Danske Bank A/S · OMXCOP:DANSKE
Danske Bank A/S — Debt Investor Presentation (February 2011)
54 slides from Danske Bank A/S's debt investor presentation, February 2011
Slide 1: Covered Bond Presentation
Covered Bond Presentation February 2011
Slide 2: Disclaimer
Disclaimer This presentation has been prepared solely for use at this presentation. By attending the meeting where this presentation is made, or by reading the presentation slides, you agree to be bound by the following limitations. This presentation does not constitute or form part of and should no
Slide 3: Table of contents
Table of contents I. Overview of Danske Bank II. Macro Economy III. Financial Performance IV. Funding & Liquidity V. Danske Bank Group - Covered Bond Business Set-Up VI. Cover Pool Details VII. Cover Pool Programme and Legislation VIII. Appendix 3
Slide 4: Danske Bank is a strong Nordic franchise
Danske Bank is a strong Nordic franchise Lending divided by Banking Activity Q4 2010 5.0 million customers BAL; 1% Others; 5% IR; 4% NIR; 3% NO; 9% Finland 2.4 million active Internet customers Market position: Leader SE; 11% DK; 58% Branches: 121 FIN; 9% Market share: 12% 670 branches in 15 countri
Slide 5: Danske Bank is rated by the three major international rating agencies
Danske Bank is rated by the three major international rating agencies Negative outlook Negative outlook Stable outlook Short term Long term Short term Long term Short term Long term P-1(Sen) Aaa (Cov)* A-1+ AAA (Cov) F1+ AAA (Cov) P-2 Aa1 A-1(Sen) AA+ F1 (Sen) AA+ P-3 Aa2 A-2 AA F2 AA Aa3 A-3 AA- F3
Slide 6: Table of contents
Table of contents I. Overview of Danske Bank II. Macro Economy III. Financial Performance IV. Funding & Liquidity V. Danske Bank Group - Covered Bond Business Set-Up VI. Cover Pool Details VII. Cover Pool Programme and Legislation VIII. Appendix 6
Slide 7: Swedish economy
Swedish economy GDP and exports Confidence GDP (% Y/Y) Business (net balance) 15 2.0 Exports (% Y/Y) Consumer (net balance) 1.5 10 1.0 5 0.5 0.0 0 -0.51998 2000 2002 2004 2006 2008 2010 1998 2000 2002 2004 2006 2008 2010 2012E -5 -1.0 -1.5 -10 -2.0 -15 -2.5 Source: Danske Research Source: Danske Res
Slide 8: Swedish property market
Swedish property market House prices Return on property (all properties) 50% 14% 12% 40% 10% 30% 8% 6% 20% 4% 26 yrs avg: 10% 2% 9,8% 0% 0% -2% 1998 2000 2002 2004 2006 2008 2010 2012E 1984 1989 1994 1999 2004 2009 -10% -4% Source: Danske Research -20% Return on property (2009 – per sector) -30% Sou
Slide 9: Table of contents
Table of contents I. Overview of Danske Bank II. Macro Economy III. Financial Performance IV. Funding & Liquidity V. Danske Bank Group - Covered Bond Business Set-Up VI. Cover Pool Details VII. Cover Pool Programme and Legislation VIII. Appendix 9
Slide 10: Credit exposure increased by 3% Y/Y
Credit exposure increased by 3% Y/Y Credit exposure from lending activity, end-Q4 2010 (DKK 2,364 bn, including DKK 1,848 bn in lending and repos) Central and local governments 7% Subsidised housing companies 5% Banks 8% Personal customers 37% Commercial property 10% Construction, engineering and bu
Slide 11: Earnings recovery continues as impairments decline
Earnings recovery continues as impairments decline Profit before tax (Q4 2010) • Net profit of DKK 3.7 bn in 2010 DKK m 2,000 • Cost management continues to deliver results • Declining impairment charges 1,000 • No dividend payment for Q4 2010 0 • Negotiations with Danish government to prepay hybrid
Slide 12: Declining expenses and impairments more than offset lower income
Declining expenses and impairments more than offset lower income DKK m 2009 2010 Index Q3 2010 Q4 2010 Index Net interest income 27,524 23,843 87 5,840 6,069 104 Net fee income 7,678 8,510 111 2,069 2,325 112 Net trading income 18,244 7,921 43 1,930 795 41 Other income 3,083 3,857 125 703 1,013 144
Slide 13: Impairment charges cut in half in 2010 and under DKK 3 bn in Q4
Impairment charges cut in half in 2010 and under DKK 3 bn in Q4 Loan impairment charges Quarterly loan impairment charges DKK m DKK m bp 30,000 10,000 200 25,000 7,500 150 20,000 Total loan impairment charges in basis points 5,000 100 15,000 10,000 2,500 50 5,000 0 0 0 Total impairment charges 2008
Slide 14: Tier 1 ratio improved in 2010; rights issue planned for H1 2011
Tier 1 ratio improved in 2010; rights issue planned for H1 2011, possible prepayment of hybrid capital Capital ratios: CRD/Basel II % 20 • Negotiations with the Danish government to prepay the 24 bn of 16 17.7% hybrid capital in May 2012 14.8% 12.9% 12 • Rights issue of DKK 20 bn planned for 10.7% f
Slide 15: Table of contents
Table of contents I. Overview of Danske Bank II. Macro Economy III. Financial Performance IV. Funding & Liquidity V. Danske Bank Group - Covered Bond Business Set-Up VI. Cover Pool Details VII. Cover Pool Programme and Legislation VIII. Appendix 15
Slide 16: Limited funding needed in 2011, partly front-loaded in 2010
Limited funding needed in 2011, partly front- loaded in 2010 New funding, 2008-11 Funding sources - Estimated funding needed in 2011: DKK 70 bn % - Shift towards long-term funding sources DKK bn 19 bn already raised 200 40 Q4 2010 Q4 2008 150 30 100 20 50 10 0 0 Repo Credit inst. (ex CB) Central ban
Slide 17: Well-diversified funding position
Well-diversified funding position Equity, 4% Central banks, 4% Deposits, 33% Repos, 6% • 57% deposits and fully match-funded Danish mortgage bonds (net) Banks, net, 5% • Long-term bonds: DKK 184 bn S-T bonds, 7% • Issued covered bonds: DKK 120 bn • Termination of state guarantee at end- September ha
Slide 18: Covered Bonds is a valuable funding tool
Covered Bonds is a valuable funding tool DKK bn Eligible loans in the D, I & C pool 120.000 D pool 100.000 I pool C pool 80.000 60.000 40.000 20.000 0 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 18
Slide 19: Funding in 2010: Completed with long duration and without guarantees
Funding in 2010: Completed with long duration and without guarantees • In 2010 Danske Bank issued bonds for DKK Issues by type and currency 51 bn covering more than the estimated long-term funding needed (DKK 30 bn) Issue type Currency DKK bn Covered bonds EUR 26 • 59% of the issuance was covered bo
Slide 20: 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* Moody’s Financial Strength DKK bn % DKK bn 400 125 450 300 120 300 End-Q4 2009 200 115 150 End-Q4 2010 100 110 0 End-Q4 2008 0 105 -150 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 2 months
Slide 21: Table of contents
Table of contents I. Overview of Danske Bank II. Macro Economy III. Financial Performance IV. Funding & Liquidity V. Danske Bank Group - Covered Bond Business Set-Up VI. Cover Pool Details VII. Cover Pool Programme and Legislation VIII. Appendix 21
Slide 22: Danske Bank Group Covered Bond Universe
Danske Bank Group Covered Bond Universe Legislation and history behind three business lines • Covered Bond issuer since 2007 • Sampo Housing Loan Bank (SHLB) • Covered Bond issuer since 1851 • Based on Danish legislation • Specialized Mortgage Bank • Based on Danish legislation • Loans from the Grou
Slide 23: Table of contents
Table of contents I. Overview of Danske Bank II. Macro Economy III. Financial Performance IV. Funding & Liquidity V. Danske Bank Group - Covered Bond Business Set-Up VI. Cover Pool Details VII. Cover Pool Programme and Legislation VIII. Appendix 23
Slide 24: The combined pool
The combined pool COMBINED Cover Pool C - Characteristics Pool notional SEK 27.8 bn (€ 3.2 bn equivalent) Number of Loans 4,550 Number of Borrowers 2,823 Total Value of Properties SEK 65.4 bn (€ 7.4 bn equivalent) Property Type Number of Properties 4,071 Average Loan Size SEK 6.1 Mill. Agriculture,
Slide 25: The three cover pools
The three cover pools RETAIL RETAIL COMBINED Characteristics Cover Pool D Cover Pool I Cover Pool C Pool notional DKK 32.9 bn DKK 78.2 bn SEK 27.8 bn (EUR 4.38 billions equivalent) (EUR 10.4 billions equivalent) (EUR 3.2 bn equivalent) Number of Loans 54.245 99.542 4.550 Substitution collateral DKK
Slide 26: Distribution of loan size and LTV
Distribution of loan size and LTV Total number of loans Loan size (SEKm) WA LTV 35% Total volume of loans WA LTV pool 80% 30% 70% • 77% of loans < SEK 6m, and has 60% low WA LTV 25% 50% 20% • 2% loans > SEK 50m, and has 40% 15% higher LTV 30% 10% 20% • Medium size loans (15-50m) 5% 10% dominat
Slide 27: Distribution of seasoning and maturity
Distribution of seasoning and maturity Total number of loans Seasoning (years) WA LTV 20% 70% Total volume of loans WA LTV pool 18% 60% • 30% of loans are older than 5 16% years 14% 50% 12% 40% 10% 30% 8% 6% 20% 4% 10% 2% 0% 0% 0- 1 1- 2 2- 3 3- 4 4- 5 5- 6 6- 7 7- 8 8- 9 9- 10 > 10 18% Total
Slide 28: Distribution of repayment type and region (län)
Distribution of repayment type and region (län) Repayment type Norrbottens län 0% IO: 18% (WA LTV: 55%) Västarbottens län 0,1% Partial repayment: 13% (WA LTV: 55%) Jämtlands län 1,6% Repayment: 69% (WA LTV: 60%) Västernorrlands län 0,7% Gävleborgs län 0,4% Dalarnas län 0,3% Uppsala län 1,9% Värmland
Slide 29: Distribution of property location and location quality score
Distribution of property location and location quality score 60% Property location score • 55% of the properties are 50% classified as having a good or 40% very good location 30% 20% 10% 0% None AA A B C Total number of properties Total value of properties Property quality score 60% • 65% of the pro
Slide 30: Distribution of property type and LTV
Distribution of property type and LTV 45% Total number of loans Property type WA LTV 70% Total volume of loans WA LTV pool 40% 60% 35% 50% 30% 25% 40% 20% 30% 15% 20% 10% 10% 5% 0% 0% Agriculture, Forestry, Cooperative Housing Rental Housing Retail Industrial Horticulture 30
Slide 31: Distribution of property occupation and borrower type
Distribution of property occupation and borrower type 80% Property occupation 70% Total number of properties Total value of properties • 39% of the properties are owner 60% occupied 50% 40% • Non-owner occupied properties 30% have an WA vacancy rate of 2% 20% 10% 0% Non-Owner Occupied Owner Occupied
Slide 32: www.danskebank.com/ir
www.danskebank.com/ir Danske Bank’s Investor Relations website has a sub-section dedicated to debt investors The section contains detailed information about Danske Bank’s: Funding strategy Ratings Debt issues Covered Bonds Securitisation 32
Slide 33: Table of contents
Table of contents I. Overview of Danske Bank II. Macro Economy III. Financial Performance IV. Funding & Liquidity V. Danske Bank Group - Covered Bond Business Set-Up VI. Cover Pool Details VII. Cover Pool Programme and Legislation VIII. Appendix 33
Slide 34: Danish Covered Bond Legislation and Programme
Danish Covered Bond Legislation and Programme Cover Pool set-up Cover Pool D • “Cover Pool D” includes exclusively mortgages originated in Denmark in compliance with the Danish Covered Bond legislation Cover Pool I • Cover Pool I” includes mortgages originated in Danske Bank’s international banking
Slide 35: Danish Covered Bond Legislation and Programme
Danish Covered Bond Legislation and Programme Cover Pool set-up Cover Pool C • In Q4 2010 ”Cover Pool C” will include the following mortgages: • Commercial and residential mortgage loans from Sweden • Commercial mortgages loans from Norway will be included at a later stage • Mortgage loans from othe
Slide 36: Danish Covered Bond Legislation and Programme: Eligible loans
Danish Covered Bond Legislation and Programme Eligible loans Loans in the Cover • To be included in the Cover Pool, loans must: Pool D • Not be in arrears or non-performing (based on 60 days arrears) • Be based on a valid pledge (No problems with the security agreement) • Be eligible (LTV-compliant)
Slide 37: Danish Covered Bond Legislation and Programme: Eligible loans
Danish Covered Bond Legislation and Programme Eligible loans Loans in the Cover • To be included in the Cover Pool, loans must: Pool C • Not be in arrears or non-performing (based on 60 days arrears) • Be based on a valid pledge (No problems with the security agreement) • Be eligible (LTV-compliant)
Slide 38: Danish Covered Bond Legislation and Programme
Danish Covered Bond Legislation and Programme “SDO - Særligt dækkede obligationer” in short Legal Framework Danish Financial Business Act plus Executive Orders Specialist Principle No Special Supervision Supervised by Danish FSA Collateral Mortgage assets, public sector loans and substitute assets a
Slide 39: Danish Covered Bond Legislation and Programme
Danish Covered Bond Legislation and Programme Current law allows for two balance principles • One of the strictest ALM set-ups among European Covered Bond jurisdictions • ”Specific” balance principle – the Covered Bond issuer assumes credit risk only – Limited interest rate, FX and option risk – Lin
Slide 40: Risk limits under General Balance Principle
Danish Covered Bond Legislation and Programme Risk limits under General Balance Principle Interest rate risk • Stress test on level and structure - Risk limit dependent on stress test • 1% parallel shift of total interest curve →Risk Limit: 10% of OC • 2½% shift, parallel and twist →Risk Limit:100%
Slide 41: Derivatives and form of Covered Bonds
Danish Covered Bond Legislation and Programme Derivatives and form of Covered Bonds Derivates in the • The derivates are exclusively made with Danske Markets (Danske Bank A/S) Cover Pool • The derivate contracts follows general ISDA standards, and rating agencies’ demands. Can not be terminated as a
Slide 42: Cover Pool Management
Danish Covered Bond Legislation and Programme Cover Pool Management Cover Pool • Calculation and assessment of the Cover Pool are performed by the Cover Pool Management Management (Treasury), within the guidelines granted by the Board of Directors • Monitoring procedures • On a daily basis, Danske B
Slide 43: Loan Processing through a unique common IT-platform
Danish Covered Bond Legislation and Programme Loan Processing through a unique common IT-platform Origination and • Loans are only originated with the banking activities of Danske Bank Underwriting •The mortgage loans are currently distributed through branches, call centers, homepage and net bank –
Slide 44: Non-performing loans
Danish Covered Bond Legislation and Programme Non-performing loans Termination The loan is removed from the Cover Pool letter sent when notice of termination is sent – Loan which corresponds to 60 days after due transferred date. to collection (default) Reminder Reminder Reminder Customer Letter sen
Slide 45: www.danskebank.com/ir
www.danskebank.com/ir 45
Slide 46: Danske Bank's funding team
Danske Bank’s funding team Steen Blaafalk Tel.: + 45 45 14 63 60 Senior Executive Vice President E-mail: steen.blaafalk@danskebank.dk Peter Holm Tel.: + 45 45 12 84 85 Claus Jensen Tel.: +45 45 12 84 83 Senior Vice President E-mail: holm@danskebank.dk Chief Funding Manager E-mail: clauj@danskebank.d
Slide 47: Appendix
Appendix
Slide 48: Signs of housing market stabilising
Signs of housing market stabilising Danish house prices by regions Correlation between house prices Price and consumption in Denmark DKK bn Region Prices Change since Change in * Preview per sq m 16,000 200 peaked peak (%) Q310 (%) Q410 (%) Copenhagen Q3 2006 -24.9 1.4 Zealand Q3 2007 -21.6 0.4 12,0
Slide 49: Net interest income fell in 2010, but rose in Q4
Net interest income fell in 2010, but rose in Q4 Annual net interest income Quarterly net interest income DKK m DKK m Y/Y 13 % Y/Y 10 % 7,500 30,000 Q/Q 4 % * * * * * 6,500 * 20,000 * * * 5,500 10,000 0 4,500 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 2008 2009 2010 S-T interest rat
Slide 50: Net trading income at normal level despite low activity
Net trading income at normal level despite low activity and difficult markets in Q4 Breakdown of net trading income DKK m 2008 2009 2010 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Trading activities 7,361 16,929 5,812 1,791 2,013 1,665 1,420 714 Group Treasury* -3,996 123 715 -152 119 692 99 -195 Insti
Slide 51: Nordic impairments: Stable, except that Denmark is still struggling
Nordic impairments: Stable, except that Denmark is still struggling DKK m *Acc. imp. DKK 19,293 m DKK m *Acc. imp. DKK 2,664 m 5,000 Denmark, 58% of Group’s lending - Individual 172 bp 1,050 Finland, 9% of Group’s lending - Individual 156 bp - Collective 22 bp 216 bp - Collective 12 bp 4,000 850 650
Slide 52: Other impairments: Northern Ireland and Ireland remain the most problematic
Other impairments: Northern Ireland and Ireland remain the most problematic DKK m DKK m *Acc. imp. DKK 3,078 m 2,400 *Acc. imp. DKK 9,564 m 750 Northern Ireland, 3% of Group’s lending - Individual 537 bp Ireland, 4% of Group’s lending - Individual 1,244 bp - Collective 53 bp - Collective 116 bp 4-qu
Slide 53: Outlook for 2011: Recovery continues
Outlook for 2011: Recovery continues Macroeconomic recovery continues, but stable short-term rates and volumes keep NII under pressure Banking activities remain robust, but still difficult conditions in some markets Focus on costs will continue, and costs are expected to decline, partly because of t
Slide 54: Consensus 2011
Consensus 2011 2011 (DKK millions) Low Average High Contributors: Net interest income 23,929 24,600 26,029 •ABG Net fee income 8,344 8,597 9,086 •Alm. Brand Markets Net trading income 7,138 7,996 8,932 •Arctic Securities Other income 2,862 3,284 3,848 •Autonomous •Bank of America/Merrill Lynch Net i
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