Jyske Bank A/S Ord

Hi, everyone. Thank you for joining us on Jyske Bank's conference call for the financial results for the first quarter of 2024. This is Simon Haubart from Investor Relations speaking. With me, I have Jyske Bank CEO Lars Merck and CFO Bjørn Nielsen. Lars and Bjørn will walk you through our prepared remarks. Afterwards, we will open up for Q&A. I will now hand over to Lars.

Thank you, Simon, and thank you all for joining here. We've had a solid start to the year. The net profit of approximately 1.3 billion in the first quarter of 2024 is on par with our highest Q1 net profit so far and is a full 51% above the level seen just two years ago. This is, of course, underpinned by higher level of interest rates and the integration of Hans Banken and the Hans Banken Danish activities. However, the strong result still underlines the resilience of Jyske Bank's business model, as activity levels have been remarkably low in the Danish housing market in Q1, with sector lending and remortgaging offers at an all-time low for this time of the year. At the same time, we managed to keep the underlying cost inflation under control, despite a period of high inflation. We believe there are further synergies to be reaped in the coming years following the acquisition of Hans Bank in Denmark and PFA Bank as we continue to implement efficiency measures. Our customers continue to navigate well in a somewhat subdued economic environment with high ongoing uncertainty. This has helped in keeping a low level of loan losses the one basis point booked in Q1 can be attributed to a 100 million postmodel adjustment for potential CO2 tax on the Danish agriculture. Our postmodel adjustments are then approximately 2 billion, equivalent to more than four times the total amount of loan impairment charges booked since 2015. Lastly, Having rebuilt our capital position following the acquisition of Hans Bank in Denmark, we are very pleased to announce that we are resuming share buybacks with a new program of up to one and a half billion Danish. If we move forward and take a look at some of the figures, we are keen at looking at our results in terms of earnings per share, and earnings per share in the first quarter was 19, 19.5 the same quarter last year, which is also a flattish development. It's approximately one fourth of the highest level in our projections for this year. And obviously you cannot take Q1 times four and get the result, but it's certainly within our expectations. On the right hand side, you see the volumes and generally a strong development in the AOM. due to a combination of the development of current AUM and new inflow, partly due to PFA Bank. If you then look at the deposits, our deposit volumes are flat when it comes to retail deposits, and they show strong stickiness. due to season and due to some larger deposits from large deposit holders. There's a decline during the quarter, but the key deposits from retail customers has again proven to be very sticky. In the left-hand side of this one, if you look at the bridge on return on equity year-on-year, there are two major pluses, that is, the net interest income is up compared to last year, and there's a plus, maybe not a major plus, but a plus also on the loan losses. On the negative side, predominantly related to tax and the AT1 issuance, and also lower net fee income, we take it from 13.2% to 11.4% this year. Turning to our expectations. We've communicated that we are targeting a net profit of between 4.3 billion and 5.1 billion this year for the entire year. That is lower. in 2024 than in 2023. And that also goes for the core income, where we expect that would be lower, mainly due to value adjustments. The core expenses will be largely unchanged, which is still our expectation. Loan impairment charges can be a bit higher in 2024, but as you've seen from the report today, asset quality is still under good control. There's a post-model adjustment related to the CO2 tax on agriculture. And with that one, we stand with above of 2 billion. The earnings per share is expected to be in between 64 and 76. And as you've seen, the first quarter was 19. So we are well within that range. Capital 15 to 17 CET1 ratio and 20 to 22% capital ratio. And as we communicated earlier this year, we expect to be moving into a situation where we on an annual basis pay out 30% of the previous year's results in cash dividend. and use share buyback as the tool on top of this, but then obviously still securing a safe and good capital base.

Yes, thank you very much, Lars. And I'll just give a few insights into some of the relevant and interesting topics in the first quarter, looking at NII and the bridge from Q4 to Q1. Volumes were in Q1, as Lars said, stable. in a market with stable volumes, i.e. stable market shares, and the 4% drop we see in NII is driven by a few dominant factors. One is the change in pricing. We changed transaction accounts and savings accounts pricing on the 27th of November, and we have seen an ongoing as expected clear and visible migration into the savings products during the last few quarters, and it's also eminent here in the first quarter of this year. And secondly, we have lifted our interest expenses due to two issuances, one in November, an NPS, and one on the 1st of February, a Tier 2 instrument of 500 million euros each. And on top of that, looking at the right end of the slide, you can see that there is a green box showing the higher income from our bond portfolio as a mitigating factor against the development in interest rates. Moving on to the next slide, we have given you a split in deposits, which is more or less even between corporate and private clients' deposits, 50 more or less each. and if you look at the left hand side you can see that approximately two-thirds of the corporate deposits relates to money market reference rate deposits or time deposits and is up significantly from two years ago it's a relatively steady uh situation as of now when it comes to corporates moving to the right hand side you see private clients deposits And if you take the deposits with savings and time deposits and transaction accounts, it is sorry, savings and time deposits. It's now consuming around 60 percent of the bucket coming from around one third. two years ago, so you see this gradual shift into savings and time deposits, which is expected and which we to some extent also expect will continue in the coming quarters. The fee income is at the same level as it was around in Q3 of last year, around 600 million, but slightly down from Q1 of last year, 8%. and it's driven mainly by two factors. One is a very low activity in the sector for mortgage lending, all time low level here in Q1. And the second is one of the expenses related to a covered bonds issuance in Jyske Realkredit. And please be aware that PFA Bank and the fee income is included in this fee income development in Q1. But also be aware that the administration and management of PFA Invest funds will be transferred to Bank Invest here in the second quarter of this year. So going forward, the return from this activity will be income from our Bank Invest shares and not fee income going forward. Yes, looking at the cost management of the group, it's still under control. We've said all in, we expect relatively stable development in 2024 versus 2023, and that still applies. If you see the development in retrospect versus Q1 last year, we are up 3% exclusive of one-offs. And this lift in 3% relates to the inclusion of PFA Bank, salary increases of 4.5%, and the removal of Great Prayer Day, which cost us closely to half a percentage point. Looking at the one-offs, Handelsbank and PFA Bank covers 22 million in Q1, and there are other elements to it as well. One is VAT adjustment, due to the different development in income between Jyske Finans, where there is an income of VAT and Jyske Bank, where there is an expense of VAT. And that leads to a lift in cost of a little bit more than 30 million this quarter. The credit quality is still very high. We see small portfolio movements in Q1, a few single name changes, which is natural. But average wise, since 2014, where we merged with BRF Credit, now Jyske Realkredit, we have seen an average impairment charge of only eight basis points. And in the same period, we have built up the 2 billion in post-model adjustments, which is around 40% of the total balance. In Q1, we took and booked a cushion against the proposed carbon tax on agriculture of 100 million, and it actually more than explains the net expense of 82 million in the quarter. So a very stable credit quality is still here in Q1. And then finally, looking at the capital We will initiate a buyback program of 1.5 billion starting here in Q2. And we will keep the capital levels still in the upper half of 15 to 17, as we announced by year end. And as you can see here in Q1, the CT1 ratio dropped a bit from 16.9 to 16.6. And the explanation is on top of the profit, a reservation of capital for both expected dividend as well as expected share buybacks, the latter part being a consequence of an EPA answering guidance, which was given in January of this year. Looking at the risk exposure, the total risk is lifted by 2.5% in the quarter, driven by three factors. The main one is that operational risk due to higher income in the group uh it's listed 3.5 billion that's a yearly chart change market risk and credit risk as another billion each summing that to 5.5 or two point billion or 2.5 percent and so if you exclude the reservation of capital for buybacks we are almost even at 16.8 percent and then going forward we will of course manage the buyback program properly We will build or stabilize the capital levels after the inclusion of the full 1.5 billion in the capital reservation in Q2, when we start the program of buying back shares. And of course, we will try to manage the CRE buffer and the inclusion of Basel IV also properly. The effect will show up in Q2 of this year, respectively Q1 of next year. The expectations are unchanged, approximately two percentage points, and we hope for uh no double counting of buffers from the regulators there are some hope in the market that this will happen and and it will also of course be a positive for us looking into 25. thank you last thank you viewer we'll now open up the questions if you would like to ask a question please raise your hand and unmute your device