Download - 2008 10 PS Merrill Lynch - danskebank.com
C O N T R O L L E R F O R U M
Steering through troubled waters
Tonny Andersen, CFO
October 7, 2008
2008 Merrill Lynch CEO Conference
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Danske Bank at a glance
� 5 million customers
� 2 million active online customers
� 821 branches in 9 countries*
� 23,849 full-time employees
� Differentiated markets with a higher growth than the eurozone average
� Long-term ratings (Moody�s/S&P) Aa1/AA- (stable outlook)
Sweden
* Excluding agricultural centres in Denmark.
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Denmark:Branches: 380Market share: 27%Market rank: 1Loan growth (Y/Y): 7%
Sweden:Branches: 59Market share: 6%Market rank: 5Loan growth (Y/Y):22%
Norway:Branches: 55Market share: 6%Market rank: 4Loan growth (Y/Y): 31%
Northern Ireland:Branches: 92Market share: 18%Market rank: 1-2Loan growth (Y/Y): 4%
Ireland:Branches: 66Market share: 5%Market rank: 5Loan growth (Y/Y): 19%
Finland:Branches: 123Market share: 14%Market rank: 3Loan growth (Y/Y): 8%
Danske Bank�s market profile- Market leader and challenger positions
Note: Market share figaures are based on lending market shares.
Market Leader
Market Leader
Estonia:
Branches: 24
Market share: 11%
Market rank: 3
Loan growth (Y/Y): 29%*
Latvia:
Branches: 4
Market share: 1%
Market rank: 18
Loan growth (Y/Y): 29%*
Lithuania:
Branches: 18
Market share: 8%
Market rank: 4
Loan growth (Y/Y): 29%*
Market Challenger
Market Challenger
Market Challenger
Market ChallengerMarket Challenger
Market Challenger
Market Leader
* Loan growth for Baltic countries in total.
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= lower than EU average = better than EU average
Low growth, but a healthy economy
GDP growth (%) Budget balance (% of GDP) Gross pub. debt (% of GDP) Unemp. rate (%)
0.5 4.1 21 1.7
2.6 4.7 33 6.3
1.0 2.4 37 6.1
3.1 12.0 26 2.6
1.3 -1.1 65 7.4
Source: Danske Research, October 2007
6
-4
-2
0
2
4
6Fi
nlan
d
EK
Sw
eden
Spa
in
Irel
and
Bel
gium E
U
Ital
y
Fran
ce
Uni
ted
Kin
gdom
Uni
ted
Sta
tes
Source: OECD.
General government budget balance (% of GDP, 2007)
Significant fiscal elbow room
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35%
40%
>60%
Is disposable income a useful measure�
Welfare system or not�
�in analysing consumer leverage?
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0 20 40 60 80 100 120 140
Denmark
Netherlands
Switzerland
Canada
United Kingdom
Finland
Australia
Portugal
Spain
Norway
Japan
Austria
% of GDP
Source: OECD, Economic survey of Denmark.
Private pension assets reduce the need for real property equity
10
0
4
8
12
16
1980 1984 1988 1992 1996 2000 2004 2008
0
500
1.000
1.500
2.000
Unemployment is a lead indicator
Foreclosures, unemployment and 10-year yield #
Source: Danske Research
%
<=Unemployment
Foreclosures =>
<= 10-year yield
,
,
,
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Source: Council of Mortgage Lenders and Danske Bank.
This quality gap is not new
Danske Bank�s Mortgage Finance division
>3-month arrears (%)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2001 2002 2003 2004 2005 2006 2007
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Infrastructure and governance model are proven pillars of the Danish mortgage system
Mortgage market characteristics
Size (� bn) 258 111 10 app. 4,000 1,600
30-year fixed rate Yes No No No No
Maturity match 100% < 100% < 100% < 100% < 100%
Pricing risk No Yes Yes Yes Yes
LTV max Yes Yes Yes No No
Originate/Distribute No No No Yes Yes
Use of brokers No No No Yes Yes
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-25
0
25
50
75
100
125
01
/07
03
/07
05
/07
07
/07
09
/07
11
/07
01
/08
03
/08
05
/08
07
/08
09
/08
Spain
Denmark
Sweden
UK
The spreads are validating the same story �staying much narrower than peers
European covered bonds (5-yr bullets)Swap spreads (bp)
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1,5
1,8
2,0
Q2 Q3 Q4 Q1 Q2
2007 2008
Total lending margin%
Lending margins in Denmark are widening
15 bp
Total lending margin
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☺☺
Spread management differs in different markets
☺What�s holding banks back from repricing?
Northern Ireland & Ireland
Norway
Sweden
Denmark
Finland
The Baltics
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-100
0
100
200
300
1 w
eek
2 w
eeks
3 w
eeks
1 m
onth
2 m
onths
3 m
onths
4 m
onths
5 m
onths
6 m
onths
9 m
onths
12
months
DKr bn
12-month liquidity*Moody�s Financial Strength
End Q4 2007
End Q2 2008 28%
27%
22%
17%
2%4%
Funding structure
Deposits
Issued bonds &
subordinated debt
Danish mortgages
(match-funded)
Credit institutions, central banks
and repos
Unique and resilient funding position
Covered bonds (DKr 50bn)(New legislation)
Shareholders�equity
* Main assumptions: No access to capital markets; no refinancing of debt to credit institutions, issued bonds or subordinated capital; and moderate reduction of business activities.
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Banks17%
Personal customers
30%
Govts & public authorities
2%
Subsidied housing companies
5%
Health care1%
Commercial property
8%
IT1%
Other industrials3%
Materials2%
Tele-communication
0%
Tranportation and shipping
3%Consumer
9%Energy and utilities
2%
Construction & bldg mat.
2%
Div. financials11%Other financials
4%
Diversified loan book
Credit exposure, end Q2 2008(DKr 2,699bn)
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Developers, commercial property and construction exposure
Construction & building materials
DKr bn Denmark Ireland GroupContractors 4.2 5.1 23.6Others 10.1 0.7 24.1Total 14.3 5.8 47.7
Commercial property
DKr bn Denmark Ireland GroupRental comm. 52.0 12.0 172.9Developers 1.6 6.5 15.7
Others 7.1 2.1 22.6
Total 60.7 20.6 211.2
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Integration costs Amortisations Synergies, Sampo
Expenses: Net impact on integration costs and synergies: 2007 vs. 2009: -DKr 1.8bn
DKr m
Tailwind from �low-complexity� cost reductions coming through the P&L
-500
0
500
1,000
1,500
2,000
2,500
2007 2008 2009
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Summary
� Slow growth, but a very healthy Danish economy
� Danish consumers not overleveraged
� Unique Danish mortgage model
� The financial storm will be managed through
� an active and proven widening of lending spreads
� cost reductions with low execution risk
� solid liquidity and capital management
� And a state guarantee�..
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T/N - Cibor 3mdr spread
0
20
40
60
80
100
120
140
01
-07
-20
07
01
-08
-20
07
01
-09
-20
07
01
-10
-20
07
01
-11
-20
07
01
-12
-20
07
01
-01
-20
08
01
-02
-20
08
01
-03
-20
08
01
-04
-20
08
01
-05
-20
08
01
-06
-20
08
01
-07
-20
08
01
-08
-20
08
01
-09
-20
08
01
-10
-20
08
bps
Money market not functioning well - distrust among banks drives up funding costs
bps T/N �Cibor 3 month spread
87 bp
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A quick overview
� Two-year state guarantee on liabilities in Denmark incl. deposits and unsecured claims
� Financial sector issues DKr 10bn loss guarantee and pays an annual commission of DKr 7.5bn
� Minimum payment DKr 15bn (2*annual commission)� Maximum payment DKr 35bn (paid commission +loss guarantee + potential additional
commission)
� No dividend payment and share buybacks
� For Danske Bank the guarantee is expected to � Contribute to better flow of liquidity and funding� Reduce funding costs� Reduce fee income by approx. DKr 2.5bn a year
� Update on preliminary earnings Q3 2008� Income from banking activities slightly lower than expected� Results in Danske Markets and Danica affected negatively by financial turmoil� Costs as expected� Loan losses approx. DKr 1.8bn including write-downs on Lehman Brothers
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What
State guarantee- What is included in the guarantee?
Who
All financial institutions in Denmark with:
� A banking license
� And a membership of the Sector Fund*
� Deposits
� Due to credit institutions (interbank liabilities)
� Issued bonds (senior debt)
Banks with branches in
foreign countries covered by a local
state guarantee can choose
between the systems
Runs for two years but can be extended if deemed necessary to maintain financial stability
* Sector Fund = Det Private Beredskab. See slide number 10 for further information
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State guarantee- What is not included in the guarantee?
What
� Liabilities in subsidiaries and foreign branches in countries without state guarantee
� Hybrid capital and subordinated debt
� Covered bonds
� Debt and deposits secured on government-bonds or covered bonds
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The guarantee and the expenses for the Sector Fund
1. Sector Fund issues DKr 10bn first loss guarantee
2. Pays an annual commission of DKr 7.5bn equal to DKr 15bn over two years
� Payment in cash or shares
3. Potential extra DKr 10bn fee if total losses exceed DKr 25bn
� Minimum payment DKr 15bn (2*DKr 7.5bn)� Maximum payment DKr 35bn (DKr 10bn + DKr 2*7.5bn + DKr 10bn)
The state is liable for further losses
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Implications for participants- during the two-year period
The participants are not allowed to
� Pay out dividend
� Initiate new share-buyback programs
� Establish new share option programmes
� Extend existing share option programmes
Danske Bank�s share of the Sector Fund
� Approx 1/3
� Based on capital requirement for Danish activities under the guarantee
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Implications for Danske Bank
The guarantee is expected to
� Facilitate the Group�s access to funding and reduce funding costs
� Have a positive effect on net interest income
� Reduce net fee income by DKr 2.5bn p.a. for two years
� Approx. DKr 0.6bn for Q4 2008
� Effect from October 6, 2008
� Add additional expenses if payment under the guarantee falls due (maximum DKr 6.7bn)
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Update on preliminary earnings Q3 2008
Preliminary results for Q3 2008 show
� Income from banking activities slightly lower than expected
� Financial results in Danske Markets and Danica are adversely affected by financial turmoil
� Expenses develop as expected
� Credit loss expenses for the third quarter of 2008 of approx. DKr1.8bn, including write-downs on Danske Bank�s facilities to Lehman Brothers
� Credit loss expenses for the full year are expected to exceed the average for a business cycle
Updated guidance for the full year will be given in the Q3 results published on October 28, 2008