Stock Exchange Announcement No. 28/2001 August 16, Interim Report. First half of 2001 DANSKE BANK FIRST HALF /29

Transcription

1 Stock Exchange Announcement No. 28/2001 August 16, 2001 Interim Report First half of 2001 DANSKE BANK FIRST HALF /29

2 Danske Bank Group financial highlights CORE EARNINGS AND NET PROFIT FOR THE PERIOD Pro forma First half First half Index Full year (DKr m) / Net interest income, excluding earnings from investment portfolios 8,863 7, ,200 Fee and commission income (net) 3,232 3, ,490 Trading income ,630 Other core income ,135 Core insurance income Total core income 14,249 12, ,393 Operating expenses and depreciation 8,235 7, ,148 Core earnings before provisions 6,014 4, ,245 Provisions for bad and doubtful debts ,100 Core earnings 5,349 4, ,145 Profit on sale of subsidiaries Earnings from investment portfolios ,461 Merger costs ,721 Adjustment of accounting policies and estimates Profit before tax 6,115 5, ,703 Tax 1,760 1, ,399 Net profit for the period 4,355 3, ,304 Of which minority interests BALANCE SHEET HIGHLIGHTS (DKr bn) Bank loans and advances Mortgage loans Bonds and shares Due to credit institutions and central banks Deposits Issued bonds Subordinated debt Shareholders' equity Total assets 1,420 1, ,363 RATIOS AND KEY FIGURES Net profit for the period per share, DKr Net profit for the period per share, DKr * Net profit for the period as % p.a. of average shareholders' equity Net profit for the period as % p.a. of average shareholders' equity * Core earnings as % p.a. of average shareholders' equity Cost/core income ratio, % Solvency ratio, % (excl. profit for the period) Core (tier 1) capital ratio, % (excl. profit for the period) Share price, end of period Book value per share, DKr Number of full-time employees, end of period: Danske Bank and consolidated subsidiaries 17,907 19,301 18,930 Non-consolidated subsidiaries (insurance companies) 953 1, *) Excl. merger costs. The ratios and key figures are calculated in accordance with the recommendations of the Danish Association of Financial Analysts. The comparative figures contain a pro forma consolidation of the Danske Bank Group and the RealDanmark Group for the first half of 2000 and for the full year of Inter-company accounts and differences in accounting policies have not been elimiated, as they do not influence the Group's profit and equity. The core earnings of RealDanmark have been adjusted on an estimated basis to the core earnings model so far used by Danske Bank. DANSKE BANK FIRST HALF /29

3 Review The Danske Bank Group recorded a net profit of DKr4,355m for the first six months of 2001, against a pro forma profit of DKr3,696m for the same period of This was an increase of 18%. Net profit per share was up by 23%. Core income rose by 13% to DKr14,249m, mainly as a result of higher net interest and fee income at Retail Banking and Mortgage Finance, increased earnings from fixed income and foreign exchange trading, and improved profits from Life and Pensions. Operating expenses and depreciation increased by 5%, principally owing to mergerrelated costs incurred in the second quarter. The development in operating expenses and depreciation was in line with expectations. Core earnings rose by DKr833m to DKr5,349m. Earnings from investment portfolios were up by DKr23m to DKr532m. The sale of subsidiaries produced a gain of DKr234m. The Group s solvency ratio was 9.5% and the core capital ratio 6.4% (first-half results not included). Danske Bank expects the integration process and the realisation of planned mergerrelated savings to be running somewhat ahead of schedule by the end of Consequently, the Bank expects to realise a larger proportion of total cost synergies in 2001 than originally assumed. Late in June, Standard & Poor s upgraded Danske Bank s long-term debt rating from A+ to AA- and its short-term debt rating from A1 to A1+. Danske Bank continues to expect core earnings for the whole of 2001 to be somewhat higher than in A further weakening of activity on the markets where the Group is active could curb the improvement, however. Core earnings in the first six months of 2001 grew in line with the forecast set out in the first-quarter report. The general economic climate was affected by turbulence on international stock markets and the intensified slowdown in economic growth in the second quarter. The slowdown also had an impact on Danske Bank s activities and earnings. Capitalmarket related business at Danske Securities and Investment Management thus performed significantly below expectations, which, however, was offset by better-thanexpected developments at the Mortgage Finance and Wholesale Banking divisions in particular. Danske Bank raised net interest income by 15%. The improvement came principally from greater volume, but was also the result of wider interest margins at Retail Banking and Wholesale Banking. Fees and commissions were at a similar level to the year before as higher income from lending and payments services were more or less balanced out by a decline in capital-market related income. Operating expenses and depreciation rose by DKr426m, or 5%, from the first half of They were marginally down from the second half of Danske Bank still expects operating expenses and depreciation for the whole of 2001 to be at a similar level as for The increase in the first half-year was mainly attributable to large expected costs incurred in the second quarter. These costs related to the ongoing IT integration process, including overtime work, consultancy assistance, and hardware purchases, which are written off on acquisition. Staff costs were unchanged from the year before and lower than expected, barring performance-related bonuses, which increased. The cost/core income ratio fell from 61.8% for the first half of 2000 to 57.8% this year. The charge for bad and doubtful debts rose by DKr353m to DKr665m, but remained low. DANSKE BANK FIRST HALF /29

4 Profit on the sale of subsidiaries relates to BG Bank International, Luxembourg, BG Factoring and BG Garanti Forsikringsselskab, which were sold off in the first half of Earnings from investment portfolios were DKr532m. This was satisfactory in the light of market trends. The tax charge for the first six months of 2001 was calculated at 29% of pre-tax profit. In 1992, Fokus Bank wrote down NKr2.2bn worth of preference capital made available by the Norwegian government. The tax authorities resolved in 1998 that the write-down represented taxable income so that Fokus Bank would not have the option of carrying forward tax operating losses for a corresponding amount. Fokus Bank brought the matter before the courts but, after the Norwegian supreme court, in June this year, ruled in favour of other banks in similar cases, the tax authorities are expected to waive their claim against Fokus Bank some time in the third quarter of When the matter has been decided upon, the tax value of approximately DKr700m of the carriable loss will be taken to income. Owing to uncertainty about the outcome of the case, the Group assigned no value to the carriable tax loss, etc., in its accounts for earlier periods. Against this background, the Group expects its net tax charge for the whole of 2001 to fall by five percentage points from 30% to 25%. The total assets of the consolidated Group rose to DKr1,420bn as at the end of June Bank loans and advances grew by 13% on the end of June 2000 and 8% on the end of Mortgage loans grew by 4% on a year earlier and 3% on the 2000 year-end. Return on equity increased to 16.1% p.a. from 13.3% p.a. the year before. Subordinated debt rose by DKr5bn to DKr34bn. In March, Danske Bank raised supplementary capital by the issue of 10-year notes for a nominal amount of 500m. The note issue should be viewed in conjunction with the repayment of DKr3bn of supplementary capital at Realkredit Danmark in April Moreover, Danske Bank in May raised supplementary capital for a nominal amount of 150m by the issue of 13-year notes which will partly refinance existing supplementary capital expected to be prepaid over the coming year. CAPITAL AND SOLVENCY Pro forma (Exclusive of the net profit for the period) First half First half (DKr m) Core capital, less statutory deductions 50,294 54,178 Supplementary capital, less statutory deductions 24,754 21,390 Total capital base, less statutory deductions 75,048 75,568 Total weighted items 788, ,061 Solvency ratio (%) Core (tier 1) capital ratio (%) This interim report has been prepared in accordance with the Copenhagen Stock Exchange guidelines for issuers of listed securities and the executive order on bank accounts issued by the Danish Financial Supervisory Authority. Accounting policies are unchanged. Comparative figures for 2000 in this review are unaudited consolidated pro forma figures for the Danske Bank and RealDanmark groups. In the accounts (from page 16 onwards), comparative figures for 2000 comprise Danske Bank only. DANSKE BANK FIRST HALF /29

5 Follow-up on merger with RealDanmark The legal merger was adopted at the general meetings of RealDanmark and Danske Bank in March After the exchange of the remaining 3.8% of the shares in RealDanmark and the registration of the capital reduction of a nominal amount of DKr366m, the share capital amounted to DKr7,320m at the end of June The merger process developed very satisfactorily in all business areas in the first six months of 2001, and Danske Bank this year expects to achieve merger synergies in the region of DKr1.1bn on an annualised basis. This is a larger proportion of the planned merger synergies than originally anticipated. The main reason for this satisfactory development is that staff reductions are ahead of expectations. By the end of the first half-year, staff numbers had been cut by just under 1,300 since the merger was announced. Moreover, the Bank had agreed with 900 employees that they would leave over the coming six months. Consequently, Danske Bank expects the reduction in staffing levels to have reached more than 2,500 by the end of This figure should be viewed in the context of the total expected reduction of 3,500 over three years. BG Bank s computer systems are expected to convert to Danske Bank s systems platform in the weekend of August 25-26, The conversion of Realkredit Danmark s computer systems and a few minor systems is scheduled to be completed more or less by the end of the first half of Since merger synergies are being realised earlier than expected, Danske Bank has decided to bring forward two projects that are expected to strengthen the Group s competitiveness in the retail banking market and hence lay the foundations for further growth in business volume. First, Danske Bank will re-launch the BG Bank brand by a logo redesign and a focused and intensified marketing campaign. Second, the Group will extend its customer relationship management (CRM) activities to further enhance its advice and services to customers. Costs relating to these projects will be incurred in the second half of Of the DKr2.4bn in merger costs provided for, a total of DKr1.1bn was charged against profit in the first half of Hence, the remaining provision amounts to DKr1.3bn. Approximately DKr0.5bn was expended on staff redundancy schemes and DKr0.6bn on the decommissioning of computer systems and other contractual liabilities. At the release of its first-quarter report, Danske Bank presented an incentive programme based on value creation within the Group. Danske Bank will add three elements share options, conditional shares and an employee share scheme to its bonus programme, which has so far consisted of cash bonuses. Cash bonuses will therefore be reduced. Bonuses will continue to be based on individual assessments of performance and other measures of value creation. In June, Danske Bank granted share options to the executive board and a number of senior executives. The options totalled 793,140, of which 244,000 were granted to the executive board. The price of the options was , equal to the average stock exchange price of Danske Bank shares in May plus 10%. The options can be exercised three to seven years after being granted. They are hedged by Danske Bank s holding of own shares. Both share options and own shares are recorded in the accounts in accordance with general accounting provisions. Staff bonuses and conditional shares will be provided for on a continuing basis, while any costs relating to the employee share scheme will be charged against year-end profits. DANSKE BANK FIRST HALF /29

6 The Group s business areas CORE EARNINGS BEFORE PROVISIONS Pro forma Share Share First half First half Index Full year First half First half (DKr m) / Retail Banking 2,214 1, ,545 37% 34% Mortgage Finance 1, ,475 18% 15% Wholesale Banking 1,587 1, ,962 26% 27% Danske Securities % 3% Investment Management ,140 9% 13% Life and Pensions % 8% Other areas % 0% Total Group 6,014 4, , % 100% Retail Banking, Mortgage Finance, Wholesale Banking, and Life and Pensions recorded higher core earnings than in the first six months of 2000, whereas Investment Management did not achieve the same high core earnings as in 2000, when activity on stock markets, in particular, was very strong. The negative core earnings of Danske Securities were the result of very sluggish activity on capital markets, which influenced both trading and corporate finance activities, and of losses on trading portfolios. The merger has reduced the Group s overall risk profile, and capital allocation to the business areas has been reduced from 7.0% to 6.5% of their risk-weighted items as from Also as from 2001, Retail Banking has taken over responsibility for a number of corporate customers formerly served by Wholesale Banking. Wholesale Banking now caters only for the very largest corporate and institutional clients, and continues to be responsible for the Group s activities on the Nordic and international interest rate and foreign exchange markets. The transfer of customers, which is partly the result of harmonisation following the merger, affects both risk-weighted items and returns. DANSKE BANK FIRST HALF /29

7 Retail Banking RETAIL BANKING First half First half Q2 Q1 Q4 Q3 Q2 Full year (DKr m) *) *) 2000 *) 2000 *) 2000 *) Core income 7,845 6,939 4,019 3,826 3,849 3,795 3,489 14,583 Operating expenses and depreciation 5,631 5,323 2,922 2,709 3,020 2,695 2,668 11,038 Core earnings before provisions 2,214 1,616 1,097 1, , ,545 Risk-weighted items (avg.) **) 245, , , , , , , ,593 Allocated capital (avg.) 15,936 13,660 16,271 15,594 14,991 14,404 14,033 14,172 Core earnings before provisions as % p.a. of allocated capital Cost/core income ratio, % *) Pro forma **) With effect from 2001 a number of large corporate clients were transferred from Wholesale Banking, corresponding to a DKr24bn increase in risk-weighted items. CORE EARNINGS BEFORE PROVISIONS (DKr m) Denmark 1,918 1, ,822 Norway Sweden Retail Banking provides services to personal customers and the business customers served by the Nordic branch network. The division conducts business under a number of brand names, including Danske Bank and BG Bank in Denmark, Fokus Bank in Norway, and Östgöta Enskilda Bank and Provinsbankerne in Sweden.. Retail Banking continued to show improvement. Core earnings before provisions rose from DKr1,616m in the first half of 2000 to DKr2,214m in Denmark Retail Banking is making steady progress, with good growth in business volume. Moreover, interest margins for both personal and business customers widened during the period under review. However, the negative developments in stock markets cut fee income from securities trading with personal customers. Also, the general economic slowdown dampened lending activity. The cost/core income ratio fell to 71.8% for the first six months of 2001 from 76.7% the year before. The division reduced the number of branches by 65 through branch mergers in the first half-year. The Group still aims to have reduced its branch network by at least 150 branches through branch mergers by the end of Moreover, the status of a number of small branches will change, such that their opening hours and staffing levels will be reduced. Consequently, Retail Banking expects to further improve its cost/core income ratio. At the end of August 2001, BG Bank s IT systems will convert to Danske Bank s IT platform. The conversion is an important step towards realising the merger synergies. In the autumn of this year, Danske Bank will re-launch BG Bank by redesigning its logo, marketing material and branch design. BG Bank will emerge from this process as part of the Danske Bank Group, but will still have its own profile and design. DANSKE BANK FIRST HALF /29

8 In the spring of 2001, Danske Bank launched several marketing initiatives designed to make BG Bank s business customers conscious of the new products on offer under the BG Bank brand name. The Netbank and Danske Bank s other electronic self-service solutions continued to attract a large number of new customers. The Group today has more than 600,000 on-line customers. Retail Banking realised all its merger-related aims for 2001 on the staff side during the first six months of The number of staff members was reduced by just over 750. In addition, Retail Banking has agreed with another 250 employees that they will leave the Bank later on. Norway Core earnings before provisions were DKr136m for the first six months of 2001, against DKr197m the year before. There was a modest fall in net interest income as margins narrowed from the first half of Developments were affected by a change in interest valuation rules in Norway that took effect on July 1, However, margins showed an increase from the fourth quarter as a result of measures taken to improve customer profitability. Fee income rose by just over DKr40m. Costs increased owing to expenses relating to employees who had been given notice, but had not yet left the Bank and expenses in connection with the conversion of IT systems to the Group s IT platform. Fokus Bank, which has launched a number of measures to improve its efficiency and customer focus, changed its organisation on July 1, 2001, when it set up three market divisions: personal banking, business banking and investment management. The new organisation enables a stronger focus on individual business areas and will make Fokus Bank even more specialised. Less profitable branches are being closed down, and four new branches are due to open this year, including three new ones in Oslo. Sweden Core earnings before provisions were DKr160m, against DKr190m the year before. The fall in the value of the Swedish krona against the Danish krone reduced core earnings before provisions in Danish krone terms by DKr23m. There was a satisfactory trend in activity in Sweden and core income was maintained. Expenses rose by DKr35m due in part to the continued expansion of activities, including the opening of new branches in 2000 and Extra costs were also incurred from pension fund contributions covering staff pension commitments. Loan volume grew by 33% from the same period of last year, while fee income declined as a result of lower activity on capital markets. In 2001, branches have been opened in Lund and Gothenburg, and the number of Swedish branches now totals 44. DANSKE BANK FIRST HALF /29

9 Mortgage Finance MORTGAGE FINANCE First half First half Q2 Q1 Q4 Q3 Q2 Full year (DKr m) *) *) 2000 *) 2000 *) 2000 *) Core income 1,753 1, ,817 Operating expenses and depreciation ,342 Core earnings before provisions 1, ,475 Risk-weighted items (avg.) 215, , , , , , , ,241 Allocated capital (avg.) 14,022 14,956 13,953 14,092 15,044 15,031 14,973 14,997 Core earnings before provisions as % p.a. of allocated capital Cost/core income ratio, % *) Pro forma Mortgage Finance is responsible for the Danske Bank Group s overall mortgage finance and real-estate agency business. In Denmark, Mortgage Finance markets its financing solutions through Realkredit Danmark. Real-estate agency business is carried on through the home chain of real-estate agents. Mortgage Finance continued to make progress. Core earnings before provisions rose from DKr746m last year to DKr1,096m this year. The reason for the increase was, first, that some of the earnings previously recorded under earnings from investment portfolios have been re-categorised and are now reported under core earnings and, second, that contribution income increased as a consequence of higher lending activity. The fall in interest rates in the first half-year boosted activity on the mortgage finance market. The number of loan applications received by Realkredit Danmark grew sharply from previous years. The mortgage loan portfolio amounted to DKr431bn at the end of the first half of 2001, against DKr416bn a year earlier an increase of 4%. The Mortgage Finance division raised its market share of net new lending from 29.7% to 30.9% from the second half of 2000 to the first half of Its market share of gross lending was 33.2% for the first half of 2001, compared with 33.3% for the second half of According to data published by the Association of Danish Mortgage Banks, house prices are still rising. The prices of single-family detached and terraced houses increased by 2.5% from the first to the second quarter of 2001 on a national scale, but there were large geographical variations. In January 2001, Moody s Investor Services upgraded its rating of Realkredit Danmark s bonds to Aa1. Since then Moody s has announced that the bonds are on the watchlist for further upgrading to Aaa. The real-estate agency home, which consists of 162 outlets, also saw an increase in activities, in part as a result of its collaboration with Retail Banking. Both turnover and market share grew in a generally stable housing market characterised by regional differences in prices and turnover. Danske Bo is now part of the real-estate agency home. At the beginning of the year, Realkredit Danmark merged with BG Kredit and Danske Kredit. The merger process is moving ahead as planned and the reorganisation of the business will have been completed by the end of the third quarter of DANSKE BANK FIRST HALF /29

10 Wholesale Banking WHOLESALE BANKING First half First half Q2 Q1 Q4 Q3 Q2 Full year (DKr m) *) *) 2000 *) 2000 *) 2000 *) Core income 2,530 2,268 1,220 1,310 1,367 1,327 1,144 4,962 Operating expenses and depreciation ,000 Core earnings before provisions 1,587 1, ,962 Risk-weighted items (avg.) **) 220, , , , , , , ,890 Allocated capital (avg.) 14,330 16,350 14,397 14,246 18,273 16,744 16,523 17,039 Core earnings before provisions as % p.a. of allocated capital Cost/core income ratio, % *) Pro forma **) With effect from 2001 a number of large corporate clients have been transferred to Retail Banking, corresponding to a DKr24bn reduction in risk-weighted items. Wholesale Banking has global responsibility for serving the Group s large corporate and institutional clients. Under the Danske Markets brand, the division conducts the Group s trading activities on the Nordic and international interest rate and foreign exchange markets. The Group s central economic and financial research unit has been placed in Wholesale Banking. Wholesale Banking recorded good growth. Core earnings before provisions rose from DKr1,288m for the first half of 2000 to DKr1,587m this year. The cost/core income ratio was reduced from 43.2% to 37.3%. The rise in core earnings was mainly attributable to high growth in activities and profits at Danske Markets. Wholesale Banking business with large corporate and institutional clients produced increased earnings as a result of wider interest margins. The division continued to tightly control its business activities with the object of curtailing business that did not generate a sufficient return. Wholesale Banking maintained the level of activities in Scandinavia, while activities outside Scandinavia, particularly in the first quarter, were adversely affected by uncertain and weakening financial markets. Activity outside Scandinavia picked up in the second quarter and should continue to grow in the third quarter. Return on capital rose from 15.8% to 22.1%, which was satisfactory. The branches in Hong Kong and Singapore were closed as planned on June 30, Business activity at the New York Branch was adjusted to focus on clients with links to Danske Bank s northern European business and on selected global financial institutions. Wholesale Banking met the cost synergy targets announced at the merger with RealDanmark. DANSKE BANK FIRST HALF /29

11 Danske Securities DANSKE SECURITIES First half First half Q2 Q1 Q4 Q3 Q2 Full year (DKr m) *) *) 2000 *) 2000 *) 2000 *) Core income Operating expenses and depreciation Core earnings before provisions Risk-weighted items (avg.) , Allocated capital (avg.) Core earnings before provisions as % p.a. of allocated capital , Cost/core income ratio, % *) Pro forma Danske Securities is responsible for the Group s corporate finance activities and for wholesale sales and trading of equities and equity-related products. The division also encompasses equity research. With effect on July 1, 2001, Danske Securities was converted into a subsidiary of the parent bank. Core earnings before provisions were a negative DKr77m, which must be considered highly unsatisfactory. Market conditions for investment banking business were very difficult in the first half of 2001, with negative and uncertain trends on most capital markets. This soured sentiment and caused a significant fall in activity. Core income fell by 42% from the same period of last year. The main reason was lower income from equity sales and trading, including negative value adjustments of trading portfolios. Corporate finance activities also contributed to the decline in income. Expenses rose by just below 10% from the first half of 2000 as Danske Securities expanded its organisation in the Nordic countries and continued to invest in the development of trading systems. Consequently, Danske Securities could not adjust cost levels to the negative trend in core income. On July 1, 2001, Danske Securities was converted into a subsidiary of Danske Bank registered in Sweden. The subsidiary will be headquartered in Stockholm with the aim of building a stronger platform on the largest capital market of the Nordic region. The intention is moreover to offer a number of executive officers the option of becoming co-owners of the company. The partnership structure will be determined in the course of the second half-year and the new structure is due to be launched early in Danske Securities will continue to focus on quality as it builds up its organisation in the Nordic countries in order to create the platform it needs. Against this background, Danske Securities is expected to record a loss also for the whole of DANSKE BANK FIRST HALF /29

12 Investment Management INVESTMENT MANAGEMENT First half First half Q2 Q1 Q4 Q3 Q2 Full year (DKr m) *) *) 2000 *) 2000 *) 2000 *) Core income 959 1, ,984 Operating expenses and depreciation Core earnings before provisions ,140 Risk-weighted items (avg.) 10,282 8,645 10,611 9,949 9,064 9,116 8,969 8,868 Allocated capital (avg.) Core earnings before provisions as % p.a. of allocated capital Cost/core income ratio, % Assets under management (DKr bn) *) Pro forma Investment Management provides portfolio management and investment advisory and private banking services. The division targets personal and institutional customers in the Nordic region as well as the international investor segment. Services to institutional and other major investors are marketed under the brand name of Danske Capital. The division also operates under the brands of Danske Bank in Denmark and Firstnordic outside Denmark. Moreover, Investment Management cooperates with the unit trust, Danske Invest. The results and business activities of Investment Management were affected by generally negative sentiment on stock markets. Core earnings before provisions were DKr514m for the first half of 2001, against DKr632m the year before. This was a fall of 19%, which was due primarily to lower trading activity. The fall in earnings should be viewed in conjunction with exceptionally high trading activity driven by buoyant markets in the first half of In addition, profit for the first half of 2000 included income from BG Bank International, Luxembourg, which was sold with effect on January 1, Profit trends in the first six months of 2001 reflected increasing income from sales of portfolio management agreements and interest rate and foreign exchange products. Assets under management amounted to DKr542bn at the end of June The first half of 2001 saw a net increase in new agreements of DKr10.2bn, which came mainly from unit trusts and institutional clients. Investment Management held a total market share of net sales of unit certificates in Denmark of 39% in the first half of The combination of the Danish activities under Investment Management proceeded as planned. DANSKE BANK FIRST HALF /29

13 Life and Pensions LIFE AND PENSIONS First half First half Q2 Q1 Q4 Q3 Q2 Full year (DKr m) *) *) 2000 *) 2000 *) 2000 *) Profit from life insurance Non-life technical result Net interest from investments, etc Core insurance income Funding cost, net Core earnings before provisions Allocated capital 5,575 5,381 5,710 5,439 5,597 5,569 5,389 5,483 Core earnings before provisions as % p.a. of allocated capital *) Pro forma Life and Pensions is responsible for all the Group s activities in the life insurance and pensions market. The Life and Pensions area is run by the Danica group. Life and Pensions targets both personal and business customers. Products are marketed through a range of distribution channels within the Group, primarily Retail Banking s outlets and Danica s team of insurance agents and pension advisers. Profit from Life and Pensions was satisfactory and in line with expectations. The improvement in profit arose mainly from an increase in the rate of interest on policyholders savings from 4.5% in 2000 to 8.5% in Danica achieved satisfactory growth in premiums of DKr1,105m, of which Danica Pension IV (the former BG Pension bought back from Topdanmark) accounted for DKr616m. Gross premiums totalled DKr5,038m, against DKr3,933m last year. Danica gained 500 new company pension agreements. This was very satisfactory and an increase of nearly 40% from the first half of Sales of private health care policies also advanced sharply. Danica sold about 7,000 policies, raising its portfolio of health care policies by 55% compared with the end of Developments in Sweden were in line with expectations, but growth in unit-linked schemes was adversely affected by turbulence on the Swedish financial markets. Danica introduced its unit-linked product in Denmark in April The new product was well received by both new and existing customers and is expected to record fair sales for the year as a whole. The return on investments totalled 1.1%, which was less than expected but acceptable considering market developments. Bonus reserves stood at DKr19.6bn at June 30, 2001, or about 16% of life insurance provisions. The integration of Danica Pension IV (formerly BG Pension) is proceeding as planned. DANSKE BANK FIRST HALF /29

14 Outlook The following comments on the Group s profit expectations for 2001 relate to the pro forma consolidated profits for 2000 shown on page 2. The Group expects core income for the whole of 2001 to show moderate improvement despite the intensified economic slowdown in the second quarter. However, if capital markets remain uncertain and activity on the Group s markets weakens further, the expected improvement could be curbed. As a consequence of the planned savings, operating expenses and depreciation for 2001 are forecast to be at a similar level as for The Group expects to have realised more synergies by the end of this year than forecast at the announcement of the merger with RealDanmark. The ratio of costs to core income should keep falling, from 61.2% to somewhat below 60% for The charge for bad and doubtful debts is expected to be at a roughly similar level to However, the economic slowdown and a possible further weakening of economic activity could impair the ability of customers to repay their loans and hence require higher provisions. Overall, the Danske Bank Group still expects core earnings for 2001 to somewhat exceed their 2000 level of DKr9,145m. Earnings from investment portfolios in 2001 will, as usual, greatly depend on developments on the financial markets, including the level of securities prices at the year-end. The Group now expects its tax charge, including the new tax on provisions, to be 25% of pre-tax profit, down from 30%. Copenhagen, August 16, 2001 Danske Bank Holmens Kanal 2-12 DK-1092 Copenhagen K CVR No DANSKE BANK FIRST HALF /29

15 Danske Bank Group CORE EARNINGS AND NET PROFIT FOR THE PERIOD Pro forma Q2 Q1 Q4 Q3 Q2 Full year (DKr m) Net interest income, excluding earnings from investment 4,494 4,369 4,401 4,079 3,996 16,200 portfolios Fee and commission income (net) 1,671 1,561 1,639 1,589 1,609 6,490 Trading income ,630 Other core income ,135 Core insurance income Total core income 7,272 6,977 7,007 6,749 6,352 26,393 Operating expenses and depreciation 4,351 3,884 4,286 4,053 4,008 16,148 Core earnings before provisions 2,921 3,093 2,721 2,696 2,344 10,245 Provisions for bad and doubtful debts ,100 Core earnings 2,558 2,791 2,018 2,611 2,227 9,145 Profit on sale of subsidiaries Earnings from investment portfolios ,461 Merger costs - - 2, ,721 Adjustment of accounting policies and estimates Profit before tax 2,806 3, ,689 1,661 8,703 Tax , ,399 Net profit for the period 1,996 2, ,646 1,344 6,304 Of which minority interests BALANCE SHEET HIGHLIGHTS (DKr bn) Bank loans and advances Mortgage loans Bonds and shares Due to credit institutions and central banks Deposits Issued bonds Subordinated debt Shareholders' equity Total assets 1,420 1,385 1,363 1,420 1,314 1,363 EARNINGS FROM INVESTMENT PORTFOLIOS Pro forma First half First half Full year (DKr m) Net interest income Dividend from shares Fee and commission income Net interest and fee income ,044 Market value adjustments Bonds 69-1, Shares ,114 Foreign exchange Derivative financial instruments Holdings in associated undertakings Expenses Other operating income Total ,461 DANSKE BANK FIRST HALF /29

16 Profit and loss account for the six months ended June 30 DANSKE BANK GROUP DANSKE BANK Note (DKr m) *) *) 2,9 Interest income 40,668 20,629 23,394 16,278 3 Interest expense 31,711 15,512 16,971 12,244 Net interest income 8,957 5,117 6,423 4,034 9 Dividends from shares, etc ,9 Fee and commission income 4,052 2,836 3,692 2,642 Fees and commissions paid Net interest and fee income 12,533 7,631 9,694 6,404 5,9 Securities and foreign exchange income 1, Other operating income Staff costs and administrative expenses 7,832 4,615 6,291 3,894 Amortisation and depreciation Other operating expenses Provisions for bad and doubtful debts Income from associated and subsidiary undertakings ,517 1,132 Profit before tax 6,115 3,880 6,114 3,878 8 Tax 1,760 1,160 1,760 1,160 Net profit for the period 4,355 2,720 4,354 2,718 Attributable to minority interests 1 2 *) The comparative figures for 2000 in the profit and loss account and the associated notes comprise only Danske Bank before the merger DANSKE BANK FIRST HALF /29

17 Balance sheet at June 30 DANSKE BANK GROUP DANSKE BANK Note (DKr m) *) *) ASSETS Cash in hand and demand deposits with central banks 4,703 4,485 3,615 2, Due from credit institutions and deposits with central banks 141, , , ,255 11,12 Loans and advances 912, , , ,499 Bonds 237, , , ,337 Shares, etc. 15,736 14,016 15,139 13,153 Holdings in associated undertakings, etc. 1, Holdings in subsidiary undertakings 9,163 8,283 38,060 17,649 Tangible assets 6,659 4,158 5,137 3, Own shares 1, , Other assets 88,056 76,681 86,548 75,750 Prepayments 1, , Total assets 1,420, , , ,769 LIABILITIES Due to credit institutions and central banks 255, , , , Deposits 394, , , , Issued bonds 554, , ,276 79,638 Other liabilities 122, , , ,770 Deferred income Provisions for obligations 2, , Subordinated debt 34,218 22,218 32,899 21,049 Minority interests Shareholders' equity 56,231 32,993 56,231 32,993 Total liabilities 1,420, , , ,769 OFF-BALANCE-SHEET ITEMS 18 Guarantees, etc. 80,939 64, , , Other commitments 104,511 94,316 98,349 89,540 Total off-balance-sheet items 185, , , ,952 *) The comparative figures for 2000 in the balance sheet and the associated notes comprise only Danske Bank before the merger DANSKE BANK FIRST HALF /29

18 Capital MOVEMENTS IN THE CAPITAL OF DANSKE BANK IN THE FIRST HALF OF 2001 Beginning Capital Capital Other Other End of (DKr m) of year increase reduction additions disposals year Share capital 7, ,320 Share premium account 27,764 1,227-27, ,227 Reserve for own shares ,086 Revaluation reserve Profit brought forward 14,786-28,130 4, ,546 Total shareholders' equity 50,906 1,321-4, ,231 Shareholders' equity The share capital is made up of 732,000,000 shares of DKr10, totalling DKr7,320m. All shares carry the same rights. Consequently, there is only one class of shares. MOVEMENTS IN SHAREHOLDERS' EQUITY AND MINORITY INTERESTS DANSKE BANK GROUP (DKr m) *) Shareholders' equity at January 1 50,906 30,412 Capital increase 1,321 - Net profit for the period 4,354 2,718 Goodwill fully written off at the time of acquisition Shareholders' equity at June 30 56,231 32,993 Minority interests at January Net profit for the period 1 2 Addition of minority interests 4 18 Redemption of minority interests Minority interests at June *) The comparative figures for 2000 comprise only Danske Bank before the merger SOLVENCY DANSKE BANK GROUP DANSKE BANK (DKr m) *) *) Core capital, less statutory deductions 50,294 30,057 50,310 29,909 Eligible subordinated debt and revaluation reserve 30,903 20,868 30,261 20,299 Statutory deduction for insurance subsidiaries -5,887-5,574-5,883-5,574 Other statutory deductions Supplementary capital, less statutory deductions 24,754 15,191 24,117 14,622 Total capital base, less statutory deductions 75,048 45,248 74,427 44,531 Weighted items not included in trading portfolio 700, , , ,096 with market risk included in trading portfolio 88,353 50,144 86,268 49,078 Total weighted items 788, , , ,174 Core (tier 1) capital ratio (%) Solvency ratio (%) Statutory minimum solvency requirement (%) The solvency ratio is calculated in accordance with the rules on capital adequacy for banks and certain credit institutions. The rules also stipulate that the Group's insurance subsidiaries are not to be consolidated into the Group accounts. Hence, the solvency margin of these companies is deducted from the Group's capital base before the capital base is included in the calculation of its solvency ratio. The consequent reduction in the solvency ratio is 0.7 percentage points for 2001 (0.7 percentage points at the end of 2000). *) The comparative figures for 2000 comprise only Danske Bank before the merger DANSKE BANK FIRST HALF /29

19 Notes to the profit and loss account CORE EARNINGS AND EARNINGS FROM INVESTMENT PORTFOLIOS OF THE DANSKE BANK GROUP AND THE OFFICIAL PRESENTATION OF ACCOUNTS First half 2001 Earnings from Core Profit investment Note (DKr m) earnings on sale portfolios Total *) 1 Net interest income 8, ,957 Dividends from shares, etc Fee and commission income 3, ,219 Net interest and fee income 12, ,533 Securities and foreign exchange income ,027 Other operating income Staff costs and administrative expenses 7, ,832 Amortisation and depreciation Other operating expenses 5 5 Provisions for bad and doubtful debts Income from associated and subsidiary undertakings Profit before tax 5, ,115 *) The official presentation of accounts of the Danish Financial Supervisory Authority DANSKE BANK FIRST HALF /29

20 Notes to the profit and loss account DANSKE BANK GROUP DANSKE BANK Note (DKr m) Interest income Repo transactions with central banks Central banks Repo transactions with credit institutions 1,579 1,145 1,611 1,143 Credit institutions 1,616 1,293 2,003 2,164 Mortgage loans 14,016 2, Repo loans and advances 1, , Loans and advances 15,230 9,994 12,588 7,649 Bonds 5,740 3,713 5,115 3,424 Derivative financial instruments Currency contracts Interest rate contracts Equity contracts Total derivative financial instruments Other interest income Total 40,668 20,629 23,394 16,278 3 Interest expense Repo transactions with central banks Central banks 1, , Repo transactions with credit institutions 1, , Credit institutions 3,719 3,784 3,665 3,750 Repo deposits Deposits 7,595 5,149 6,516 4,537 Mortgage bonds issued 13,215 2, Other bonds issued 2,733 2,291 2,510 1,982 Subordinated debt 1, Other interest expense Total 31,711 15,512 16,971 12,244 4 Fee and commission income Guarantee commission Securities and custody commission 1,831 1,577 1,680 1,440 Payment services Remortgaging and loan fees Other commission Total 4,052 2,836 3,692 2,642 DANSKE BANK FIRST HALF /29

21 Notes to the profit and loss account DANSKE BANK GROUP DANSKE BANK Note (DKr m) Securities and foreign exchange income Bonds Shares Fixed rate loans and advances Foreign exchange income Derivative financial instruments Currency contracts Interest rate contracts Equity contracts Other contracts Total derivative financial instruments Adjustment for pooled schemes Total 1, Securities and foreign exchange income After adjustment for pooled schemes, securities and foreign exchange income totals: Bonds Shares Fixed rate loans and advances 59 5 Foreign exchange income Derivative financial instruments Total 1, Staff costs and administrative expenses Salaries and remuneration of board of directors and executive board Executive board Board of directors Total Staff costs Wages and salaries 3,498 2,416 2,881 2,111 Pension costs Financial services employer tax, etc Total 4,520 2,881 3,796 2,527 Other administrative expenses, gross 3,425 1,845 2,608 1,478 Consideration for administrative services from nonconsolidated subsidiaries has been deducted from other administrative expenses Other administrative expenses, net 3,294 1,723 2,477 1,356 Total staff costs and administrative expenses 7,832 4,615 6,291 3,894 7 Income from associated and subsidiary undertakings Income from associated undertakings, etc Income before tax from subsidiary undertakings ,378 1,066 Total ,517 1,132 DANSKE BANK FIRST HALF /29

22 Notes to the profit and loss account DANSKE BANK GROUP Note (DKr m) Tax (minus denotes an income) Effective tax rate The current tax rate of the Danske Bank Group Tax-exempt market value adjustment of shares, subsidiary and associated undertakings, other non-taxable income and non-deductible expenses -1-2 Effective tax rate Geographical segments Core earnings Gross income before provisions Total assets Number of employees (DKr m) Denmark 37,591 15,076 6,412 2,960 1,282, ,220 15,237 9,740 Finland ,804 15, Hong Kong ,171 13, Luxembourg 1,134 1, ,967 44, Norway 2,832 2, ,727 47,643 1,051 1,061 Poland Singapore , United Kingdom 3,656 3, , , Sweden 2,900 2, ,464 84,557 1, Germany ,709 6, USA 3,078 2, ,361 84, Eliminations -6,274-4,193-1, , , Geographical segmentation is based on the location where the individual transactions are recorded. The figures for Denmark include funding costs related to investments in foreign activities. Total gross income comprises interest income, dividends, fee and commission income, securities and foreign exchange income (net) and other operating income. DANSKE BANK FIRST HALF /29

23 Notes to the balance sheet DANSKE BANK GROUP DANSKE BANK Note (DKr m) Due from credit institutions and deposits with central banks Repo transactions with central banks Other deposits with central banks 35,245 2,371 24, Repo transactions with credit institutions 53,858 63,001 54,896 61,112 Other amounts due from credit institutions 52,526 40,450 77,187 78,491 Total 141, , , , Loans and advances Mortgage loans 431,254 75, Repo loans and advances 61,088 35,989 61,088 35,989 Leases 15,709 10,774 11,117 7,023 Other loans and advances through foreign units 225, , , ,039 Other loans and advances 179, , , ,448 Total 912, , , , Accumulated provisions Provisions against loans, advances and guarantees at June 30 13,624 10,656 11,562 8,919 Provisions at June 30 against amounts due from credit institutions and other items involving a credit risk Total 14,195 11,496 12,123 9,638 Accumulated provisions against loans, advances and guarantees as a percentage of loans, advances and guarantees at June Non-accrual loans and advances to customers and nonaccrual amounts due from credit institutions at June 30 3,280 2,618 2,231 1, Own shares taken up at market value Number of own shares (in thousands) 6,861 3,408 6,861 3,401 Nominal holding of own shares Accounting value 1, , Of which pooled schemes Percentage of share capital at June Deposits On demand 187, , , ,134 At notice 5, , Time deposits 122,024 63, ,326 62,021 Repo deposits 27,349 11,817 27,349 11,817 Special deposits 52,339 35,168 52,339 35,168 Total 394, , , , Issued bonds Mortgage bonds 444,881 77, Other bonds 110,111 89, ,276 79,638 Total 554, , ,276 79, Provisions for obligations Reserves in early series subject to a reimbursement obligation Pensions and similar obligations Cases pending Deferred taxes Other provisions for obligations 1,262-1,258 - Total 2, , DANSKE BANK FIRST HALF /29