Danske Bank A/S

Good morning, everyone. Welcome to the conference call for Danske Bank's financial results for the first quarter of 2024. My name is Claus Inger Jensen, and I am head of Danske Bank's investor relations. With me today, I have our CEO, Carsten Eriks, and our CFO, Stefan Engels. We aim to keep this presentation to around 20 minutes. And after the presentation, we will open up for a Q&A session as usual. Afterwards, please feel free to contact the Investor Relations Department if you have any more questions. I will now hand over to Carsten.

Thanks, Klaus. And I would also like to welcome you to our conference call for the financial report for the first quarter of 2024. The first quarter marked the start of our new strategy period, and I'm pleased with the continued execution of our strategic priorities with a clear focus on strengthening our position as a leading financial institution in the Nordic region. Despite a continually elevated level of geopolitical uncertainty and subdued economic activity, the first quarter was a good start to the year and a satisfactory quarter for Danske Bank, characterized by a sustained and a robust performance across our business. The performance in the first quarter was, despite an expected modest demand for new loans, supported by high customer activity, primarily within savings and investment products. And we also continued to leverage our strong position within debt capital market activities. This included a continually strong traction for sustainability-linked finance, where we have maintained our position as the leading Nordic bank. Financially, the first quarter turned out to be a period with an improved performance as profit before tax increased relatively, not only to the level a year ago, but also to the preceding quarter. The result was based on a strong increase in the core banking income lines, combined up 11% compared to the same period last year, and in combination with further efficiency improvements, this resulted in a cost-income ratio improving to 45%. The resilient macroeconomic environment continued to support our strong credit quality with loan impairment charges in the first quarter below what we consider a normalized level. Net profit for the first quarter came in at $5.6 billion, equivalent to a return on equity of 12.9%. We maintained a strong capital and liquidity position. In line with our plan, the execution of the $5.5 billion share buyback program started in the first quarter and is progressing as intended. And as of last week, we had bought back 6 million shares, equivalent to a total repurchase amount of $1.2 billion. The CET1 ratio stood at 18.5% at the end of Q1, including the full deduction of the share buyback program. And then as a final introductory remark, I was very pleased to see the recognition we also got from Moody's yesterday, which included a two-notch upgrade of our long-term senior debt. And this is another proof point of the enhanced structural resilience of Denske Bank and all the progress that we continue to see across the group. And I'll now continue to make some comments on our business units, and then I'll hand over to Stefan for the financial results and more details. Slide two, please. At personal customers, we started the year with solid financial performance, improving total income by 4% relative to the preceding quarter and 5% year-on-year. The performance was based on a robust uplift in NII driven by improved margins, not only relative to the same period last year, but also with a 2% increase quarter-on-quarter. The development underpins our view on NII trends for the full year. Core banking income also benefited from improved customer activity that led to an uplift in activity-driven fees, along with a healthy contribution from investment fees. And in this respect, I'd also like to highlight the continually improving momentum in our global private banking franchise, along with an inflow of new customers. This contributed positively to the uplift in fee income through growing net sales of investment products for the fourth consecutive quarter, increasing the contribution to the positive trend in assets under management. In combination with continually strong credit quality and prudent cost management, the improvements added to a positive development for return on allocated capital and cost income ratio. Commercially, we still see our improved position reflected in the traction we have with our existing customer base, along with a positive inflow of new customers, specifically in our prioritized segments. Looking at volumes which are shown excluding Norway, our deposit position remained at solid levels in most of our markets. And we continue to see preference for our saving products. Particularly in Denmark, where the positive inflow to our leading Danske Toprande and Danske Inlån offerings continued In terms of lending volumes, the housing markets have clearly been muted across our markets with low demand. And in Denmark, the stock of residential lending and RD was impacted by redemptions and amortization. However, we continue to see customers opting for our Danske Bolig Free Home Loans with another quarterly increase of 5%. With stability in policy rates going forward and post the new property tax regulation that took effect at the beginning of the year in Denmark, we expect demand for housing to pick up during the year. Slide three, please. At Business Customers, we've seen an increase in customer activity across our businesses relative to both the preceding quarter and also the same period last year. And this led to an almost similar increase in fee income as in our personal customer unit, up 2% and 4% respectively. However, total income came in lower due to lower NII and lower income from asset finance. When comparing NII to the previous quarter, the reported number was impacted by FX, by day counts, and a year-end correction between business customers and Treasury. Within asset finance, an elevated level of loan impairment charges for a few single name exposures explains the lower result and thus the decline in return on allocated capital. And Stefan will go through our asset quality and our overall level of impairments in more details later. Looking at costs, continued prudent cost management secured a stable cost income ratio well ahead of our target in 2026. In respect to volume development, the good activity was also reflected in a solid trend in lending growth, which was primarily driven by corporates in Denmark and in Norway. Deposit levels normalized in Q1 as positive developments in Norway and Finland were offset primarily by Sweden. Let's also look now at the LCNI, and this is slide four, please, where market sentiment improved despite the still elevated level of uncertainty and supported our ability to actively support our customers with advisory services backed by our strong product offering and balance sheet. In the first quarter, we delivered solid total income along with strong profitability, also relative to our 2026 target. We continue to leverage our strategic commercial strengths, which drove a positive underlying momentum as reflected in growth in our corporate customer portfolio outside of Denmark. And this is really a key part of our strategy. We also increased our market share of cash management services with new house bank mandates across the Nordics. Lending within general banking improved slightly during the first quarter, which supported the NII uplift. The lending development should also be seen in combination with the highest fee contribution in three years from very strong debt capital markets activity. Deposit volumes were impacted by seasonality around tax and dividend payments, along with volatility related to institutional depositors. But we continue to see improved deposit margins contributing positively. And then finally, our asset management business continued the positive trend with increasing market shares for Denske Invest, which was underpinned by a positive inflow of both institutional mandates along with retail net sales. And this also contributed positively to the increase in assets under management, which further benefited from higher asset prices in Q1. I'm now going to hand over to Stefan for a more detailed review of our financials. And that's on slide five, please.

Thank you Carsten and good morning everybody. Now, let us have a look at the most important trends in our income statement and reserve comments that are more detailed for the following slides. As Carsten just mentioned, we saw a strong improvement on our financial result. When comparing to the same period last year as well as the preceding quarter, profit before tax was up 8% and 4% respectively. Relative to Q1 of last year, the improvement in total income was driven by stronger net interest income and fee income, whereas net trading income in Q1 last year benefited from extraordinarily good market conditions. Furthermore, the other income decreased due to lower sales on assets related to our leasing activities. Operating expenses remained stable as prudent cost management mitigated the expected wage inflation. Loan impairment charges came in at a very low level of just two basis points due to continually strong credit quality. Relative to last quarter, NII and fee income maintained the positive trend despite the impact from FX and the seasonality effects between quarters. Total income was up slightly driven by higher trading income. In terms of our net profit outlook for 2024 of 20 to 22 billion, the result for the period of 5.6 billion represents a good starting point for the year. Slide six, please. Let's take a closer look at the development in NII. While this quarter has been the first without any central bank rate hikes for a while, our anticipated NII trajectory remains. Here are the three main points I want you to take away. One, NII continues to trend up and adjusted for FX and day effects. NII was up another 2% quarter on quarter. Two, the combined net interest margin continues to improve as lending margins are catching up and our so-called balance sheet effects, including our deposit hedgings, gradually take hold. And three, we continue to see the level of around $37 billion as a fair estimate for full-year NII. This incorporates the current market view of rate cuts, FX, and the volume development we have seen in Q1, and our expectation that demand for home loans will gradually pick up during the year. If we take a step back, the NIR uplift we saw during the last year was primarily related to deposit margin expansion and higher yield on shareholders' equity. Now, with stable rates, the migration to higher yielding saving products accounts naturally affects margins. However, this is countered by our deposit hedge, where our bond portfolio and role of fixed rate assets continue to provide support to the margin uplift. Lending margins, on the other hand, which were under pressure during last year, now benefit from the stable rates and our repricing actions. Looking at Q1, the lending margin increase on the slide is however overstated, as it includes corrections made at year-end. It is important to note, though, that this had no impact on the Group NII development. In terms of deposit volumes, we saw a seasonal impact mainly from corporate dividend payments and tax at LC&I in particular, but also note the impact from lending volumes has stabilized. Finally, on our NII sensitivity, we continue to expect around plus or minus 500 million for a 25 basis point change in policy rates in the first year, with an additional year two and year three effect of 300 and 200 million, respectively, given our structural hedges and portfolio fixed rate assets. Slide seven, please. Overall, the positive trend for fee income we started to see in the second half of last year remains intact and serves as evidence of our improved business momentum. Fee income rose 4% compared to the same quarter last year, as well as the preceding quarter when adjusted for seasonality and performance fees. The increase was driven by activity-related income and investments. The sustained high activity among our customers in Q1 has been supportive, and our investment fees benefited from an increase in assets under management, including positive net sales. Fee income from lending activities was both year-on-year as well as quarter-on-quarter impacted by the subdued housing market activity. Income from refinancing of adjustable rate mortgages in Q1 partly mitigated the subdued housing market activity. Income from our capital markets activities came in around the same level as in Q1 of last year, as well as the previous quarter. The fees generated by our debt capital market activities saw a strong increase and came in at the strongest level in the past eight quarters. However, income from ECM and AMNA reflected lower market activity in general and seasonality. Slide eight, please. Now let me briefly comment on net trading income. Compared to the same quarter of last year, income came in lower due to exceptionally high customer activity in LC&I in Q1 2023. The decline in group functions came primarily from valuation adjustments within Treasury. Compared to the preceding quarter, the improvement came from higher customer activity in LC&I after a seasonally low Q4. Finally, let me quickly highlight the restatement with an annual effect of approximately 1 billion of trading income to mainly fee income that has been made effective from Q1. As announced in our pre-closed call, this will alter our soft guidance for normalized trading income from previously around 4 billion to now around 3 billion PA subject to market conditions. This will not change our full-year outlook for total income. That concludes my comments on the income line. Let's move on to expenses on slide 9, please. Reported expenses were slightly up from the level in Q1 last year and 4% lower compared to the preceding quarter. I'm pleased to see that we also, in the beginning of 2024, continue to manage our costs in line with our plans and guidance for the year. Compared to the first quarter of last year, staff costs were impacted by wage inflation, partly mitigated by the number of FTEs being reduced by 5%. As a result of our stronger performance, performance-based compensation increased, whereas expected lower costs for legacy cases had the opposite effect. The cost development quarter-on-quarter reflected lower transformation costs and known seasonality effects, including lower performance-based compensation. The increase in other costs in Q1 related mainly to the ramp up of our planned investments, including our digital priorities and IT partnerships as a key part of our forward 28 strategy. The expected one of items approximately 0.6 billion related primarily to the cost for relocation to our new domicile are expected to be recognized over the remaining quarters of the year. Slide 10, please. Let's take a closer look at our credit portfolio and trends and impairments. Our well-diversified and low-risk balance sheet benefited further from the benign macroeconomic development. Low unemployment and a GDP outlook that was revised upwards led to reversals from our macro models, although these still incorporate a severe downturn scenario that reflects global tension. Actual credit deterioration remains very limited and we saw only a few single name charges related to our leasing operations in business customers. The reported loan loss ratio for the quarter was two basis points, well below our normalized through the cycle assumption. However, on the basis of the continually elevated level of geopolitical uncertainty, also mentioned by Carsten, we confirm our outlook for loan impairment charges for the full year of approximately eight basis points. The same approach applies to the sizable amount of PMAs which is maintained in Q1. As we have communicated previously, this buffer puts us in a comfortable position and we can naturally allocate them towards segments or industries should any tail risk emerge. Let's go to the next slide and cover our capital position on slide 11, please. Our capital position remains strong with a reported CET capital ratio of 18.5%. This reflects another quarter in which we accumulated capital and saw an unhealthy contribution from retained earnings after accruing for dividend. The reported CET1 ratio is only 0.3 percentage points lower than at the end of Q4, which is due to the full deduction of our 5.5 billion share bear back program, which had an isolated impact of 0.7 percentage points. The decrease in risk exposure amount related primarily to the lower credit risk caused by currency effects and lower risk weights. Our CET1 capital requirements stood at 14.4% and continues to include the Norwegian retail exposures. Slide 12, please. And finally, based on our solid performance in the first three months, I would like to reiterate our outlook in general with a net profit of 20 to 22 billion for 2024. Slide 13, please, and back to Klaus.