Danske Bank A/S
CSE:DANSKE
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
175.5
212.8
|
| Price Target |
|
We'll email you a reminder when the closing price reaches DKK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Danske Bank A/S
You don't have any saved screeners yet
Good afternoon, everybody. Welcome to the Danske Bank Q4 2019 Pre-Close Call. My name is Claus Jensen and I'm Head of Investor Relations, as most of you probably are aware. With me, I have John, Heidi and Robin from the IR team. Please note that this call is being recorded for compliance reasons and the scripts used for this call will be published on the Investor Relations website after the call.In today's call, I will highlight relevant data and one-offs that you should be aware of before the start of the silent period on the 15th of January ahead of the publication of the annual report for 2019, which will take place on the 5th of February.I will go through the P&L statement line-by-line and remark briefly on capital at the end of this call. And afterwards, you will -- we will open up for a Q&A session.But before we start, I would like to briefly highlight the obvious. I will be commenting 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 as to not include nonpublished information or qualitative remarks on performance in Q4.In addition, I would like to draw your attention to company announcements number 19 and 20 of the 2nd and 5th of December, in which we disclosed several extraordinary items affecting the Q4 result.That said, let's start by having a look at net interest income. Please remember that Q4 has the same number of interest days as Q3. During the quarter, the Norwegian krone depreciated around 1.5% on average against the Danish krone. The Swedish krone rose around 1.7% on average and the pound sterling rose around 5.6% on average.On the funding side, Q4 was a slow quarter with only 2 benchmark Tier 2 issues: the first one a 10 noncall 5 of EUR 750 million was issued on the 12th of November at a spread of 177, 1-7-7, basis points over 3-month Euribor. The second one, a 10 non-call 5 of SEK 1 billion was issued on the 14th of November at the same spread, meaning a spread of 177 basis points over 3 month Euribor.Please also revisit Page 43 of our Q3 conference call presentation to see the redemption profile for the maturing funding.With regard to volume development, we refer to publicly available sector statistics as the only external available source of insight. We have nothing to add to this.As we communicated at the presentation of our Q3 result, we expect to see continued margin pressure across almost all of our markets with notably -- most notably for both retail and commercial customers in Denmark as well as commercial customers in Sweden. Market rates continued to rise on average with 3-month NIBOR up 21 basis points and 3-month STIBOR up 4 basis points on the basis of quarterly averages.Although the Swedish Central Bank hike rates by 25 basis points on the 19th of December, we have not communicated any pricing actions in Q4. However, please note that the latest price action carried out in Sweden and Norway in Q3 did not had a full effect in the third quarter. And this concludes our messages on net interest income.Looking at fee income, please note on the usual seasonality of performances, which are typically booked in Q4. We cannot comment on the size of performances in -- for 2019, but it is clear that equity market performance for 2019 has been good. In the past 3 years, Q4 performances have ranged from DKK 154 million to DKK 483 million. Besides the seasonality fee income, the Danske Bank is, as always, dependent on market developments for our asset management business and activity levels for our banking operations.Market development seems to have been positive with a 9.8% increase in the OMX C25 Index in Copenhagen and an 8.5% increase in the S&P 500 index, just to name a couple. At Banking Denmark, the high remortgaging activity seems to have continued. Sector statistics show that Realkredit Danmark have seen DKK 52 billion worth of early redemptions in Q4 against DKK 55 billion in Q3.As a rule of thumb, we typically earn around 50 basis points on remortgaging with the majority booked as fee income and the rest split between trading income and NII in that order. Please note that the actual effect is uncertain as some customers may have chosen to leave Danske Bank.Turning to trading income. Please note that we do not guide on this specific line item. As mentioned in our Q3 presentation, we expect the cyclical headwinds seen in the financial markets to continue throughout 2020. In Q4, we have seen an increase in bond market yields and a slight steepening of the yield curve when we look at generic German bonds.Please note that trading income will be impacted by income from the refinancing auctions of Danish variable rate mortgage bonds. These auctions typically affect Q4 and Q1. And for Q4 2019, the action size was considerably smaller than in Q4 2018 as new loans have, for several years, been financed via the Q1 auction. For reference, income from the Q4 2018 auction amounted to DKK 92 million.Looking at the last income line, other income. We expect to book the one-off gain from the sale of LR Realkredit as announced on the second of December and confirmed on the 30th of December. This gain is still expected to be around DKK 0.7 billion to DKK 0.8 billion. Underlying, we do not have any specific comments on other income. This concludes our comments on the income lines.If we take a look at the cost line, there are several moving parts to note. Firstly, we have announced the write-down of goodwill and other intangible assets of around DKK 2 billion. This was booked in Q4. Secondly, we have announced an extraordinary increase in expenses of around DKK 1 billion in Q4 due to operational risk-related losses, transformation costs and portfolio adjustments. Underlying, we expect costs to follow the usual yearly seasonality with higher costs in Q4 than in Q3 due to the year-end effects on several cost lines, for instance, consultancy and rent.Please note that we have guided the market for costs in the range of DKK 25 billion to DKK 26 billion, excluding the extraordinary effects mentioned in the company announcement number 20 of the 5th of December.With regard to loan impairment charges, we have announced extraordinary impairments of around DKK 0.4 billion as a result of a review of our loan portfolio in connection with an ongoing FSA inspection. Underlying, please note that impairments in the third quarter were affected by a change to the scenario assumptions under IFRS 9 as a consequence of a worsened macroeconomic outlook as well as single-name exposures of corporate and institutions. As always, impairments are subject to single-name volatility and changes in the macroeconomic environment. We do not have any specific comments on individual sectors.At noncore, we have announced negative value adjustments of around DKK 0.1 billion related to the remaining part of our Baltic exposure. Underlying, we have no specific comments to add.On the tax line, there are also several moving parts to note. Firstly, we have decided to exit international joint taxation. A provision for the recapture of tax losses will be released with a positive one-off impact of around DKK 5.2 billion. This is a purely accounting technical adjustment. Secondly, we have announced our expectation to make a provision for deferred tax adjustments on assets and our abilities measured at amortized costs. This will have a negative impact of around DKK 1.1 billion in Q4.Contrary to these 2 extraordinary impacts, please note that the gain from the sale of LR Realkredit is tax-free. Besides these items, we do not have any further comments on the tax line.This concludes our comments on the P&L. As a final point, I would like to touch on capital. Please note that the goodwill write-down mentioned above will not have any negative impact on our regulatory capital as goodwill has already been deducted. As always, our capital will be impacted by earnings less the dividend payout as we have accrued 60% of our net profit for dividends over the first 3 quarters of 2019. The accrual amount for dividends in Q4 will be adjusted to the full year payout ratio that the Board of Directors decides to propose and which is stated in the annual report.The risk exposure amount will be subject to growth, general market volatility and FX movements, as always. We have not communicated any extraordinary impact on the risk exposure amount in Q4.So this concludes our initial comments in this pre-close call. And operator, we are now ready for the Q&A session.
[Operator Instructions] Our first question comes from the line of Per Grønborg from SEB.
Two questions from my side. The first one, you have the rate hikes in Norway and Sweden, which you have communicated on earlier that will come with a delayed effect. Can you give us -- can you just repeat what you have told earlier about what impact we should expect in Q4? I guess, the full impact will be there in Q4 from those rate hikes. Talk about, of course, the Swedish rate hike last year.
Yes. Thank you for the questions, Per. We have not communicated any specific amounts. However, in the Q3 call, we communicated the effect of the rate hikes we did in the third quarter and when it will have effect on the different customer groups. That is what we can -- that is essentially what we can give you. So if you want us to repeat that, please tell us.
I can find it in the Q3 transcript.
Okay. That's fine.
That's what you're saying. My second question is not that much related to this being a pre-close call. But on the more than 70,000 clients you have to have a new advisory meeting with on Flexinvest, have you started those meetings? Or when do you expect to start those meetings?
To our knowledge, these meetings are ongoing, but not completed.
[Operator Instructions]
Is there any more questions?
[Operator Instructions] We're just gathering the details of the last question, just bear with me.
Yes. Thank you. We are waiting patiently.
We have a question from the line of Jacob Kruse.
Yes. So I have 2 questions. Firstly, the cost guidance that you gave with the statements earlier in terms of the extraordinary expenses and the goodwill, without specifically talking about 2020 cost, but conceptually, are those costs front-loading some expenses that would otherwise have been taken in the plan you gave with Q3 results between now and 2023? Or are these new expenses that were not foreseen when you put out that plan?And then my second question was just if you could perhaps repeat, I may have missed a bit, the remortgaging fee comment. Did you say how much that was in Q3? And what the difference in volume was between Q4 and Q3?
Yes. Thank you, Jacob. We -- as you know, a part of the 2023 plan was a more detailed impact description on what is going to happen in 2020. And in 2020, there will be investments of between DKK 1.5 billion and DKK 2 billion in order to drive our 2023 ambitions. And some of those costs will be taken in Q4. If you look at the plan in our Q3 presentation, you will see that the plan actually starts in 9-month '19. So it's actually a 5-quarter plan for the last quarter of 2019 plus 2020. So that is essentially a part of the DKK 1.5 billion to DKK 2 billion we have described for 2020.And then on the remortgaging activity, I would be happy to repeat the numbers. The sector statistics show that Realkredit Danmark have seen DKK 52 billion worth of early redemptions compared to DKK 55 billion in Q3.
And as there are no further questions, I'll hand it back to the speakers.
Okay. Thank you very much for listening in. Thank you to Peter and Jacob for asking questions, and then we will just conclude the call for today. If there are any further questions, you're always welcome to contact the IR team. Thank you. And have a nice day.