Danske Bk A/S Bearer Shs

Good morning, everyone. Welcome to the conference call for Danske Bank's financial results for the first quarter of 2025. My name is Claus Engar Jensen, and I'm head of Danske Bank's investor relations. With me today, I have our CEO, Carsten Iris, and our new CFO, Cecile Hillary. 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, 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 conference call for the first quarter of 2025. Despite the fact that the past month has seen increased uncertainty regarding the global economic outlook, the first quarter has been solid. With a net profit of 5.8 billion, equivalent to a return on shareholders' equity of 13.3%, we've had a good start to the year. The macroeconomic backdrop in Q1 was strong, primarily in Denmark, where GDP growth reached 3.7% in 2024, and the economy has continued along the same path in the first quarter. When comparing to the first quarter of last year, the result came in 2% higher, mainly due to an uplift in fee income, where we continue to benefit from expanding our customer interactions. Overall, total income reflects strong customer activity, particularly for our corporate customers. Operating expenses were stable on the back of prudent cost management and improved efficiency, and our cost-income ratio was in line with our target level of 45%. Compared to the previous quarter, the result for core income was in line with our outlook of slightly lower income from the expected decline in market rates. The lower fee income was driven by the usual seasonality for primarily investment and capital markets related fees, whereas the underlying trend derived from customer activity continued to add momentum. Credit quality continued to be strong and supported by favorable macroeconomic conditions. Loan impairment charges in the first quarter were maintained at a low level and below our outlook for the full year. For the first quarter, it reflects only a few cases with actual credit deterioration and no impact from model-driven charges. And as such, we also maintain our outlook for the full year. Let me give a few comments on the macro environment. This is slide two, please. There is no doubt that the geopolitical environment has become more complex since the beginning of April, and the situation around tariffs has affected consumer and business sentiment. We're looking into a rapidly changing geopolitical agenda, but based on what we currently know about the magnitude of a global trade war, we estimate a limited direct effect on the Danish and the Nordic economies. And I'd like to update you on three important takeaways for us at Danske Bank. Firstly, the current macroeconomic backdrop is strong, and this is the case for all our markets in the Nordic region and for Denmark in particular. If we apply the impact from a potentially prolonged trade war to our recent economic outlook, we have a solid starting point to weather any potential slowdown. Secondly, as it will also appear from today's financial report, the credit quality of our loan portfolio continues to be strong, based on a very diversified credit exposure with limited direct exposure to tariffs. We also maintain a strong level of post-model adjustments, and we have prudent macroeconomic scenarios modeled in place. In addition our strong capital and liquidity positions add to the picture of a very robust balance sheet. And then thirdly, as part of our prudent risk management, we've launched several actions across the bank to monitor and to assess the situation and to identify corporate customers most vulnerable in the current situation. And these actions are also comparable to the initiatives that we've taken during both the COVID pandemic and also in relation to the invasion of Ukraine. And I strongly believe that this forms a strong background for us to manage a potential slowdown in growth and, most importantly, to support our customers in challenging times. Let me give a few comments to the business units before handing over to Cecile, and this is page three. Personal customers. In personal customers, we saw stable financial performance. Total income declined 6% from the level in the same period last year, in part due to the divestment of PC Norway. Adjusted for PC Norway, total income was stable quarter on quarter and supported by growth in fee income and solid customer activity. Relatively flat net interest income supported the top line, with a 2% decline quarter over quarter driven by declining rates and mitigated by steady deposit inflows up 3% year over year. Fee income increased 3% versus the same period last year as customers take advantage of our fund and our advisory offerings. We saw strong credit quality and prudent cost management, and both the return on allocated capital and the cost income ratio remain on track to meet our 2026 targets. In terms of lending, the development in home loans was generally stable as the market begins to return more normalized levels of activity. In Denmark, bank home loans grew 11% from the level for the same period last year and mitigating a decline in volumes at Re-Kredit Danmark. Customers continue to choose our Danske Bolig Free Home loans as its greater flexibility fits their needs, and this is a testament to the strength of our holistic offering across the group. That said, we are also committed to increasing our share of the market at Re-Kredit Danmark, and we continue to implement a number of initiatives to increase our competitiveness, including recent pricing adjustments. And then finally, we saw continued deposit growth, especially within private banking, as well as net sales growth in investment products across both our retail and private banking customers, reflected in the AUM result for the quarter. And this clearly shows our ability to expand our offering and customer franchise to support customers' financial needs, regardless of the market environment. Slide four, please. In business customers, the financial performance reflected solid growth in lending in the context of an expanding customer base. Total income increased 1% year over year and 7% quarter over quarter, with an uplift across each of our core income lines. Net interest income increased 3% year-over-year, driven by growth in lending, as well as continued expansion of our customer base in the mid-size segment and subsidiaries of multinational corporates. We also saw an uplift in fee income year-over-year across our markets, supported by sustained customer activity and our subscription-based service model. Return on allocated capital now exceeds our 2026 target of 21%. The cost income ratio likewise continues to be ahead of our 2026 goal based on prudent cost management while we continue to invest in and build our business. Lending grew 3% year over year, driven by activities across all our Nordic markets, while deposits declined by 3% due primarily to build up ahead of a large bond repayment at a client. We continue to execute on our strategy and in Q1, we made further improvements to our digital offerings and launched upskilling programs and sales and advisory services to enhance our advisors ability to support customers efficiently across the region. Slide five. In the first quarter of 2025, Elsie and I continued the strong performance that we saw in 2024. Total income was up 13% year on year, driven by solid customer activity and higher volumes, and contributed to a return on allocated capital of 23%. It was also satisfactory that lending volumes grew 6% year on year, supported by activities in Sweden and Norway, as we continue to execute our strategy to grow the franchise outside our home market in Denmark. We typically see some seasonality in the first quarter across our wholesale offering, and this was also the case in the first quarter of 2025, with total income 13% lower than in the fourth quarter last year, given lower capital markets activity and after record high performance fees of $0.7 billion in Q4. Fee income came in 16% higher in the first quarter of 2025 compared to the same period last year, driven by solid customer activity. Notably in DCM, some of the largest corporate issuers in the Nordics trusted us with significant capital markets transactions. And also, our leading cash management offering continued to increase our market share in the first quarter of 2025, adding eight new house bank mandates. And then lastly, total assets under management grew 7% year on year, driven not only by higher asset prices, but also by robust net sales. Net trading income increased more than 50% relative to the level in the preceding quarter, driven by customer activity and fixed income and FX, but was 6% lower year-on-year due to adjustments of the methodology for calculating the fair value of the derivatives portfolio. And then with that, let me hand, and I'm pleased to hand over to our new CFO, to Cecile, for the group financial results, and this is slide 6.

Thank you, Carsten. As Carsten just mentioned, we saw a solid financial performance in Q1. Net profit for the Group was up 2% year-on-year, with a decline of 4% quarter-on-quarter, mainly due to seasonality effects relating to fee income. Total income for the first quarter came in at 13.9 billion in line with the results from last year and represents further good progress towards our financial ambitions for 2025 and 2026. In Q1, total income decreased 4% relative to the preceding quarter as a result of slightly lower NII and lower fee income due to seasonality effects, primarily for investments and capital markets activities. Net trading income increased in Q1, mainly due to seasonally higher customer activity, whereas income from insurance activities saw a negative impact from a provision of 0.2 billion related to a legacy pension plan. Excluding this one-off, insurance income was in line with expectations, and claims in the health and accident business were in line with the level a year ago. At 6.3 billion, operating expenses were 1% lower compared to the same period last year and 6% lower than the preceding quarter due to year-end seasonality. And finally, due to continually strong credit quality, loan impairment charges were maintained at a low level with a minor charge of 50 million in the first quarter. Slide 7, please. Let us take a closer look at the key income lines, starting with net interest income. Overall, NII remained stable despite the impact on deposit margins from lower rates, fewer days and the remaining impacts from PC Norway. When comparing net interest income, not only with the same period last year, but also with the preceding quarter, NII has benefited from improved lending margins based on lower funding costs and from a continually positive development in volumes. This is particularly evident on the corporate side. In addition, our deposit hedge has mitigated the impact from rate cuts on deposit margins and the lower return on shareholders' equity. With respect to NII expectations for the full year, I would like to stress that they are based on the current rate environments, with forward rates as of the end of April and subject to balance sheet developments. As such, we reiterate our expectation of NII of above 35 billion in 2025. Now let us turn to fee income. Slide eight, please. Fee income continued the positive trajectory we've seen in previous quarters. Compared to the level in the same period last year, fee income rose 8% driven by all categories of fee income. As I mentioned in my comments on the income statement, seasonality effects for primarily investments and capital market activities have an impact when we compare Q1 with the preceding quarter. Fee income from everyday banking activities increased by 7% year over year and by 8% compared to Q4, as we continue to expand business relations with our customers. Fee income related to lending activities was stable relative to the level last year, as higher contribution from strong corporate lending activity was offset by lower retail lending activity. The quarterly developments was impacted by lower contribution from refinancing auctions in Q1. The continued customer activity was also clearly visible in fee income generated from our capital market activities, which was up 32% from the level last year. The decline from the preceding quarter was mainly due to lower ECM M&A activities. However, strong DCM primary market activity was able to offset much of the quarterly effects. And finally, investment fees, where we saw an increase of 7% year over year based on a good trend in our asset management business and on continually strong strategy execution in our private banking activities. When comparing to the previous quarter, please be mindful of the annual performance fee income in Q4, which amounted to 0.7 billion. Assets under management in Q1 were slightly down, however, partly mitigated by positive net sales within the retail as well as the private banking segments. Slide nine, please. Next, let us look at net trading income. Overall, trading income added positively to the results both year-over-year as well as quarter-over-quarter with an increase of 15% and 58% respectively. The increase was driven by LC&I with higher customer activity in the secondary fixed income markets, offset by XVA valuation adjustments. There was a further uplift in group functions due to a negative market value adjustment in the first quarter of last year. That concludes my comments on the income lines. Let's turn to expenses. Slide 10, please. Looking at the cost development for the first quarter, I am pleased to report that our focus on cost management and improved efficiency continues to yield results. The trajectory for operating expenses is progressing according to our full year guidance of up to 26 billion and the cost to income ratio at 45.2% is in line with our 2026 targets. Compared to the level in the first quarter of last year, costs were down 1% as structural cost takeouts mitigated the impact from wage inflation, performance-based compensation, and the planned investment ramp-up. Relative to the preceding quarter, costs were down by 6%. However, please bear in mind the seasonality we have for higher costs in the last quarter of the year. Slide 11, please. Let us look at our strong asset quality and the trend in impairments. Our well-diversified and low-risk credit portfolio continued to perform well with a benign macroeconomic environment, including healthy and steadily improving household finances. Impairments in Q1 amounted to just 50 million as actual single-name credit deterioration and staged migration were negligible. Increasing geopolitical and economic risks from tariffs do have an impact on consumer and business sentiments in the context of the Nordic economies. So far, the outlook remains benign across our markets, and especially in Denmark. But we have maintained our prudent approach with a severe and prolonged downturn scenario that includes a decline of around 40% in property prices. In addition, we have kept our significant PMA buffer and repurposed part of the allocation from commercial real estate and construction towards global tensions. As tail risks related to commercial real estate ease, this reallocation mitigates the potential impacts of tariffs and trade uncertainties. We will continue to review our macroeconomic scenarios in conjunction with a PMA buffer. But given the current state of our strong asset quality, we remain comfortable with a full year guidance for impairment charges. Slide 12, please. Our capital position remained strong and was further supported by another quarter of healthy capital generation post dividend accrual. At the end of Q1, the reported CET1 ratio increased to 18.4%, up from 17.8% in Q4. A reduction in risk exposure amounts in Q1 also contributed to the positive developments in the CET1 capital ratio. Our prudent front-loading of CRR3 in Q2 2024 was more than sufficient to mitigate the implementation that took effect on January 1st. operational risk REA ended up being lower than initially anticipated due to improved data quality and governance. Credit risk REA also benefited as other mitigating actions decreased the effects of implementing CRR3. This countered otherwise higher credit volumes. Accordingly, we have released the CRR3 buffer. We continue to operate with a healthy CET1 buffer versus the regulatory requirements as we steadily progress towards our stated capital target of a CET1 ratio above 16%. The ongoing share buyback program we announced in February is being executed and will continue to provide support throughout the year. Now let us turn to the final slide and our financial outlook for 2025. Slide 13, please. As previously mentioned, we reiterate our outlook for net profits to be in the range of 21 to 23 billion, with no changes to individual lines. And finally, our financial targets for 2026 also remain unchanged, subject to our current economic and market expectations. Slide 13, please, and back to Klaus.

Thank you, Cecil. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to two questions. If you are listening to the conference call from our website, you are welcome to ask questions by email. A transcript of this conference call will be added to our website within the next few days. Operator, we are ready for the Q&A session.

Thank you. To ask a question, please press star, one, one on your telephone and wait for your name to be announced. To answer your question, please press star, one and one again. We will now take the first question. From the line of Kinara Saitkulova from Morgan Stanley, please go ahead.

Hi, this is Gulnara. Thanks for taking my questions. First question on the end of the probation period. So now you are approaching the end of this three-year probation period with the U.S. Department of Justice. Can you clarify whether this unlocks any strategic operational flexibility for you? How should we think about the potential uses of the excess capital that will free up at the end of the probation? Would you prefer to top up shareholder return, support loan growth, or new product rollout, or And that's the end of the probation period could potentially open the door for the M&A opportunities. And the second question on the market share in Denmark. So you previously acknowledged market share losses during the AML crisis period. What exact initiatives are you implementing to win back lost customers? And how are you measuring success of those efforts? And what type of annual growth would you target for the coming years? Thank you.

Thanks, Gunnar. Morning. Let me take those questions. Let me start by the end of the probation period question, which, as you state, ends at the end of this year. And as I have also previously said, we'll look at excess capital as we go into 2026. I think all the options that you mentioned are options. We would clearly like to grow our business even further. So that is certainly first priority is to grow our business and to continue to make improvements on profitability and the returns we're making. I think that is a strong return for investors on that capital to continue to invest capital at the improvement rates of return that we're seeing. But we're also open to looking at, as I previously said, inorganic opportunities in the Nordics within our focus segments and within the strategy that we've set. And then, of course, there is also an option to look at capital distribution. And we'll continue to look at all those options. And this is something that we will continually update on as we get into 2026. In terms of the market shares in Denmark and initiatives to win back market share, that's at the very heart of our strategy. We said that we had a strategy to really grow market share, both to be a leading bank for our large corporate institutional, the leading bank for large corporate institutions in the Nordics. And there we have a strong position in Denmark and we continue to grow. to see good uh progress there uh to uh gain market share in uh business customers particularly with focus on uh customers with more complex needs and there in denmark we we we continue to see that we're doing more business with our business focus customers and that's also what you see when you when you look at the improvements that we're seeing in the in the in the feline And then in personal customers, which is perhaps where the loss in market shares has been most pronounced, there we are seeing improvements. For example, we've seen improvements in market share on the investment side. This is a very important area for us, and it goes to investment. to show that we are also taking market share and increasing net customer flows in private banking and also in our focus customer segments within personal banking. And that link with the increasing market shares and investments and also in bank lending is pleasing. At the same time, we would like to see more progress, for example, in market shares in the more traditional mortgage product area. right to the denmark and that we have a large number of initiatives uh focused on that both from an advisory technology but also a product positioning perspective thank you thank you we will now take the next question from the line of sophie petersens from jp morgan please go ahead

Yeah, hi. Thanks a lot for taking my question. My first question would be that if we hadn't had the uncertainty of all the trade wars, would you have considered upgrading any of your 2025 guidance lines? For example, if I look at the loan impairment charges of $1 billion, versus just $50 million in the first quarter and Danske having close to $6 billion of overlay provisions. It just seems like it's quite conservative. So would there have been any upgraded guidance if there hadn't been any trade wars would be my first question. And then my second question is on net interest income. It was very helpful that you said NII would be over 35 billion in 2025. But how should we think about NII on a quarterly basis? When do you expect net interest income to drop on a quarter and quarter basis? And also when we look at the NII performance in some of the business areas like business banking or SDI, it was up a lot quarter and quarter. but group functions was quite negative, down 300 million or around 300 million. So how should we think about the kind of progression in the operational areas and kind of group functions both in 25 and on a quarter-and-quarter basis? Thank you.

Thanks. Thanks, Sophie. I think, look, way too early first quarter to to talk too much about, you know, what will happen for for the rest of the year. And, you know, your question around if the uncertainty around trade wars hadn't happened, what would then have happened, I think. very difficult to say. I think in general, we have a solid asset quality. We got it to around a billion of impairment. We hold that guidance. But, you know, I would say there was still uncertainty even before the uncertainty around trade wars and Liberation Day. I mean, those uncertainties were also included when we talked to you all when we did our year-end results and guided for the year. On NII, I think we said previously that we would sort of peak at, well, first we said Q3, then we said Q4, but I think we got it roughly right, and we've been able to guide roughly well on NII. I think quarter on quarter, if you look back over the last couple of years, you now see NII coming down somewhat, but clearly in a way where both our hedge Our deposit hedge, but also volumes activity is offsetting lower rates in terms of the sort of business unit versus group functions. I mean, you should note that there are some dynamics both around the positives from the from the deposit hedge, but also the margin compression coming from the from from from the shareholders equity perspective. which clearly comes down as rates come down, and then the allocation of that into the business units. So I think in general, you should think about NII as coming down somewhat. steadily quarter on quarter, but offset by volumes activity and the hedge. And that's also, again, why we feel comfortable with the above $35 billion. Cecile, you want to add?

Just on the staff functions, indeed, I mean, there's nothing there to be read. I mean, what we do each quarter is obviously focus on allocating, as Carson has mentioned, the NII and all the drivers of the NII, including the deposit hedge, et cetera, to the business units. So that can create obviously some changes at the central level. But other than that, it's what you would typically expect. Sometimes we've got some movements due to, for instance, market value of FX swaps, but only the usual. So there's nothing to be read there.

Okay. And sorry, the NII drop will be in the third quarter or fourth quarter it is here.

Well, I mean, you already see an eye coming down somewhat, right, from last quarter, although it's fairly flat. And as I said, you would sort of see a slightly decrease, which I think is also in line with above 35 that were given. So I think it's a gradual kind of slight reduction. Obviously, there can be changes quarter on quarter in lending activity and the like.

Thank you.

That's very helpful.

Thank you. We will now take the next question. From the line of Namita Samthani from Barclays, please go ahead.

Good morning, and thanks for taking my questions. Firstly, just on capital return, is it still only around 100% of earnings payout possible per year? I just wonder, because you've got tons of capital now, like CRR3 was a tailwind. You could even get a reversal of the commercial real estate buffer, plus a couple of add-ons in your CT1 requirement. So I'm trying to ask, can you do above 100% payout? And secondly, the $35 billion NRI guidance, what assumptions is that based on terminal rates and loan growth? Thank you.

Thanks, Namita. On capital returns, look, as we also showed last year, yes, you can pay above 100 percent. Theoretically, last year was due to the sale of PC Norway. And I think the primary question both for us and our regulator is that we have a strong capital base that can withstand severe stress. So really, the discussions with regulators is around stress testing and ensuring the capital is robust under severe stresses, both Danish FSA stresses and EBA stresses and so forth. So there is no hard and fast rule around that. And I think, as I said previously, we'll continually look at our capital position, our buffers, and what the options are for excess capital, but with a primary focus on organic growth. On the assumptions that sort of go into the 35 billion, above 35 billion NII, I'd say it continues to be the same assumptions and the same way that we've guided the market is that we look at latest sort of market implied rates. And then we look at the dynamics of our balance sheet and the growth as well as sort of the balance sheet effects and the hedges. We haven't changed anything in the way we're guiding. And as I said, I think we've been fairly good at understanding sort of the dynamics of the balance sheet and how that linked through to NI over the last many quarters. And we continue to feel under the current environment and market implied rates comfortable with this guidance.

Just to give a few more details there as well, obviously you've got NII sensitivity, 500 million for one first year, 300 and 200 million respectively for year two and three, based on 25 basis points, parallel shifts. But obviously, and as we've seen clearly in the first quarter, the rates coming down, it hasn't been a parallel shift. Obviously, there's been actually some steepening. So all of this matters, particularly as we have obviously a deposit hedge. The shape of the curve also matters. But, however, obviously looking forward again, you know, we're basing our guidance on the current market implied rates and the other assumptions on volumes that Carsten mentioned.

That's very helpful. Thanks very much. Thank you. We will now take the next question from the line of Johannes Thormann from HSBC. Please go ahead.

Good morning, everybody. Some questions from my side as well, please. So first of all, your cost mix changed a bit over the last years. Now seeing continued increase in IT costs and then other costs going down, especially due to regulated costs coming down this quarter. Is this something we should factor in also for the next years? And then the second technical question just on the tax rate for the full year in the future. What is your best guess for that level? And last but not least, the most strategic one, your insurance business delivered several disappointments, partly due to legacy cases in the last years and quarters. What is the benefit of keeping this business instead of selling it to a partner and distributing his product? Thank you.

Thanks, Janice. Let me take the last question, then I'll hand over to Cecile for the cost and the tax question. Look, first of all, we agree that there's been a number of negative one-offs over the last quarters in our insurance business, mostly led and driven by the unfortunate trend in society around more illness, which has increased provisions for the health and accident insurance. And we're working hard to get that back to a break even. But clearly, there's timing differences between repricing those contracts uh and the provisions but strategically we like the business it's a very important product for our customers and actually if you look at the underlying results of denica the increase in in premiums the increase in in customers uh our ability to do more between the densky bank group and danica we see this as uh as a significant opportunity we see good progress on that. And we believe that as that business transitions more from the guaranteed insurance products where clearly there is market risk and larger capital implications to more unit linked type of insurance products, this will be a a business that can accrete to the overall group returns and again be an important part of the product set that we have for our customers. Cécile, you want to take costs and tax?

Yeah, let me take costs first. So costs, obviously, were at 6.3 billion down year on year and quarter on quarter. And in fact, if I think about the components within costs, I think about three different parts. The first one is to sort of run the bank. The second part is everything to do with investments, indeed, digital and non-digital, including the IT costs that you mentioned. And the third is around our financial crime and resolution type costs. And if I look at the way that each of these components has evolved, They've evolved according to our expectations. In terms of run the bank, clearly we're facing, like everyone else, the pressure on the wage side in particular and some compensation. However, these are mitigated through our actions, and that's exactly as we expected it. If I think about our digital and non-digital investments, they're also progressing according to what we announced in the context of the Forward 28 strategy in 2023. with investments of about $3 billion a year rising to $4 billion a year, and we're in that higher category now, which is exactly, again, as we expected. When it comes to the financial crime and legacy costs, There, clearly, they continue to come down. And they come down, again, as far as certain financial crime costs, according to our expectations. We've got a targeted cost at the end of this year of about $1.7 billion. And we're expecting to get there. And just to remind you that this came down from $2.3 billion a year in 2023. So all of this is progressing. And obviously, that has allowed us to reiterate our guidance of $26 billion at the end of the year, and we're on track there. And obviously, you know, our cost-to-income ratio guidance of 45% in 2026 as well, which we are guiding towards. So that's on the cost side. Just to take also briefly, obviously, your tax question, I'll refer you to our investor presentation on page 59 with effective tax rates prior to year-end adjustments of just above 25%.

Okay, thank you.

Thank you. We will now take the next question from the line of Srivastava from Citi. Please go ahead.

Hi, and thank you very much for taking my questions. My first is that in light of the better rear scene today from the CRR3 reversal, does your guidance for 1% impact from sort of regulation from 2022 to 26 still hold?

Yeah, thanks for that question. I think, roughly speaking, that still holds. We're not going to change that. There may still be small adjustments here or there, but I think we should assume that that's broadly in line.

Okay, understood. Thank you. And my second question is actually on personal customers, Sweden. If you look within personal customers, the Swedish business actually seems like a relative bright spot. And I'd like to ask what are the exact sort of initiatives that are seeming to sort of start to bear fruit in this business?

Thanks. Your question is on personal customers, Sweden. Is that right?

Yes. Yes.

No, look, I mean, we as part of our strategy, we set out to reposition personal customers, Sweden to be more focused on sort of the mass affluent affluent segment, particularly focused on doing more business with our partners there. because a lot of the business is originated through third-party partners, as well as looking to do more business between our PC and our BC business in Sweden. So a slightly more focused, differentiated business than the strategy that we previously asked, which was more, let's say, a mass market personal business. driving profitability back towards a place where we're accreting and adding value to overall returns. And this will be done through increasing share wallet within that customer base. And of course, also acquiring new customers again within those focus segments. I would say it's still early days, but we do see some green shoots. And we'll continually update that. But as I said also during the strategy presentation, it'll take a couple of years to get that business, let's say, on track in terms of what we'd like it to be. And we continue working on that.

Understood. Thank you very much.

Thank you. We will now take the next question. from the line of Jan Erik Gerland from AVG. Please go ahead.

Thank you for taking my questions as well. I have a follow up on the hedges. It looks like the hedges sort of increased from 636 million to 767 million this quarter. Is this sort of a trajectory where we should think about it increasing in size, although not fully mitigating your The positive margin lost this quarter mainly because of the larger drop we have seen in the interest rates. So how are you on this $150 billion investment? Is this the full return or is it more to come when it comes to an increase or a further decrease going forward? Second, on your bank lending, it seems like you're moving upwards very positively. Could you shed some more light into what kind of categories or industries, you're sort of seeing this sort of good benefit. And finally, on the cost side, the long-term financial crime cost, how large should it really be down the line, you think, versus the 1.7 billion you mentioned towards the end of this year? Thank you.

Thanks a lot. On the hedges, I think you should think about the $150 billion as roughly the size of the hedge. It can vary a little bit quarter on quarter. And this is, again, because we're, of course, managing... You know, the triangulation, if you will, between the size of the hedge and the associated capital volatility and what requirements there are around interest rate risk in the banking book from a regulatory perspective. So we feel $150 billion thereabouts is... is the right hedge size and provides us with the sort of earnings hedging that we would like. And you could say that there is some more yield pickup in that portfolio, which is also why we feel comfortable with how we think about the NII. the offsets as rates come down and the offsets on the hedge as we look over coming quarters, as mentioned before. Bank lending. Look, I mean, it's broad based. And what we're seeing and what's also part of our strategy is to grow in the business focus segments and business customers. And there we've seen growth broad-based, and we also see ourselves growing well outside of Denmark, which has been an important focus for us. Same goes on the LC&I side, where you've seen pretty strong year-on-year growth. And again, I would say it's broad-based, but as I also mentioned in the speech, particularly outside of Denmark and Sweden being an important market for us where, again, we've increased growth in terms of cash management mandates, which has also in many cases yielded bank lending opportunities as well. So so broad based both in terms of geography within the Nordics in line with our strategy, but also sort of sector and segment wise. There is no sort of particular sectors I would call out. And then just lastly, on the cost side, you ask on on sort of the financial crime costs. Look, There is some further opportunity as we look into 2026 and 2027. But I think about those opportunities as being more sort of now going into more business as usual opportunities to look at how we can leverage technology, how we can leverage various different productivity-related opportunities. And we're focused on that, not just in financial crime, but across the business.

Just one follow-up on the 150 billion. You said that the running yield is still picking up. For how long do you think it will continue to move upwards when it comes to this versus your reinvestment into the bonds.

Yeah, I mean, you should think about it, that there are some opportunities over the coming quarters, but we're not going to put a quarter to it.

Okay. As for bank lending, you... Sorry, just to add to the deposit hedge, obviously, think about it in terms of we're obviously investing and there's a rollover in bonds. We've got slightly above three-year average life, right? So that's how you should think about it. But obviously, it's not a mechanical just sort of three-year bond reinvestment. I mean, we've got some shorter bonds, some slightly longer bonds. So, you know, in a nutshell, it will continue to increase and pick up, you know, throughout this year and next year and beyond. But, you know, it's not linear.

Okay. And on the bank lending, have you seen any changes in the customer sort of behaviour or interest in doing bank lending with you after the sort of the turmoil and the tariff trade situation?

Look, I think in general, we still see pretty good activity and reasonable pipeline. So I think on the bank lending side, still sort of cautiously optimistic that as inflation normalizes and interest rates come down in the Nordics and with You know, various different things happening around, you know, needing to invest in supply chains and production and also spending in infrastructure, defense, green transition and so forth. We still remain cautiously optimistic. And that's also what we see from from our clients. But there are clearly some sectors and some customers that are harder hit. than others from the uncertainties. You also see that, I think, just in the recent week with some downgrades on guidance from certain companies that are particularly hit with a trade uncertainty. So I would say across sectors and broad-based, still optimistic around activity, but certainly some customers and sectors hit harder than others.

Thanks for your comments. Appreciate it.

Thank you. We will now take the next question from the line of Mathias Nielsen from Nordea. Please go ahead.

Thank you very much. So following on the last question from Jenny Eich, Maybe could you also say a bit about how it has started on the asset management side? What have you seen on site in Q2 so far? Obviously, the market development that we can figure out ourselves, but maybe also like what are the discussions with clients? Have you seen anything changes, significant changes to your flows on that part? And then the second question. So we also see some of your peers now reversing some of those PMAs. And it seems like you're just moving around the different brackets. So you could either say it in a positive way, you seem more cautious and conservative, while the others are more aggressive. And if you take the negative approach, you hold a lot of capital buffers that way around as well. So what should we think about those PMAs? When should we think them to be released? It seems like it's just moving around the brackets instead of actually seeing any releases.

Yeah. Thanks, Patrice. Let me take your last question first. Look, I think we've shown over the last quarter is that, in fact, we will review our PMAs regularly. And we have, in fact, released some of our PMAs in the last few quarters. And I think I've been asked before also on these calls sort of what is the right level or the normalized level, perhaps is a better word on PMAs. And what I've said is I think our PMAs are now at the higher end. of what a normalized level of PMAs would be. But I think that is expected, given the large uncertainty that there is right now. We're prudent, we believe. Yes, it's a reallocation this quarter. In other quarters, we've actually seen net releases of PMAs. We'll continue to look at these. And for us, it puts us in a good position to continue having a lot of flexibility around how we manage the dynamics around the uncertainty and the credit book. Then on asset management, I mean, no question that there has been a change in dynamics and flows in the first quarter and first four months of the year. We have seen our large institutional customers reallocate from the United States to Europe and other jurisdictions. more hedging of U.S. dollar to diversify and de-risk. I wouldn't say that there is like a huge conviction around, you know, what are, you know, are there any particular geographies that are going to outperform? But I think in general, there's been a view that we're probably too heavily allocated towards the U.S. kind of um uh european equities uh perhaps being somewhat undervalued but also with confidence that a normalization of inflation lower interest rates more focus on competitiveness more focus on growth more government spending in europe uh i i would say that it's uh i I would say that's the kind of thinking that we're seeing from our clients, and that's why we're seeing some of this asset reallocation. Then there's also clearly some level of, let's say, diversification and maybe being slightly more careful given the uncertainty around how this restructuring of global trade plays out.

And maybe I would just add on the asset on the management. Obviously, it's still early, clearly, in the second quarter, but there's nothing that, as far as fee income is concerned, the impact, obviously, of AUM on fee income, there's nothing that we're seeing that shows sort of a massive change from what we've seen in the first quarter.

Maybe a follow-up question on the... flows changing a bit from where they're placed? Is there any difference in your margins across Europe versus U.S. equities? And maybe also, do you see yourself having competitive advantages on the European equities being placed in Europe? So you actually could see a bit higher flows from the capital being reallocated towards Europe.

How I think about at least sort of currently is that... Clearly, there is opportunity to advise our clients as repositioning happens and activity happens. So we can be there, we can give them advice. But also given the particularly the Nordic differentiation we can have around fixed income equities, but also our focus on sort of alternatives, there is an opportunity there. So I would more say, broadly speaking, when there is repositioning and there is volatility with the sort of setup we have, the focus we have, the capabilities we have, we think there is opportunity. I wouldn't say that there is going to be a big change in sort of margins with this repositioning if you just look at Europe equities versus U.S. equities. But where there is opportunity is more advising customers on more illiquid alternative asset sides where margins are typically higher.

Thanks a lot.

And operator, can we have the last question, please?

Of course. We will now take the last question from the line of Martin Gregersberg from SEB. Please go ahead.

Thank you so much. First question is on the mortgage margins, Danish mortgage margins. I see one of your competitors today is out lowering front book mortgage margins, given your performance in RD over the past many quarters and many years. I wonder why isn't that you? That's my first question. Then on my second question, just coming back to talks of excess capital, I guess you have a lot of buffers these years that are moving around. Could you please give us an update on your commercial real estate buffer and the buffer that you hold for your ultimate maturity portfolio and also sort of the last remaining bit of your Pillar 2 add-on from the 10 billion DKK buffer that the FSA gave you years ago. Thanks.

Yeah. Hey, Maarten, thanks for those questions. So we are and we actually have taken some actions on being more competitive on the RD side, particularly in where we think that we can really differentiate and which plays into our focus on customer segments with more heavy advisory needs. So we have recently changed pricing on the below 60% interest-only product, which, again, we believe is a product that plays well into where we're focused. So we're not looking to sort of – And obviously, I'm not going to give any views on forward pricing, but in general, we're just looking at where does it make sense for us to price more competitively so we can capture a share wallet in the customer segments where we believe we can differentiate ourselves. So that's what I would say about mortgage pricing and what we've done so far. On buffers, CRE buffer, clearly that's one that, as you know, there was a commitment to re-look at that from the Systemic Risk Council in Denmark, and we have Of course, believe not surprisingly that that's a buffer that is not needed, and particularly not with inflation and rates where they are now. So we continue to lobby for that buffer being removed, and we will see what the timing will be around that. And then on the other kind of pillar two add-ons, and you mentioned specifically some of the add-ons from Estonia, those are add-ons that we continually speak with the regulators about. And of course, there is an expectation that at some point in time, Those will those will be reduced. But I think I've also said before that usually the time for those type of buffers to be released takes time because there is a lot of monitoring and and control testing around ensuring that control processes are robust. And you could also say that given that we're still in the probation period, once we get out of that probation period, it is even more, I think, relevant that we continue to look at those buffers.

Okay, thanks. Just maybe a follow-up on mortgage pricing. I mean, the initiatives that you have taken, but if you look at RD's performance over the past many years, it's just been steadily going down measured on market shares. And if you look at what TK is offering, they're offering a pricing that is second to none. When I look at Now, I listen to you guys reiterate your NII guidance and based on my numbers, it has never been cheaper in relative money to match TK pricing. Why isn't now the right time to finally turn around RTE and start to get some of those market share gains?

So, again, we look at it both across bank lending and RD lending. Bank lending, we've taken market share. We're pleased with that product. It's a product that our clients have increasingly taken on. Margins also solid there. Returns acceptable. And then, like I said, we will continue to look at RD. And we have repriced some products where we think it's relevant. But we continue to look at RD. our customers from sort of an overall value proposition perspective, and we'll continue to do so. And we believe that we can continue to be competitive against Crédit. Thank you very much all for your interest in Danske Bank. Really appreciate the questions. And as always, please reach out to Klaus and the team in investor relations if you have any other questions.