Danske Bank A/S

Good morning, everyone. Welcome to the conference call for Danske Bank's financial results for the first nine months of 2024. My name is Claus Enge Jensen, and I'm head of Danske Bank's investor relations. With me today, I have our CEO, Carsten Iris, and our CFO, Stefan Engels. We aim to keep this presentation to around 25 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. Slide one, please.

Thanks, Klaus, and I would also like to welcome you to our Q3 conference call. The first nine months has been an important period for Danske Bank. It represented a crucial stage of our strategy period. And I'm pleased to see that through dedicated and focused execution, we have secured a satisfactory foothold towards meeting the target set in our 428 strategy. This becomes clear when looking at our financial performance for the first nine months, which is clearly on track to meet our 2026 financial targets and measure it on many parameters even ahead of the plan. Our performance saw good momentum in the first nine months of the year, driven by an increase in customer activity, primarily attributable to corporate lending demand and investment activities, but also from a broad-based increase in everyday banking transactions. In the third quarter, we saw continued lending demand from corporates across our business, and this resulted in an increase of 1% at business customers and 2% at LC&I. Furthermore, our ability to leverage our strong position within debt capital market activities added to the positive performance in the first nine months. Within our retail business, lending demand remained subdued in the third quarter due to relatively low housing market activity. We continue to see strong traction within sustainability-linked finance and maintained our position as a leading Nordic bank in this area. The macroeconomic situation, primarily in Denmark, has improved slightly. Lower inflation data has led to lower central bank rates, which will support growth going forward and is in line with our latest economic outlook from September. The outlook for the other Nordic countries is more stable, although mixed. Financially, the first nine months turned out to be a period with improved performance, as profit before loan impairment charges was up 15% relative to the level a year ago and on par with the preceding quarter. Reversals of loan impairment charges provided further support to net profit, which came in at $17.6 billion for the first nine months and $6.2 billion for Q3. The result for the third quarter is equivalent to a return on equity of 13.9%, and this represents the highest quarterly return in more than six years for Denske Bank. The result was based on a strong increase in core banking income lines, which combined were up 7% relative to the same period last year. When adjusting for a positive one-off fee income effect in the second quarter, total income was stable in the third quarter. Together with the satisfactory uplift in business activity, there was only a slight increase in operating expenses as our strong focus on cost discipline more than offset the impact from wage inflation we've seen over the past year or so. Expenses were down 4% relative to Q2 and flat when adjusting for a positive one-off of $0.2 billion. As I mentioned previously, the reversal of loan impairment charges had a positive effect on our result. The trend accelerated in the third quarter when reversals amounted to $0.3 billion, bringing the total reversals to $0.4 billion for the first nine months, partly due to a review of the PMA buffer. We maintained a strong capital and liquidity position. As planned, the execution of the 5.5 billion share buyback program started in the first quarter, and it is progressing as intended. The CET1 capital ratio stood at 19.1% at the end of Q3, and this includes the expected impact from CRR3. And then finally, based on what I just mentioned in respect to the better-than-expected development for operating expenses and for loan impairment charges, we have today raised our net profit outlook from between $21 to $23 billion to between $22.5 to $23.5 billion. And let me just speak a little bit to the business units, and then I'll pass on to Stefan for the financials. At personal customers, we continue to see strong financial performance driven by resilient core banking income. And I should just say this is the next slide, please. Driven by resilient core banking income supported by a positive contribution from net interest income. The solid income development was coupled with continually strong credit quality along with prudent cost management. And this kept operating expenses on par with the level in Q3 23 and down 6% compared to the previous quarter. And in sum, this took profit before tax up 6% from the previous quarter and 9% from the last year, highlighting a satisfactory return on allocated capital and also an improved cost-income ratio, both ahead of our hurdle rates. The positive development in net interest income came despite the impact from central bank rate cuts and the competitive pricing adjustments that we've made for home loan offerings. the income remains supported by healthy economic activity and as real wages have started to improve. The level in the third quarter came in lower, however, due to the one-off benefit of 0.1 billion, recognizing Q2, as well as the timing of a partnership payment, along with also lower investment fees in global private banking after a strong second quarter and seasonally lower refinancing activity. Deposit volumes remained elevated across our markets, except for the natural attrition in Norway ahead of the divestment. And this solid deposit position should also be seen in the light of the momentum that we have seen across our product suites, as customers have allocated their assets to our savings and also our investment offerings. And just as an example, total customer assets in Denmark have increased almost 100 billion year on year. We continue to improve our value proposition, particularly towards prioritized customer segments, underpinned by the strategic ramp-up within wealth management and private banking, and evidenced by the continued net inflow into assets under management. This lifted total AUM 17% relative to the same period last year. In terms of lending volumes, housing market activity has started to recover somewhat. However, loan demand remained muted. Lending at Reikredit Danmark was again slightly lower due to redemptions and amortization. But this was largely mitigated by our customers' preference for Danske Boligfrihom loans, which saw an other quarterly increase of 3% in the third quarter. And this takes a year-on-year increase up by more than 20%. And then commercially, we've noted several green shoots across our markets, such as, for example, rising consideration rate in Denmark and also an uptick in mortgage applications in Sweden. Overall, I still believe that with our platform and our competitive offerings, we have untapped potential, as well as a need and an ambition to grow our lending volumes to regain our fair share of the mortgage market in Denmark. And then please, slide three. At business customers, we've seen strong financial performance supported by our enhanced product offerings and customer focus, as well as solid activity from gradually improving sentiment across our businesses. Core banking income benefited from a sustained level of NII and a continued solid fee contribution related to daily banking activities and our subscription-based service model, despite some seasonality in the third quarter. Total income remained solid even as income from leasing assets and asset finance was lower. In the third quarter, profitability was supported by net impairment reversals, which lifted the return on allocated capital above our target. Consistent cost management led to cost being on par with the level in the second quarter, and we maintained a cost-income ratio ahead of our 2026 target. Specifically on the development in volumes, we've seen an encouraging uptick in corporate credit demand, providing a steady uplift in lending across all Nordic markets since the beginning of the year and enhancing the commercial momentum across our business. Deposit levels were largely stable in Q3 in Denmark, Sweden and Finland, while we saw an expected drawdown of deposits in Finland related to the timing of public sector payments. We remain focused on supporting our customers and providing the best possible advice along with solutions tailored to their needs. The positive trends in customer inflows and higher credit demand show that we are executing on our Forward 28 strategy. More recently, mandates with global subsidiaries underscore our ability to service clients with international and complex needs, plus our ability to leverage our strong corporate franchise. And then slide four, please. Moving to LC&I, our franchise continued to grow in the third quarter, building on the positive momentum from the first part of the year, underpinning a sustained strong financial performance. We actively supported our customers with risk management solutions and as a financial partner when executing their corporate strategies. And during this quarter, we supported the financing of some of the largest transactions in Europe, such as Carlsberg's acquisition of Britvic and DSV's acquisition of DB Shanker. In addition to putting our balance sheet to work, we help customers take advantage of better public funding markets, and we remained the leading Nordic bank in the European debt capital markets in terms of volumes. And against this backdrop, both total income and lending volumes at LC&I continued to grow in the quarter. We delivered an increase of 1% in total income, as higher trading income offset lower NII and fee income relative to the second quarter. Although higher fees from asset management and higher AUM supported fee income, total fee income was impacted by seasonality primarily in capital markets, while NII was impacted by lower deposit margins. However, supported by constructive markets, healthy customer activity helped lift net trading income 27% relative to the preceding quarter, demonstrating again the value of our diversified business model. And we continue to grow our lending and saw consistent credit demand in Q3 with another 2% increase in lending. We've seen deposit volumes trend lower as our corporate customers have utilized deposit reserves to fund their corporate strategies. In the third quarter, however, deposits recovered with a 2% increase compared to the second quarter. And then lastly, I want to highlight the progress in our asset management business. On the back of the new strategy we launched in February, we're pleased to report positive traction in several areas. Amongst others, AUM continues to grow and was up 21 billion from the preceding quarter due to a strong development in both net sales in the institutional and private banking segments, along also with rising asset prices. And then with that, let me pass over to Stefan for the financials. And that's slide five, please.

Yeah, thank you, Carsten. Good morning. As Carsten just mentioned, we saw a strong and improved performance in our financial result. Relative to the same period last year, as well as the preceding quarter, profit before tax was up 14% and 6% respectively. Relative to the first nine months of last year, the 8% improvement in total income was driven by stronger core income lines and a recovery in net income from insurance business following better financial market conditions. Furthermore, the other income came in higher compared to the same period last year, which included one of items with a negative effect. Operating expenses remained stable as prudent cost management mitigated the expected wage inflation. Loan impairment charges came in at a very low level and resulted in a net reversal due to continually strong credit quality. Relative to last quarter, trading income in particular gained momentum, driven by increased customer activity. Total income was slightly down, as the strong level of fee income in the second quarter was impacted by seasonally lower customer activity in some areas, and a positive one of booked in Q2. Net profit for the first nine months of $17.6 billion is equivalent to an ROE of 13.4%. Slide 6, please. Let's take a closer look at the development in the net interest income. During the third quarter, contrary to expectations at the time of our Q2 release, central banks have accelerated the pace of rate cuts given the favorable trend of inflation. NII in the third quarter clearly reflects our view for slightly higher NII. However, the change in market expectations as reflected in forward rate cuts marginally reduced the expected level of NII in Q3. As such, our NII showed the expected resilience in Q3 as balance sheet effects and lower funding costs mitigated the impact from lower market rates. The impact from volumes was stable during the water and both the deposit as well as lending margins were impacted by lower market rates and competitive pricing adjustments. Several pricing actions for customer accounts were initiated during the quarter. However, the impact will not be visible until Q4 due to notice periods. We therefore expect lower margins and hence a slightly lower NII. For the full year, we expect NII of approximately $36.5 billion. I would like to stress that this is based on an as-is point of view with forward rates as up-to-date as practically possible. While market expectations around the timing and number of future rate cuts change very frequently, there is a high degree of uncertainty for NII when looking into 2025. Slide 7, please. Overall, the positive trend in fee income we have seen year-to-date reflects an overall increase in customer activity and the execution of our Forward28 strategy. Relative to the same period last year, fee income rose 10%. The increase was driven by investment activities and activity-related income, but also from our capital markets activities where the DCM business was a strong contributor. Fee income from lending was slightly lower, mainly due to low housing market activity. Following high activity in Q2, fee income came in 7% lower in the third quarter when excluding the effect from a non-recurring item in the previous quarter of 0.1 billion. When looking at the various fee categories, please pay attention to the following. Activity-driven fees in Q3 included a catch-up payment related to one of our partnership agreements, whereas lending fees in the second quarter benefited from income from refinancing auctions of around $80 million. Capital markets fees were impacted by seasonally lower activity in Q3, and investment fees came in lower after a very strong performance in private banking in the second quarter. Within asset management, we continue to see positive net sales underpinning the solid traction for AOM over the previous quarters. Despite the lower headline number for fee income in the third quarter, I am happy to see that we have improved the run rate relative to the same period last year for primarily activity-driven fees and investment fees, and we remain confident about the future development. Slide 8, please. Next, let us look at net trading income. First of all, we are pleased by the development in our quarterly trading income. Quarter on quarter, trading income increased 21% driven by higher customer activity at LC&I, supported by favorable market conditions. Compared to the same period last year, trading income was stable. This reflects lower income at LC&I following an exceptionally strong first half of 2023, which was offset by the normalization of income at group functions after the net impact of around $0.5 billion from one-offs in the second and third quarter of last year. That concludes my comments on the income line. Let's turn to expenses on slide 9, please. Reported expenses were up slightly from the level in the first nine months of last year, but 4% lower compared to the preceding quarter as we have executed well to manage our cost trajectory and further benefited from a one-off of 0.2 billion in Q3 related to an insurance reimbursement. As CFO, I am pleased to see that our planned cost reduction has led to the intended reduction in expenses related to our legacy cases. In addition, our financial crime prevention efforts are heading towards steady state mode following the multi-year investment plan. These structural cost takeouts have mitigated the rise in wage inflation and allowed for our strategic investment ramp-up, including investments in digitalization and IT partnerships, which is reflected in the uptick in other costs shown on the slide. Furthermore, as a result of stronger financial performance, performance-based compensation naturally increased, but overall, we have consistently managed to improve our efficiency and now have a cost-income ratio around 45% compared to 49% a year ago. During the year and up until now, we have highlighted additional non-recurring costs items of 0.6 billion related to the move to our new domicile, as well as the divestment costs for BC Norway. In the third quarter, we have recognized another 0.1 billion, which was booked in addition to the 0.1 billion from the first half year. We now expect for the total year to be around 0.3 billion. Finally, based on the better-than-expected cost development, we now expect operating expenses for the full year to be around 25.8 billion, including the non-recurring items of 0.3 I just mentioned. Slide 10, please. Let's take a look at our asset quality and the trend in impairments. Our well-diversified and low-risk credit portfolios continue to benefit from the macroeconomic environment and healthy household finances. Impairments in Q3 led to a net reversal of 0.3, driven by improved quality and PMA releases. Actual credit deterioration remained limited and again this quarter we saw net reversals of single name charges driven by positive stage migrations and recoveries from work-out cases. With reduced uncertainty related to the personal customers and a lower anticipated regulatory impact for agriculture customers in Denmark, we released a total of 0.2 billion of our PMAs in Q3. Regarding our PMA buffer, we continue to apply a prudent approach to cater for potential tail risks and uncertainties not captured on a single name basis or through our macroeconomic models. Going forward, we will review our PMA buffer, and with a buffer that currently equates to more than four years of normalized loan losses, we remain in a very prudent position. Following the continuously strong quality and in the absence of loan impairment charges, we are now changing the outlook for loan impairment charges for the full year from up to 0.6 billion to now around zero. Slide 11, please. Our capital position remained very strong with a reported Q1 ratio increasing to 19.1%. With the strong profitability we have reported today, our capital accumulation was supported by a healthy contribution from retained earnings after accruing for dividend. In addition, the CET capital ratio was supported by a lower risk exposure amount with the decline primarily driven by reduced market risk. Our CET1 capital requirement was at 14.6% at the end of the third quarter and continues to include the retail exposures in Norway. As previously announced, we intend to pay out a special dividend of 5.5 billion during the fourth quarter, subject to closing the PC Norway transaction. While this is technically CET neutral, given the simultaneous release of the credit risk RIA, we have seen some natural attrition in the portfolio since the divestment process was initiated. We therefore expect the CET1 ratio to be around 30 basis points lower at the end of the year, all else being equal. Now, let us turn to the final slide and our full year financial outlook. Slide 12, please. As it appears from our company announcement published this morning, we have changed our net profit outlook for the full year. We now expect net profit in the range of $22.5 to $23.5 billion. This is the second revision of our outlook this year, as we at the end of June revised the outlook from $24 upwards to a net profit in the range of $21 to $23 billion from previously $20 to $22 billion. We now expect operating expenses for the full year to be around 25.8 billion, reflecting lower than expected non-recurring items, effects from insurance reimbursement and continuous focus on cost management. The outlook now includes non-recurring items of approximately 0.3 billion related to the relocation to the new domicile and minor costs for the divestment of PC. Norway. Previously, we expected operating expenses between 26 and 26.5, including northern recurring items of approximately 0.6. In addition, the upgrade follows our continually strong credit quality and net reversals of loan impairment charges in the first nine months of the year. As such, we now expect full-year loan impairment charges to be around zero from previously up to 0.6 billion. The outlook for income remains unchanged. Today's change, just for the record, will not have any impact on our financial targets for 2026. With that, slide 13 and back to Klaus.