Danske Bank A/S
CSE:DANSKE
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Danske Bank A/S
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Hello, and welcome to the Danske Bank pre-close call Q1 2021. [Operator Instructions] Today I'm pleased to present Claus Ingar Jensen, Head of Investor Relations. Please begin your meeting.
Thank you, operator. Hello, and good afternoon. Welcome to the Danske Bank Q1 2021 pre-close Call. My name is Claus Ingar Jensen, and I'm Head of Investor Relations. With me, I have Olav Jørgensen; Patrick Skydsgaard; and Sofie Friis from our IR team. Please note that this call is being recorded for compliance reasons and the script used for this call will be published on the Investor Relations website after the call. In today's call, I will highlight relevant public data and macro trends in our markets as well as one-offs that you should be aware of before the start of the silent period on the April 7th, ahead of the publication of our Q1 report on the 28th of April. I will go through the P&L statement line-by-line and remark briefly on capital at the end. Afterwards, we will open up for a Q&A session. But before we start, for the sake of good order, I would like to briefly highlight the following: I will comment only on already disclosed information and one-offs as well as publicly available data. In this connection, I wish to stress that developments in specific indices may not always have the same effect on our performance. I will limit my response to follow-up questions so as to not include nonpublished information or qualitative remarks on performance in Q1. That said, let us start by having a look at net interest income. Please remember that Q1 have 2 interest dates fewer than Q4 with an NII impact of around DKK 30 million to DKK 40 million per day. During the quarter, until this week, the Swedish krona depreciated around 1% against the Danish krone, while the exchange rates of the Norwegian krone and the pound sterling were up 3% and 4%, respectively, as at 23rd of March on the basis of public data. Also, I want to highlight that a number of macro forecasters, including the Danish central bank, currently have a positive outlook for the remainder of 2021 and expect a fairly rapid recovery of economy activity when the economy is no longer constrained by restrictions. On the funding side, we issued 2 benchmark bonds in Q1. The first one, a NOK 4 billion tap of covered bond issue was made in January at a spread of 15 basis -- 15 points over 3 month Euribor. The second one, a Tier 2 was issued on the 8th of January at a spread of 145 basis points over 3-month Euribor. Please revisit Page 33 of our Q4 2020 conference call presentation to see the redemption profile for maturing funding. With regard to volume development, we refer to publicly available sector statistics as the only externally available source of insight. According to these statistics, business deposits in Denmark seemed to have stabilized at an elevated level, while lending volumes seem to be subdued. We have nothing to add to these statistics. COVID-19 and the availability of government support packages are expected to be key determinants for demand for business loans and credit facilities and thus, the future demand for credit facilities to mitigate the impact of the coronavirus pandemic is highly uncertain. In general, we note that interest rates on Danish mortgage bonds have been rising in Q1. 30-year callables have seen a spread widening of 10 basis points. 5-year noncallable bonds have also seen spread widening. Spreads are now 5 basis points wider than at the start of the year. Against German government bonds, 10-year Danish bonds have seen a 10 basis points increase in yields over the quarter. On the basis of interest rate development in Q1, we see remortgaging activity at a subdued level. With regard to margin development, we also refer to publicly available sector statistics as the only externally available source of insight. According to these statistics, made available by the Danish central bank, the margin pressure continues in Denmark in certain areas, which confirms our view that the trend from Q4 or flat to lower margins would continue into Q1. During Q1, 3 months Stibor and Nibor decreased 5 basis points and 7 basis points, respectively, while 3-month CIBOR was almost flat on the basis of quarterly averages. The Danish central bank's change of interest rates for current accounts as well as the certificates of deposit rate is not expected to have any impact. Please note that NII in Q4 was negatively impacted by a one-off of DKK 0.1 billion offset in our trading line. This concludes our messages on net interest income. Looking at fee income, credit demand and activity-driven fee income could be impacted by the decrease in economic activity following the closedown of certain sectors and the availability of government support packages to support these sectors. The equity markets have been fluctuating in the first quarter with a decrease of approximately 3% in the OMXC25 index in Copenhagen and an increase of around 6% in the S&P 500 index just to give a couple of examples. Apart from these factors, fee income at Danske Bank is, as always, dependent on market developments in relation to our asset management business, and on activity levels in relation to our banking operations. Please note that Q4 included performance fees in asset management of DKK 0.5 billion and a negative one-off of DKK 0.2 billion. Please be aware that as of Q1, income from mortgage-related lending activities will be reclassified from trading income to fee income. On the basis of full year 2020 numbers, the change amounts to approximately DKK 0.5 billion. Restated numbers will be distributed shortly. Turning to trading income. Please note that usual seasonality points to increased customer activity in Q1. Moreover, credit spreads, including Danish callables as well as noncallable bond spreads have widened during the period following a change in the interest rate environment. Please note that Q4 included negative one-offs on the trading line of DKK 0.3 billion. However, as these one-offs were related to the insurance business, they will not appear from trading income in the restated numbers. We have no specific comments on the net income from insurance business. However, generally, a change in interest rates could potentially affect the investment result in the insurance business. With effect from the 1st of January, please note that the investment result is no longer included in trading income, that is stated as net income from insurance business. We do not have any specific comments on other income, and. This concludes our comments on the income lines. If we look at the cost line, we highlight our guidance for full year cost to be no more than DKK 24.5 billion. Please remember this is excluding Danica Pension's expenses, which have been netted in the net income from insurance business line. Also, please note that Q4 2020 included transformation items as well as standard seasonality with year-end booking of costs. With regard to loan impairment charges, we reiterate our guidance from Q4 that we expect impairment charges of no more than DKK 3.5 billion, subject to a modest macroeconomic recovery. We do not have any specific comments on the noncore and tax lines. And this concludes our comments on the P&L. As a final point, I would like to touch on capital. As always, our capital will be impacted by earnings less the dividend payout. With respect to implementation of EBA guidelines, we expect a major part of the guided effect of implementation of EBA guidelines to be back-end loaded in Q2. The risk exposure amount is, as always, subject to general market volatility and FX movements as well as growth. As previously announced, from Q1, our commercial activities will be organized in 4 reporting business units: Personal & Business Customers, which serves personal customers and small and medium-sized corporates across all Nordic markets; large corporates and institutions, which serve large corporates and institutional customers; Danica Pension and Northern Ireland. The interim report for the first quarter of 2021 will reflect the new structure and comparative figures will be restated. Restatements for group level numbers will be published before Easter, which in Denmark starts on Thursday, 1st of April, and we expect to distribute completed restatement numbers also including business units shortly thereafter and no later than the 6th of April. This concludes our initial comments in this pre-close call. Before we move on to the Q&A session, I would like to highlight that we enter our silent period on the 7th of April. Shortly, we will also start collecting consensus estimates with a contribution deadline on the 14th of April end of business. Finally, we will publish our Q1 2021 report on the 28th of April. Operator, we are ready for the Q&A session.
[Operator Instructions] We have a question from the line of Sofie Peterzens from JPMorgan.
Yes. Here is Sofie from JPMorgan. So just to confirm, did I understand it correctly, the EBA guidelines that you guided for the RWA inflation will be back-end loaded in the second quarter?
Yes. Most of that. Yes, that's correct. There will be a small effect in Q1, but the -- by far, the biggest effect will be in Q2.
Okay. Okay. And in terms of TLTRO, did you -- were you able to take any deal 0? And are you booking any benefit?
No. That is not -- it would in case be an insignificant amount, and we have presently no comments on that.
[Operator Instructions] We have another question from the line of Jakob Brink from Nordea.
On higher interest rates or interest rate movements in the quarter, Norwegian rates are up a bit in the short end. Could you just remind us what is the sensitivity when the Norwegian central bank has not changed rates? And on the back of...
Yes. It's the dynamic we have seen from time to time for our operations in Norway are essentially the same, Jakob, as we still are running the -- despite having a deposit strategy in Norway, we are still running with a deficit. We have more loans than deposits. So in this periods where we have seen an increase in LIBOR rates that has led to higher funding costs for our Norwegian activities, which will not be eliminated before we are changing our customer rates, and these are normally being changed when the central bank of Norway are making a move. And then there is this notice period, which in Norway is around 6 weeks. So there is -- there has been a delay on our rate hikes in periods where the market is building up expectation for a rate hike in a Nordic bank.
Okay. And then another question, please. In -- this morning, one of your competitors in Denmark, Jyske Bank were out with an upgrade of their guidance due to very strong activity in the quarter. I think it was mainly related to securities trading and mortgages. Now you said that remortgaging has been subdued, which we can see from the statistics. But I guess, other, I mean, loan offers, et cetera, has been very strong this quarter and activity in general. Don't you see the same?
Well, I think that Jyske Bank were out with an uplift, they have had more freedom to comment on what developments they have seen in Q1. So besides what I've already made of comments on the lending growth, which is based on the official statistics. Unfortunately, I cannot comment more Jakob.
And as there are no further questions, I will hand it back to you, Claus, for closing remarks.
Okay. Thank you so much all for your interest and for your participation. I think that most of you are very much interested in getting the restated numbers, and we will do our best to send them out as quick as possible. I would expect there will be some questions from your side. And you are more than welcome to give us a call, and we will also answer call specifically on the restatement numbers in the silent period. So I think that is what we have to say for now. So thank you for your participation, and I wish you a nice weekend. Goodbye.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.