide 11: We are on a journey: In 2020 we pave the way towards 2023
Financial results – first nine months 2019 We are on a journey: In 2020 we pave the way towards 2023 2023 We realise our 2020 ambitions We stop the downward trend and invest in our future 2019 We set our ambitions and change agenda 2021/22 We deliver on our agenda and show tangible results 10
Slide 12: In 2020 we will execute on the core pillars of our journey
Financial results – first nine months 2019 In 2020 we will execute on the core pillars of our journey 1 Compliance under control Delivering in 2 Cost base under control the short term 3 Commercial momentum gained Complexity reduced, agility improved and the 4 business further digitised Investing in
Slide 13: Delivering in the short term
Financial results – first nine months 2019 Delivering in the short term 1 Compliance under control • Complete 'Conduct' review • Execute on AML and ODD programmes • Further refine risk and compliance operating model 2 Cost base under control • Reinforce Group-wide governance for non-personnel costs
Slide 14: Investing in our success
Financial results – first nine months 2019 Investing in our success 4 Complexity reduced, agility improved and the business further digitised • Simplify business and product portfolios • Digitise key customer journeys end-to-end • Launch broader enterprise agile journey 5 Accountabilities and leader
Slide 15: AML and other compliance related costs to peak in 2020
Financial results – first nine months 2019 AML and other compliance related costs to peak in 2020 Expenses for compliance-related activities (DKK bn, subject to roundings) Estonia case AML digitalisation AML programme, other compliance and regulation 3.3-3.5 2.9-3.0 2.4-2.6 1.8 1.8-1.9 1.7-1.9 1.5-1
Slide 16: ROE ambition of 9-10% in 2023 with unchanged rates and FX
Financial results – first nine months 2019 ROE ambition of 9-10% in 2023** with unchanged rates and FX following significant investments expected to peak in 2020 Change in ROE (%, after tax, subject to roundings) Gross cost take out of approximately DKK ~5bn compared to 2019 plus ~2.5bn non-recurrin
Slide 17: Levers rolled out in 2020: operating efficiency
Financial results – first nine months 2019 Pushing operating efficiency crucial to delivering on our ambition 1 Create a simple and efficient business model Simplify product offering and steer towards more simple/efficient service model to harvest synergies Levers 2 Accelerate digital customer journ
Slide 18: Levers rolled out in 2020: income growth
Financial results – first nine months 2019 Key strategic priorities to deliver on income growth 1 Improve digital customer experience to drive growth Digitisation of core customer journeys within banking (e.g. housing) as well as digital platforms at C&I and Wealth Management Levers 2 Revise service
Slide 19: Closing remarks and next steps
Financial results – first nine months 2019 Closing remarks and next steps We identified root causes that hinder the unlocking of our full potential We defined the core initiatives to deliver on our ambitions We push to deliver in the short term and initiate a cost programme In the coming months, we
Slide 20: Q&A session
Financial results – first nine months 2019 Q&A session Press 01 to ask a question Press 02 to cancel Press “Ask a question” in your webcast player Want easy access to all relevant Danske Bank material? Download the Danske Bank MyInvestor app on your iPhone, iPad or Android device! www.danskebank.com
Slide 21: Group financials
Financial results – first nine months 2019 Group financials 01. Group P&L and key lines 21 02. Capital 28 03. Financial outlook for full-year 2019 29 20
Slide 22: Net profit: DKK 10.0 bn, down 14% from 9M 2018
Financial results – first nine months 2019 Net profit: DKK 10.0 bn, down 14% from 9M 2018, including DKK 1.3 bn gain on sale of Danica Pension Sweden Income statement and key figures (DKK m) Key points, 9M 2019 vs 9M 2018 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index • Return on equity of 8.5% Net int
Slide 23: NII: Down 8% y/y due to margin pressure and higher funding costs
Financial results – first nine months 2019 NII: Down 8% y/y due to margin pressure, higher funding costs and transfer to Non-core Key points Change in net interest income, y/y (DKK m) Y/Y 17,676 427 • NII down 8%, lending growth of 3% offset by lower 966 margins, higher funding costs and transfer of
Slide 24: NII (cont’d): Volume growth of 3% y/y at Banking Nordic
Financial results – first nine months 2019 NII (cont’d): Volume growth of 3% y/y (6% in local currency) at Banking Nordic; Banking DK grew 1% y/y Key points Lending volume and development* (DKK bn) • Banking Nordic lending up 3% y/y (6% in local currency) with 9M 2018 9M 2019 growth in Norway and Fi
Slide 25: Fee income: Up 3% y/y
Financial results – first nine months 2019 Fee income: Up 3% y/y as high activity and SEB Pension DK acquisition more than offset margin pressure and negative one-off 9M 2018 +3% Key points Net fee income development, y/y (DKK m) 9M 2019 Y/Y • Fee income up 3%, benefiting from high -12% +30% 11,324
Slide 26: Trading income: Down 22% y/y and 6% q/q
Financial results – first nine months 2019 Trading income: Down 22% y/y and 6% q/q in challenging market conditions Key points Group net trading income (DKK m) Y/Y • Trading income down 22% from 9M 2018, reflecting challenging market conditions -22% • C&I affected by negative value adjustments on de
Slide 27: Expenses: Up 2% y/y due to upstaffing and compliance investments
Financial results – first nine months 2019 Expenses: Up 2% y/y due to upstaffing and investments in compliance and AML, now totalling around 2,500 FTEs Key points Change in expenses, y/y (DKK m) Y/Y 130 39 • Expenses up 2% y/y, due mainly to upstaffing and investments 725 497 in compliance and AML a
Slide 28: Impairments: Loan loss ratio of 6 bp in core activities
Financial results – first nine months 2019 Impairments: Loan loss ratio of 6 bp in core activities in the first nine months, driven by Corporates & Institutions Key points Impairment charges by business unit, 9M 2019 (DKK m) Y/Y • Charge of DKK 813 m; core loan loss ratio of 6 bp − Impairments at C&
Slide 29: Capital: Strong capital base; CET1 capital ratio of 16.4%
Financial results – first nine months 2019 Capital: Strong capital base; CET1 capital ratio of 16.4% Capital highlights, Q3 2019 Capital ratios, under Basel III/CRR (%) • REA up DKK 20 bn, driven by a technical change to market risk Tier 2 Hybrid T1/AT1 Pillar II CET1 CET1 modelling as well as highe
Slide 30: 2019 outlook narrowed: net profit at lower end of DKK 13-15 bn
Financial results – first nine months 2019 2019 outlook narrowed: We now expect net profit at the lower end of the DKK 13-15 bn range Net interest We expect net interest income to be lower than the level in 2018, as volume growth will be income more than offset by higher funding costs and margin pre
Slide 31: Appendix
Financial results – first nine months 2019 Appendix 01. Business units 31 02. Credit quality 38 03. Macro and portfolio reviews 39 04. Funding, liquidity and ratings 43 05. Tax 46 06. ROE bridge assumptions 47 07. Contact details 48 30
Slide 32: Banking DK: Lending growth of 1% y/y
Financial results – first nine months 2019 Banking DK: Lending growth of 1% y/y; higher expenses and impairments Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 6,400 6,703 95 2,095 2,125 99 • Total income down 3% Net fee income
Slide 33: Banking Nordic: Lending growth of 3% y/y
Financial results – first nine months 2019 Banking Nordic: Lending growth of 3% y/y but margins pressured by rising interest rates in Norway and Sweden Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 5,672 5,946 95 1,898 1,873 1
Slide 34: Lending growth: Banking DK and Banking Nordic
Financial results – first nine months 2019 Lending growth: Growth of 1% y/y at Banking DK and 3% at Banking Nordic Comments Banking Nordic: lending volume by segment and country* Banking DK • 84% of lending at Banking DK is at mortgage subsidiary Finland retail Sweden commercial Realkredit Danmark (
Slide 35: Corporates & Institutions: Challenging market conditions
Financial results – first nine months 2019 Corporates & Institutions: Challenging market conditions and higher impairment charges Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 2,671 2,974 90 885 857 103 • NII down 6% adjusted
Slide 36: Wealth Management: Profit before tax up 39%
Financial results – first nine months 2019 Wealth Management: Profit before tax up 39% due mainly to the sale of Danica Pension Sweden; AuM flat adjusted for the sale Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 483 545 89 14
Slide 37: Northern Ireland: Lending and NII up y/y
Financial results – first nine months 2019 Northern Ireland: Lending and NII up y/y despite continued Brexit uncertainty Income statement and key figures (DKK m) Key points 9M 2019 9M 2018 Index Q3 2019 Q2 2019 Index Y/Y Net interest income 1,133 1,109 102 368 379 97 • Lending and NII up despite con
Slide 38: Non-core: Deleveraging according to plan
Financial results – first nine months 2019 Non-core: Deleveraging according to plan; sale of retail portfolio in Estonia expected to finalise before end-November Non-core loan portfolio, Q3 2019 (DKK bn) Non-core REA* (DKK bn) Allowance account Non-core conduits etc. Non-performing credit exposure N
Slide 39: Credit quality: NPLs increased 3% y/y
Financial results – first nine months 2019 Credit quality: NPLs increased 3% y/y driven by single-names in Corporates & Institutions Breakdown of core allowance account under IFRS 9 (DKK bn) Core allowance account by business unit (DKK bn) Stage 1 Banking DK Corporates & Institutions Northern Irelan
Slide 40: Credit exposure: Limited agriculture and oil-related exposure
Financial results – first nine months 2019 Credit exposure: Limited agriculture and directly oil-related exposure Agriculture exposure (3.0% of Group exposure) Oil-related exposure (0.8% of Group exposure) • Pork prices continued their upturn towards record-high • Net exposure increased to DKK 18.8
Slide 41: Nordic macroeconomics
Financial results – first nine months 2019 Denmark Sweden Norway Finland EU Nordic macroeconomics Real GDP, constant prices (index 2005 = 100) Inflation (%) 2005 2007 2009 2011 2013 2015 2017 2019 2005 2007 2009 2011 2013 2015 2017 2019 Interest rates, leading (%) Unemployment (%) 2005 2007 2009 201
Slide 42: Nordic housing markets
Financial results – first nine months 2019 Denmark Sweden Norway Finland Nordic housing markets Property prices (index 2005 = 100) House prices/nom. GDP (index 2005 = 100) 2005 2007 2009 2011 2013 2015 2017 2019 2005 2007 2009 2011 2013 2015 2017 2019 Apartment prices (index 2005 = 100) Apartment pr
Slide 43: Realkredit Danmark: Portfolio overview
Financial results – first nine months 2019 Realkredit Danmark: Portfolio overview 87% of new retail lending in Q3 was fixed-rate vs 43% of stock Portfolio facts, Realkredit Danmark, Q3 2019 Retail loans, Realkredit Danmark, Q3 2019 (%) • Approx. 354,000 loans (residential and commercial) Fixed rate
Slide 44: Funding and liquidity: DKK 86 bn long-term funding issued
Financial results – first nine months 2019 Funding and liquidity: DKK 86 bn of long-term funding and capital instruments issued in 9M 2019; LCR compliant at 134% Changes in funding,* 2019 (DKK bn and bp) Long-term funding excl. RD (DKK bn)** Cov. bonds Senior Non-Preferred Senior Funding plan Comple
Slide 45: Funding structure and sources
Financial results – first nine months 2019 Funding structure and sources: Danish mortgage system is fully pass-through Loan portfolio and long-term funding, Q3 2019 (DKK bn) Funding sources (%) Q2 2019 Q3 2019 2,082 52 51 163 Senior & NPS bonds 1,818 Bank loans 636 926 Deposits Bank mortgages 370 18
Slide 46: Three distinct methods for rating banks
Financial results – first nine months 2019 Danske Bank’s rating Three distinct methods for rating banks Rating methodology Extra- Anchor Additional Issuer + 1 + 2 + 3 + 4 = SACP = ordinary + ALAC + = SACP1 factors rating support bbb+ +1 +1 -1 0 a- 0 +2 -1 A (Stable) 1=Business Position, 2=Capital &
Slide 47: Tax
Financial results – first nine months 2019 Tax Actual and adjusted tax rates (DKK billions) Tax drivers, Q3 2019 Q32019 Q22019 Q12019 Q42018 Q32018 • The actual tax rate of 20.6% is lower than Profit before tax 3,793 4,757 4,012 4,444 3,589 the Danish rate of 22% due primarily to Permanent non-taxab
Slide 48: Underlying assumptions behind 19'-23' RoE development
Financial results – first nine months 2019 Underlying assumptions behind 19'-23' RoE development Comments 9M 2019 to 2020 Comments 2020 to 2023 (continued) • Operational effects in 2020 include − Balance sheet optimisation Group-wide driven by Treasury − Lending growth which is more than offset by o
Slide 49: Contacts
Financial results – first nine months 2019 Contacts Direct — +45 45 12 84 83 Claus Ingar Jensen Mobile — +45 25 42 43 70 Head of IR clauj@danskebank.dk Direct — +45 45 14 07 92 John Bäckman Mobile — +45 30 51 46 85 Chief IR Officer jbc@danskebank.dk Direct — +45 45 13 92 34 Heidi Birgitte Nielsen Mo
Slide 50: Disclaimer
Financial results – first nine months 2019 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 Un