Danske Bank A/S

Good morning, everyone. Welcome to the conference call for Danske Bank's financial results for the first half of 2025. My name is Claus Inga Jensen, and I am head of Danske Bank's investor relations. With me today, I have our CEO, Carsten Eris, and our CFO, Cecil 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, Claus, and I would also like to welcome you to our conference call. So with a net profit of 11.2 billion, equivalent to a return on shareholders' equity of 13%, our financial performance for the first half of the year was solid and it met our expectations of delivering sustainable growth and income in line with our financial targets for 2026. The macroeconomic backdrop in the first half year was strong, primarily in Denmark, measured by all key economic indicators and the outlook of plus 3% GDP growth this year looks healthy. Despite the high level of geopolitical turmoil and the low consumer sentiment, the resilient macroeconomy not only supported our everyday business with customers, but also it helped ensure continually high credit quality. The result was based on continued growth across our business. Activity with our corporate customers in particular was high and led to an increase in lending, which was up by 5% compared to last year. This supports our progress towards our financial targets for 2026. Deposits increased 3% in the same period, mainly in our large corporate and retail business. Seen in isolation, the second quarter saw deposits in our retail business grow by 3%, reflecting consumer prudence in a time of market uncertainty. The positive development in lending activities have led to an improved market share for corporate lending across all Nordic countries. In addition, we executed on other parts of our Nordic growth strategy by expanding our cash management business, for example. We've also continued to invest in technology in line with our forward 28 strategy. The result was slightly lower relative to the same period of last year, mainly due to a lower result in our insurance business and from loan impairment charges moving from net reversals to small charges. When adjusting for the income related to PC Norway, core income lines increased 1% compared to last year as they benefited from volume growth and higher customer activity. Operating expenses were stable on the back of prudent cost management and improved efficiency. And the cost income ratio was in line with our target level of 45%. And then just a few comments when comparing to the preceding quarter. The results came in slightly lower, mainly due to an expected small increase in loan impairment charges. For the core income lines, NII benefited from strong volume trends within our corporate business and continued benefit from our structural hedge, whereas fee income was mainly impacted by reduced refinancing activity and increasingly cautious investment sentiment. And I'm pleased to see that towards the end of the quarter investment activity was recovering. Credit quality, as I just mentioned, continued to be strong and was supported by favorable macroeconomic conditions. For the first six months, charges of 0.3 billion remained below cycle and well inside our guidance for the full year of around 1 billion. As such, we maintain our net profit outlook for the full year and our financial targets for 2026. We've now reached the midpoint of our target period and we are planning to make an update on targets beyond 2026 in connection with our financial results for Q1 next year. And then slide two, please. In personal customers, the financial performance was supported by deposit growth and healthy customer activity. This was, however, offset by the impact from break cuts on deposit margins and a decline in fee income caused by reduced investment appetite, which reduced the interquarter fee contribution as well as seasonally lower refinancing fees at Realkredit Danmark. We continue to see strong credit quality and prudent cost management, which supports our 2026 financial objectives and we maintained return on allocated capital in line with our 2026 targets. In terms of lending, the development in home loans was generally stable, reflecting a somewhat subdued housing market when looking across the Nordics, which remains affected by low consumer sentiment. In Denmark, house prices are rising and the market has begun to return to a more normalized level of activity. Total home loans in PC Denmark grew slightly as our bank home loan product, Dansket Bolifri grew another 10% in Q2, mitigating a decline in lending volumes at Realkredit Danmark. The flexibility of our offerings continues to benefit our customers in the current environment and we've continued to adapt our pricing and holistic advice to serve our customers' needs. As part of our focus on market share at Realkredit Danmark, we've implemented various initiatives in the first half of the year to increase our competitiveness, including recent pricing adjustments and digital enhancements in our mobile banking app. And then finally, in addition to the 3% overall deposit growth, our commercial traction within private banking was underpinned by higher net sales and inflow to investment products. And this correspondingly drove AUM higher by quarter end. And this again shows our ability to expand offerings and support customers' financial needs regardless of the market environment. And then slide three, please. In business customers, the financial performance reflected the continued progress on our commercial priorities. In the first half, core banking income was up 2% relative to the same period last year, supported by solid growth and lending on the basis of improved credit demand and our efforts to expand our customer base. Looking at our commercial performance, we've managed to increase market shares across all four Nordic countries through the execution of our focus growth strategy. And this was underpinned by growing lending volumes up 1% quarter on quarter and 4% year on year, reflecting good traction across all our Nordic markets. Total income quarter on quarter was impacted by the four rate cuts we've seen so far this year. Additionally, the timing of refinancing auctions impacted our fee income. Even with this in mind, the cost income ratio continues to be in line with our 2026 goal based on prudent cost management while we continue to invest in and build our business to continue to increase profitability towards the 2026 targets. We remain focused on our strategy execution and business potential. We made further improvements to our digital offerings and we launched up-skilling programs in sales and advisory services to enhance our advisors ability to support customers efficiently across the regions where what I see is that complex solutions are in demand from our customers more than ever. And then slide four, please, Elsie and I. In the first half of the year, our corporate and institutional franchise achieved a solid financial result from a stable development delivered in an uncertain geopolitical environment. Throughout a period characterized by volatility in the financial markets, we continue to provide balance sheet, market making, and risk management solutions to our corporate and institutional customers. We continue to execute our strategy to be the leading Nordic wholesale bank and we successfully attracted new corporate customers outside Denmark and improved our market position, for instance, within cash management and primary debt markets. Total income was up 8% relative to the second quarter last year driven by solid customer activity and this also helped us generate a return on allocated capital ahead of our 2026 targets. Our strong commercial momentum was also evident from our lending growth with volumes growing 10% year on year and 6% quarter on quarter, and we participated in several landmark lending transactions. Alongside the positive development of volumes, the observed increase in market share for corporate lending volumes adds to the positive trend. Fee income was affected by financial market volatility in the second quarter as customers took a slightly more cautious approach. Relative to Q1, the line came in 2% lower in the second quarter. And then AUM grew 3% in the second quarter relative to the preceding quarter. The increase in asset prices towards the end of the quarter further supported the increase and in addition, net sales to new customers were strong in both the institutional and private banking segments. Trading income in the second quarter was lower due to lower customer activity in the secondary fixed income market. And then with that, let me hand over to Cecile for a walkthrough of our financial results for the group and that's slide five, please.

Thank you, Karsten. As Karsten just mentioned, we saw a solid financial performance in the first half of the year. Net profit for the group came in at 11.2 billion, down 2% year on year, mainly due to lower net income from insurance business and higher loan impairment charges. NII remained stable as the impact from rate cuts have been mitigated by increased volumes and benefits from our structural hedge. The result for the second quarter came in at 5.5 billion compared to 5.8 billion in Q1 due to higher loan impairment charges and a higher tax expense. Total income, however, was stable relative to the preceding quarter, supported by resilient NII and higher income from insurance business. The decline in fee income, which I will come to later, was primarily due to lower refinancing activity for mortgage loans and lower investment activity among our customers. Trading income improved from the level last year due to higher customer activity and positive valuation effects. In the second quarter, income was only slightly lower despite lower customer activity from increased market uncertainty. Income from insurance activities in the first half of the year came in lower than the year before, mainly due to increasing provisions in Q1. Operating expenses were almost unchanged relative to the same period last year as well as the preceding quarter. And finally, as Carson mentioned, credit quality remains strong with loan impairment charges coming in at a low level and well within our full year guidance. Slide six, please. Let us take a closer look at the key income lines, starting with net interest income. Overall, NII remained stable both year on year and quarter on quarter, despite the impact on deposit margins and the impact on rate cuts from lower rates. When comparing net interest income, not only with the same period last year, but also with the preceding quarter, NII has benefited from a continually positive development in volumes, 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. In this context, please be aware that as part of our ongoing focus on asset and liability management, we have slightly increased our bond portfolio hedge to approximately 160 billion. With respect to expectations for the full year, I would like to highlight that they are based on the current rate environments with forward rates as of the end of June and subject to balance sheet developments. While we have revised our NII sensitivity guidance for the next 25 basis points of cuts, following the repricing actions taken so far, we reiterate the guidance set out at the beginning of the year of NII being above 35 billion for the full year of 2025. Now let us turn to fee income, slide seven, please. Compared to last year, fee income was stable. However, adjusted for a non-recurring item from last year and the divestment of PC Norway, fee income was up 2%. An increase in fee income from everyday banking and capital markets activities was able to offset a small decline in fees from lending and investment activities. Relative to Q1, fee income was down 7% in Q2 as volatile financial markets in April had an adverse effect on customer activity. A more cautious sentiment among both corporate and retail customers impacted income from investment products as well as capital markets and accounted for approximately half of the decline in fee income in Q2. As Carson mentioned, investor sentiment turned more robust towards the end of the second quarter, which in combination with strong net sales had a positive impact on assets and the management. Fee income driven by lending activities accounted for the other half of the decline, mainly due to lower refinancing auctions of variable rate mortgages in the second quarter. When looking at our fee income from everyday banking activities, I am pleased that we continue to see a good momentum driven by solid corporate activity. Fee income for these activities increased 3% against the preceding quarter as well as the year before. Next, let us look at net trading income. Slide eight, please. Trading income increased 26% from the level in the same period last year. The better results came from higher customer activity at LC&I and positive market value adjustments in treasury, partly offset by XVA valuation adjustments. In Q2, net trading income was only slightly down relative to Q1. Customer activity was negatively impacted by volatile market conditions. However, there were a one-off gain from the sale of the bank's holding in Norwegian financial services provider, Export Finance, and positive value adjustments in group treasury. This concludes my comments on the income lines. Let's turn to expenses. Slide nine, please. Looking at the cost development for the first half year, I am pleased to report that our focus on cost management and improved efficiency continues to yield results. Operating expenses are in line with our full year guidance of up to 26 billion, and at 45.4%, the cost to income ratio is progressing towards our 2026 targets. Relative to the level 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 up by 1%, including slightly higher investments and costs related to financial crime prevention. Please note that the normalization of financial crime prevention costs is being executed according to plan, despite a minor increase in the second quarter. Slide 10, please. Let us take a look at our credit portfolio and the trend in impairments. Credit quality continue to be strong, underpinned by well-diversified and low-risk credit portfolio. The macroeconomic environments remain benign with increasing employment and steadily improving household finances. Consequently, impairments of 0.2 billion in Q2 remained below the normalized level. Charges were related to a few single-name exposures. The sustained geopolitical and economic uncertainties resulting from tariffs had an impact on consumer and business sentiments. We have therefore reviewed our already prudent approach to enhance the robustness of the scenarios applied for impairment purposes. This now includes a downturn scenario, in addition to the existing severe downturn scenario. Overall, we saw reversals related to our micro models of around 70 million in the quarter. In addition, we have kept a significant PMA buffer, but as some of the cyclical sectors have been reviewed in light of our single-name provisioning, we saw around 0.2 billion of releases in the second quarter. Our global tension buffer has been maintained after the ramp up in Q1. We will continue to review our macroeconomic scenarios in conjunction with the PMA buffer. Given the current state of our strong asset quality, we remain comfortable with the full year guidance for impairment charges. Slide 11, please. Our capital position remained strong and was further supported by another quarter of solid capital generation post-dividend accrual. At the end of Q2, the reported CET1 ratio increased to 18.7%, up from .4% in Q1 and .8% at the end of 2024. Risk exposure amounts ended the quarter largely flat, reflecting stable credit risk REA and despite the financial market volatility. We continue to operate with a healthy CET1 buffer versus the regulatory requirements, now increasing to more than 400 basis points and we intend to progress steadily in the coming years towards our stated capital target of a CET1 ratio above 16%. The ongoing share buyback program we announced in February is being executed and we continue to provide support throughout the year. Now let us turn to the final slide and our financial outlook for 2025. Slide 12, please. As previously mentioned, we reiterate our outlook for net profit to be in the range of 21 to 23 billion. For total income, we continue to expect slightly lower income this year compared to 2024. The income will be driven by lower, albeit resilience net interest income and supported by our focus on fee income. We will continue our efforts to drive commercial momentum and growth in line with our financial targets for 2026. Income from trading and insurance activities remain subject to financial market conditions. We continue to expect operating expenses of up to 26 billion, reflecting our focus on cost management and cost income target for 2026. We maintain our guidance for loan impairment charges to be around 1 billion as a result of continued strong credit quality. 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.