Danske Bank A/S

Good morning, everyone. Welcome to the conference call for Danske Bank's financial results for 2024. My name is Claus Inger Jensen, and I'm head of Danske Bank's investor relations. With me, I have our CEO, Carsten Eriks, and for the last time, 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 IR department if you have any more questions. I will now hand over to Carsten. Slide one, please.

Thanks, Laus, and I would also like to welcome you to our Q4 conference call for the financial report for 2024. The year 2024 has been a remarkable and an important year for Danske Bank, with a net profit of 23.6 billion, slightly higher than our guidance of between 22.5 and 23.5 billion. Our financial performance was strong and highly satisfactory, at the same time as it clearly shows good traction on our strategy. The result is based on an increase in core banking income of 8% compared to 2023, taking total income to more than 56 billion, which represents the target for 2026. The macroeconomic backdrop, primarily in Denmark, developed better than expected in the beginning of the year. However, the operating environment was characterized by an overall muted lending demand. The key driver for our performance was based on expansion of customer relations and our share wallet. So in other words, we have succeeded in doing more business with our existing customers and thereby strengthened our market position. And this was primarily attributable to our corporate business and our investment activities, but also from a broad-based increase in everyday banking transactions. In respect to our strategy execution, on areas of progress we would like to highlight is our technology transformation, which has been and continues to be a key focus area of significant importance for our strategy execution. So, for example, tangible progress was made in 2024 with our cloud migration program, which runs ahead of schedule, and with prioritized investments in Gen-AI capabilities and solutions. In addition, our partnership with Backbase helped achieve tangible improvements of the onboarding process for new customers in Denmark. In the fourth quarter, where we delivered a net profit of 6 billion, we saw continued loan demand from corporates, mainly in Denmark, whereas lending growth remained subdued within our retail business. Deposits, however, increased across business units. In our large corporates franchise, our strong position enabled us to further expand capital markets activities, overall including a particularly strong performance in asset management, which led to a very high level of performance fees. Our cost-income ratio ended at 46% down from 49% in 2023 as we improved efficiency by keeping operating expenses stable. The planned cost takeouts has enabled our strategic investment ramp-up, where we continue to execute according to plan. A continuation of the strong credit quality led to net reversals of loan impairment charges from workout cases and provided further support to the financial result. And we continue to see reversals in Q4, including also the effect from a review of the post-model adjustments that we have. Net profit for the full year is equivalent to a return on equity of 13.4% and represents the highest annual return since 2018. And then capital distribution, where I'm very pleased to announce a distribution of all net profit for 2024. Total dividends, including the accelerated dividend for the first half, but excluding the special dividend paid out in December, amount to 22.2 kroner per share. or a dividend payout ratio of approximately 80%. And this is based on an ordinary dividend of 60%, in line with our dividend policy, and an extraordinary dividend of 5.35 kroner per share. So for the avoidance of doubt, our dividend policy remains unchanged, and the dividend payment is, of course, subject to approval at the annual general meeting. And then for the remaining net profit for 2024 of approximately 20%, we will be initiating a new share buyback program of 5 billion kroner starting next week. We maintained a strong capital and liquidity position. At the end of Q4, the CET1 capital ratio stood at 17.8%, and this includes the impact from dividends and the new share buyback program. Finally, on the financial outlook for 2025, which Stefan will comment on in more detail, we expect a net profit of between 21 to 23 billion, driven by slightly lower total income, stable operating expenses, and a loan impairment charge of around 1 billion. Let me comment a little bit on the business units, and then I'll hand over to Stefan for the financial results. Slide two, please. At personal customers, we've seen satisfactory financial performance driven by a higher total income up 6% in 2024 or 2% when adjusting for the 2023 provision related to the sale of PC Norway. Resilient net interest income supported the top line, despite lower policy rates and competitive pricing adjustments on saving products and home loans. The uplift in core banking income also benefited from a 14% increase in fee income on the back of stronger customer activity. Activity-driven fees improved and investment fees supported by higher assets under management also contributed. Speaking to our strategic focus also on private banking and wealth management offerings. We saw strong credit quality and prudent cost management underpinning satisfactory levels for return on allocated capital and cost income, both of which are on track to meet our 2026 targets. On lending, we saw positive traction for bank home loans. With our holistic offering, we can accommodate a broader range of customer needs, especially in the current interest rate environment. Danske Boligfri grew a further 6% in Q4, bringing the stock of bank home loans to almost 50 billion. Housing market activity remained muted, however, despite encouraging trends late in the year, as rates declined and households began to experience real wage growth. This impacted the stock of residential lending in Rehlkredit Denmark, as did redentions and amortization. And looking ahead, I believe we have the platform and we have the potential to regain our fair share of the mortgage market in Denmark. Deposit developments remained solid with an inflow from retail customers in Denmark and Finland. As rates on savings products declined, we saw customers shifting savings to our investment solutions. Looking at deposits, assets under management and assets under custody, total customer funds increased by around 50 billion during 2024. And this clearly shows our ability to expand our share wallet and offer the right solutions for our customer needs. As a whole, I'm pleased to see how we continue to expand relations with our customers. This is also reflected in our strategic KPIs, where customer satisfaction in Denske Bank's image has steadily improved. Page 3, please. At business customers, financial performance remained solid despite a decline in total income, predominantly related to lower income from our leasing businesses. Core banking income benefited from enhanced product offerings, increasing customer activities, and a positive development of our customer base in line with our strategy. As a result, we saw resilient NII and a continued uplift in fee income tied to daily banking and our subscription-based service model. And this is a testament to our customer penetration and increasing share of wallet. Return on allocated capital remained in line with our 2026 target of 21%, despite being impacted by the lower rates. Our cost-income ratio remained ahead of our 2026 goal due to prudent cost management while we continued to invest in and build our business. Our strong commercial momentum was further reflected in solid lending growth with evident traction across all Nordic markets and further driven by an expansion of new customer mandates in the more complex mid-sized segment. Deposit levels were largely stable year on year, with growth in Sweden and Finland offset by an expected decline in Norway from the repricing of less profitable deposits. We clearly see progress on the strategic KPIs that we set as part of Forward 28 with a tangible uplift in daily banking fees. Our ambition to increase the automation in our credit decision-making process also currently meets our target for 2026, which is directly supporting our efficiency and adding to the increasing number of customers that are satisfied with our advisory services. Slide four, please. For LC&I, I think there is ample reason for us to be very satisfied with the financial performance at the LCI in 2024, as we've seen strong customer activity broadly across the franchise, resulting in a 10% year-on-year increase in total income. We're particularly pleased that the positive development has been founded on a continued execution of our strategy towards our strategic targets. Notably, we have again in 2024 welcomed new large corporate customers as we continue to deliver on our strategic KPI to grow corporate banking relationships outside of our home market in Denmark. For instance, winning new house bank mandates across the Nordic countries. Furthermore, we continue to see good progress for our already leading capital markets franchise as customers have trusted us with lead roles in several landmark transactions across our product offerings within lending, equity, and bond issuance. And on top of this, asset management also performed strongly in 2024. AUM grew more than 100 billion or 14% in 2024, and our funds generated above benchmark performance, resulting in record high performance fees. Overall execution of our strategy resulted in capital efficient income growth that yielded a very satisfactory return on capital of 25% for 2024, which is well above our 2026 target of 18%. Moreover, both deposit and lending volumes at LC&I continued to grow 2% and 3% respectively over the year. Deposit volumes trended higher, supported by corporate customers' seasonal buildup of reserves, and lending volumes grew as we saw strong activity, for example, in our syndicated loans business. And then with that, let me hand over for Stefan's last quarterly result after many good quarters in the bank. Over to you, Stefan, and that's on slide five.

Thank you, Carsten. As Carsten just mentioned, we saw a strong and improved performance in our financial result. Relative to last year as well as the preceding quarter, profit before loan impairment charges was up 14% and 4% respectively. I will now start by giving you a brief overview of our income statement and reserve more detailed comments for the relevant slide. Total income for the full year came in at $56.4 billion, which represents good progress towards our financial ambitions for 2026. In Q4, total income increased 5% relative to the preceding quarter, driven by slightly higher NII and a strong increase of fee income of 35%. Trading income declined in Q4 mainly due to lower seasonal customer activity, whereas income from our insurance activities saw a negative impact from an increase in provisions related to the health and accident business. However, insurance income of 1.4 billion for the full year benefited from a sound underlying business develop and higher premiums as well as more stable financial markets and was in line with what we consider to be normalized annual income. Other income benefited from the transfer of PC Norway investment funds with 0.2 billion booked in Q4. Operating expenses amounted to 25.7 billion in line with expectation and slightly below our adjusted guidance for 25.8 from Q3. In Q4, expenses came in higher than Q3 due to normal year-end seasonality. Due to continually strong credit quality and improved macro environment, we had net loan impairment reversals for the third consecutive quarter. In Q4, net reversals of 0.1 billion, taking the total net reversals to 0.5 billion for the full year. Profit before tax came in 17% higher compared to last year and slightly higher than the previous quarter. Slide six, please. Let's take a closer look at the key income lines, starting with net interest income. In the fourth quarter, we continue to see NII trending up slightly. The positive uplift came in spite of the takeout of income from PC Norway's portfolio and the impact from central bank rate cuts. NII has benefited from the positive development in volumes as well as improved lending margins while funding costs are declining. This has particularly been evident on the corporate side. In addition, the expected benefits from our deposit hedge and more broadly from Treasury effects have mitigated the impact from rate cuts on deposit margins. We thus ended 2024 on a positive and resilient trajectory, while mindful that the exact quarterly development will depend on timing of rate cuts and our subsequent revising of both loans and deposits, as well as the balance sheet's development along with our bond portfolio role. Furthermore, this has always been anticipated as a very flattish peak that will level out from here on and into 2025. This also forms the basis for our view on NII going forward. I would like to stress that this is based on an as-is point of view with forward rates applied by the end of January and subject to our balance sheet's development. As market expectations around the timing and number of future rate cuts change frequently, Guiding for the full year is clearly subject to a high degree of uncertainty, but it continues to reflect our stated sensitivities and further benefits from our deposit hedge in 2025. As such, and as part of our announced net profit guidance for 2025, we therefore expect NII to be above 35 billion. Slide seven, please. Based on the solid progress we saw for customer activity during 2024, we are today able to present the strongest fee income in many years. Relative to the last year, fee income rose 16%. The increase was driven by investment activities and strong activity-related income, but also by capital markets activity where the DCM business was a strong contributor. Fee income from lending was stable, mainly reflecting a subdued housing market activity in the first half of the year. Investment fees represented the most significant uplift year over year, as well as compared to the previous quarter. Performance fees in asset management provided the main contribution, coming in at 0.7 billion against 0.3 billion in 2023, based on a strong performance in all type of funds and particularly in the fixed income funds. The percentage of oil funds with above benchmark returns was 65% in 2024 against 54% for the preceding three-year period. In addition, investment fees further benefited from a consistently strong performance in private banking. Looking at assets under management, we saw a positive inflow of $23 billion in net sales, taking the total increase to $110 billion. During Q4, income related to financing rose on the back of increased corporate loan demand and refinancing of mortgage loans. Finally, we continue to see a solid increase in income from capital markets business also on the back of significant ECM transactions. Slide 8, please. Now let us look at net trading income. For the full year, net trading income came in 2% higher than the year before. As it is shown on the slide, the uplift in group functions can be explained by the cost from unwinding the CET1 hedge for Norway in 2023. The decision followed the announcement of the exit of the PC business in Norway. The decrease in trading we saw at LC&I was due primarily to a normalization of market conditions following exceptionally strong activity in the first half of 2023. In Northern Ireland, income in 2024 was affected by a less positive effect from mark-to-market movements on the hedging portfolio compared to the year before. Trading income in Q4 came in lower than Q3, mainly due to lower seasonal effects primarily within the fixed income business. That concludes my comments on the income lines. Let's turn to expenses on slide 9, please. Looking at our cost development for the full year, I am pleased to see how we have managed our cost base as expected and largely mitigated the impact of inflation, supporting the improved cost-income ratio of 46%. The full year cost of 25.7 benefited from a one-off insurance reimbursement in Q3. However, we also had elevated costs related to the move to our new domicile, as well as costs related to the divestment of PC Norway. Furthermore, we saw the intended structural cost takeouts related to our financial crime prevention setup after finalizing the multi-year investment period in this area. We always envisioned that the digital and IT investments related to financial crime will drive cost lower post-completion, and we clearly see the path towards a steady-state operating level. Similarly, we saw a solid step down in legacy remediation costs, although we will still carry a tail into 2025. Altogether, this has enabled our strategic investment ramp up in digital solutions as outlined in our Forward28 growth strategy. In 2025, we will continue our prudent cost management and further investment in our business as we improve efficiency and free up resources. We therefore expect another year in which our operating expenses are kept largely flat with a new guidance of up to 26 billion. Slide 10, please. Let's take a look at our asset quality and the trend in impairments. Throughout the year, we continue to see our well-diversified and low-risk credit portfolio benefiting from the benign macro environment and improving healthy household finances. Impairments in Q4 led to another quarter of net reversals, this time 0.1 billion, which was driven by contiguous strong credit quality and additional PMA releases. Actual single-name credit deteriorations remain modest, and we continue to benefit from limited-stage migration as well as recoveries from workout cases. With reduced external uncertainties related to the personal customers, as well as the commercial real estate exposure, including better macro visibility, as tail risks related to the inflation shock have diminished, and along with the refinancing risks in the commercial property sector, our post-model adjustment updated results resulted in releases of 0.5 billion in Q4. Despite the revision of our PMA buffer, we continue to apply a prudent approach to cater for potential tail risks and uncertainties not evident in our portfolio or captured through our macroeconomic models. We will naturally continue to review the PMA buffer with specific assessment of the sectors that are currently applied for, as well as a prudent stance on the potential impact of the current geopolitical uncertainties. That said, it is important to emphasize that our new impairment guidance for 2025 of around 1 billion remain below our normalized level, but is not predicated upon further PMA releases. Slide 11, please. Our capital position remained strong and was consistently supported by the healthy capital generation throughout the year. At the end of Q4, the reported CET1 ratio was 17.8%, which include the special payout in December related to PC Norway, as well as the additional 40% distribution of the net profit for 2024 we announced this morning. The development in risk exposure amount in Q4 was predominantly driven by the release from PC Norway. Excluding this, we saw lower credit risk RIA offsetting slightly higher market risk, as well as operational risk RIA, which, as per normal practice, is subject to an end-of-year calibration that reflects our higher top line and profitability. We continue to operate with healthy buffers to the regulatory requirement as we steadily execute towards our capital target with a CET1 capital ratio above 16%. Finally, I also want to emphasize that we maintain our ordinary dividend policy of 40% to 60% of net profit, and this going forward will resume in the form of annual dividend payouts. Now, let us turn to the final slide in our financial outlook for 2025. Slide 12, please. And finally, I would like to comment on our outlook for 2025. We expect income to be slightly lower than in 2024. This will be driven by lower NII from lower market rates. However, the impact is subject to the timing of potential rate cuts during this year. Core income will continue to benefit from strong fee income and our continued efforts to drive commercial momentum and growth in line with our financial targets for 2026, whereas income from trading and insurance activities will be subject to financial market conditions. As mentioned earlier, we expect operating expenses to be up to 26 billion, reflecting our continuous focus on cash management and in line with our financial targets for 2026. For loan impairment charges, we expect them to be around 1 billion as a result of continually strong credit quality. We expect net profit for this year to be in the range of 21 to 23 billion, and our financial targets for 26 remain unchanged. Slide 13, please, and back to Klaus.