Chairman s Report to Danske Bank s Annual General Meeting on March 4, 2009

Transcription

1 Chairman s Report to Danske Bank s Annual General Meeting on March 4, 2009 Slide: 2008: Economic downturn Two-thousand-and-eight was an extremely difficult year for the Danske Bank Group. We were hurt by the financial crisis and the sharp global economic downturn that followed. In the fourth quarter, the slide accelerated fast. Figures published Friday show a plunge in GDP of 2% from the third to the fourth quarter of Overall, 2008 growth was negative by 1.3%. We have to go back to 1955 to find a year with lower growth. In other words, 2008 was the worst year for more than 50 years. The recessionary trends we now see in our principal markets are unprecedented since World War II. The economic downturn now affects us all, both nationally and internationally. I think it would be a good idea to start with a recap: the international financial crisis began in the summer of 2007, when substantial losses on subprime mortgage loans started to emerge in the US. These losses spread from the US to the rest of the world, because the subprime bonds had been bundled and divided into rated bonds issues, which were then sold to investors worldwide. As financial institutions started to incur losses on subprime investments, distrust spread, and liquidity sources began to dry out. Several large financial institutions became so distressed that public authorities had to act to protect the claims of depositors and other creditors. National governments launched rescue operations to protect the confidence in financial institutions against further damage, triggered by the losses that depositors and other creditors might incur. When Lehman Brothers, the large US-based investment bank, filed for bankruptcy, we learned that depositors and creditors are not always protected against losses. This was the first time during the crisis that, despite supportive statements and indications of political support, a large financial institution was not saved, but actually failed. In response to this event, liquidity markets froze, and several countries soon introduced rescue packages to restore confidence in their local banks and to protect creditors against losses. In October 2008, the Danish parliament adopted an act on financial stability. The frozen liquidity markets meant that even healthy banks found it difficult to obtain funding. Banks found themselves 1

2 in an emergency situation that threatened the financial stability and could cause serious damage to the financial position of businesses and individuals nationally as well as internationally. The Danish solution was a state guarantee to protect deposits and senior debt. The safety net worked, and Danish banks were able to raise the funds they needed. But towards the end of the year, the guarantee proved insufficient, partly because other countries decided to expand the scope of their schemes. Consequently, the Danish parliament subsequently adopted an act which, among other measures, extended the guarantee period. The deteriorating economic conditions led to predictions that banks would find it difficult to comply with solvency requirements and find capital in the international markets. Moreover, we are currently witnessing a market that demands stronger capitalisation of businesses. If a bank is cut off from capital markets, the only way it can protect itself against the risk of increasing losses is by tightening its credit policy and lending terms. This could create a credit squeeze that would hurt customers and the economy as a whole. Therefore, a credit package was launched in January that offers banks and mortgage credit institutions the option of a capital injection from the Danish state on terms similar to market terms. The capital is provided to get lending policies back to normal and thus reduce the risk of a negative cumulative effect that will affect both the financial sector and the economy as a whole. The Danish efforts are modest in comparison with the measures launched in the US and a number of other European countries. One of the first things President Obama did was to introduce a new bank package of an astronomic 1,950 billion dollars and a stimulus package of 850 billion. These packages supplement the depositor and commercial paper guarantees and capital injection schemes implemented in In Europe, a number of measures have been launched to protect deposits and senior debt. We have seen European states inject rather large amounts in the form of share capital and lately quite a few examples of bank nationalisations. Slide: Bank packages The slide behind me shows the scope of bank packages. 2

3 A rough calculation shows that these measures combined equalled an amount of some 11,200 billion Danish kroner at the end of 2008, and I would not be surprised to see this amount increase further. This slide illustrates the quite extraordinary situation of enormous value destruction. Slide: Unbelievable value destruction On top of that, we were hurt by some internal problems in Problems that, to put it mildly, reflected badly on us. I will come back to this later. The negative result of the fourth quarter reflects the negative developments. Slide: Financial results 2008 Our net profit for the full year was a modest 1 billion Danish kroner. Of course, this is not satisfactory, but is owing primarily to the sharp economic decline in the fourth quarter. In the first nine months of 2008, we actually generated a profit of 7 billion. So the effects of the downturn really hit us in the fourth quarter. In the last quarter of the year, the financial markets practically froze. The situation was so extreme that several governments decided to establish financial rescue packages to avoid a meltdown. At Danske Bank, the downturn led to significant increases in loan impairment charges and losses, goodwill impairment charges and negative value adjustments of bond and equity holdings. The annual report we present today strongly reflects this turbulence. Slide: Snapshot of Annual Report 2008 and interactive accounts 3

4 In respect of the more formal purpose of our meeting today, I refer you to the announcement of results for 2008, issued on February 5, and to the annual report, which was made available on our website on the same date. The printed version of the annual report has been available for inspection at the Bank s offices since February 13, when it was also sent to registered shareholders who had requested a copy. Again this year, the annual report contains a large amount of information and details on the individual business units and specific items in the financial statements. The annual report was made public some time ago, and the media have presented detailed comments, analyses and comparisons with our peers. As in previous years, I will therefore comment only on highlights of the annual report in my oral report. I will base my review of the financial statements on the Group s financial highlights, which are shown here in a slightly simplified form. My report and the accompanying slides will also be published on Danske Bank s websites in both Danish and English versions, and I will therefore refrain from reading aloud all the figures shown on the screen behind me. Slide: Solid income base Although the financial statements are dominated by the adverse effects of the financial crisis and the economic downturn, there are bright areas. The slide behind me shows the earnings power of our banking activities before impairment charges over the past years. That is the blue chart. The charts speak for themselves: we have a healthy earnings muscle, and it has never been stronger in Danske Bank s history. Our earnings power is intact, and therefore we believe in our ability to earn good money and to come out on the other side of the economic downturn in good shape. Slide: Financial results

5 The decline in total income was owing solely to capital market activities, while the Group s banking activities recorded an increase. Net interest income saw a positive trend on the strength of good lending growth and, not least, a widening of lending margins. The turbulence in the international capital markets caused our financing costs or funding costs as we call them to rise. This, together with rising loan impairment charges and losses, made the Group raise lending rates on several occasions in Net fee income declined 12 per cent. The fall reflects primarily the slowdown in the capital markets and lower income from assets under management. Sampo Bank s waiver of certain service fees to compensate customers for the negative effects of the IT migration around Easter also diminished net fee income. Slide: Finland stable IT systems In 2008, we launched one of the largest IT projects ever undertaken in Europe. The migration of Sampo Bank to Danske Bank s platform was a task of colossal dimensions. For example, we spent 1.3 million man hours on development, and the total budget was 1.6 billion Danish kroner. I will be the first to admit that although many things went well, the operation was not as seamless as we had wanted it to be. Slide: Sampo Bank migration figures I would like to apologise for that. Today I am happy to say that operations have been back to normal at Sampo Bank for several months, and Sampo Bank is now an integral part of the Danske Bank Group. We can now reap the benefits of the migration, and we have generated the cost savings we expected and announced at the time of the acquisition. Slide: Financial results

6 Despite generally good income from customer-driven activities, net trading income fell 18 per cent, partly as a result of the considerable widening of credit spreads, including spreads of highly rated bonds, partly because higher money market rates led to rising funding costs for the Group. In response to significant price distortions in certain bond markets, the Group, in line with many other banks in Denmark and internationally, decided to make use of an amendment to the international accounting standards that allowed us to reclassify 117 billion kroner worth of bonds in the trading portfolio as available-for-sale financial assets with effect from October 1, In the fourth quarter, these bonds registered an unrealised capital loss of 1.9 billion, which was charged directly to shareholders equity. Net interest on these bonds amounted to 0.3 billion. Other income climbed, mainly because of property sales and the crediting of excess VAT previously paid. A negative return on investments owing to falling equity prices caused the Group s insurance business to post a loss. Consequently, the Group has decided to postpone the booking of its risk allowance. The Group can book the allowance at a later date when the return on Danica s investments permits. Slide: Improving lending margins in Denmark One of the reasons why earnings rose also in 2008 was our focus on lending margins. When we have to pay more for liquidity and losses increase, it is both natural and essential that we widen our lending margins. The Group s and the Bank s prices rise as well. This slide shows that we have been able to improve lending margins. But we have to continue this process. Since the mid-nineties, customers have benefited from unnaturally low margins owing to fierce competition, few credit losses and abundant liquidity. Frankly, the risk premium had become too small with a halving of interest rate margins from the mid-nineties to the beginning of Therefore, our prices are too low in the current market. 6

7 We have to ensure financial stability and resilience to survive the economic crisis. Wider lending margins are a tool to balance shareholders return with a strong capital base and larger liquidity reserves. Consequently, we will see the banking sector widen its lending margins in the coming year. Slide: Tight cost control Let us take a look at the trend in costs. Overall, expenses rose by as much as 15 per cent. The increase was due mainly to goodwill impairment charges of 3.1 billion for our Irish activities and our real-estate agency chain in Norway, and a commission of 625 million for the guarantee provided by the Danish state as part of the bank package established in October. If we deduct these amounts from total expenses, we get 25 billion the same as in 2007 which is in fact better than forecast and thus a positive element of the annual report for We have been able to keep costs stable in spite of wage and price inflation partly because we have achieved synergies at our operations in Ireland, Northern Ireland and Finland and partly because we have focused even more on cost control. In the coming year, we will continue to focus on tight cost control. In 2008, we completed the migration of the banks we had acquired, but we also saw a general fall in business activity. This means that we have had to adjust our workforce to the new situation: On February 5, we reduced the number of staff at our head office by around 350. Executive remuneration always attracts considerable interest, although the amounts are modest considering the size of the Danske Bank Group. Later today, we have to consider the Group s remuneration policy, but I would like to comment on a few specific items now. Slide: Directors remuneration 7

8 For a number of years, Danske Bank has disclosed a considerable amount of information about remuneration and incentive programmes, and this information was presented at the annual general meeting most recently in Again this year, you can see information on the fees paid to each member of the Board of Directors and the salaries and bonuses paid to members of the Executive Board for the past year. Note 9, beginning on page 90 of the annual report, contains quite detailed specifications. Members of the Board of Directors receive a fixed annual fee of 325,000 kroner. The chairman receives triple that amount, and vice chairmen receive double the amount. An annual fee of 200,000 is paid for committee membership but now with an extraordinary addition of 40,000 to the committee chairman if he or she is not the Chairman or a Vice Chairman of the Board. Other than that, our remuneration ceilings are unchanged: No Board member may receive a total remuneration of more than twice the directors fee. The Chairman and Vice Chairmen of the Board of Directors may receive up to four times the directors fee. No Board member receives option-based compensation or other performance-related pay. The annual expense for Board and committee fees totalled 8.4 million in Any change in the remuneration will be announced by the Chairman in his report to the annual general meeting before a new fee is paid. This is a practice that we have followed for years and one we intend to continue. Note 9 describes the remuneration of Executive Board members in detail. The note shows that in 2008, the members received contractual remuneration only, including pension contributions, and it reflects the Group s decision not to award bonuses or share-based payments for 2008 to Executive Board members as a result of the conditions in the financial markets and the unsatisfactory financial result for I can inform you that the contractual remuneration for 2009 of the Chairman of the Executive Board will not be raised in Other Executive Board members will receive a fixed salary plus a market allowance. The market allowance seeks to adjust remuneration to the market level and to partly compensate members for the change in terms of employment. 8

9 Slide: Impairment charges, Danske Bank Let me say a few more words about the Group s loan impairment charges and losses. This slide shows the trend in loss ratios since the previous crisis in the early nineties. You can see that loan impairment charges and losses are positive in the four years from 2004 to That is unusual and not something we should count on. But if we look at a longer period the last ten years and include the figure of 12 billion for 2008, we are still looking at normal losses for that period. But we do not know what the future will bring, and I think we all know that we are entering uncharted territory. We will see losses in 2009 too. But I want to make it clear again that losses are normal for a bank when the economy contracts. We will live with that, but we will always seek to avoid losses. We incur two types of loss: most loan impairment charges reflect honest losses. In line with its credit policy and raison d être, the Bank has taken a risk either on a corporate or a personal customer and the project has failed. That is part of everyday banking. With our credit policy and business procedures, we try to avoid too many losses. But we could not run our Bank and fill our role as a lender if we had to avoid this type of loss entirely. The other type is the losses that really annoy us. That is when we have not been thorough enough. Such losses happen, and once in a while there is a case that stands out. Slide: IT Factory a confidence game In Denmark we tend to trust people. We ask our customers about their projects and their finances, and we expect that sometimes they present a slightly rosier version of the facts. But we do not expect hard-core fraud. In the IT Factory case, we missed a number of warning signs and a number 9

10 of our staff members trusted the customer more than they should have. We can explain all we want, but the fact is that we asked sensible questions about the basis for the facilities and about the financial statements. But the documents were false. The audit reports were clean. And there were many payments into the account. That is something bankers like because they believe that payments represent sales. The transactions involving IT Factory are still subject to police investigation, and later, we will understand better what happened. But we are left with a blemished reputation perhaps even a damaged one but for now, all we can do is to regret the course of events. There is only one way to restore our reputation and that is by focusing on running all parts of our business in our well-known professional manner. Of course, we already have and will continue to review our credit policy and business procedures based on the knowledge we have today and future experiences. A case like this always has consequences. Slide: Lehman Brothers Danske Bank is major currency and securities trader. We trade with many, many financial customers every day. The Lehman group was a customer of ours for more than twenty-five years. We were reducing our exposure to Lehman Brothers when it failed. Our claim on Lehman relates primarily to two facilities of 800 and 300 million US dollars provided against collateral with an excess cover of 50 and 30 per cent, respectively. The size of the actual losses is affected by the uncertainty about the US property market. Today, the collapse of Lehman in September is generally recognised as one of a number of wrong decisions by the US authorities that led to, or at least aggravated, the financial crisis. Slide: Sharp rise in loan impairment charges The Group s loan impairment charges rose sharply in 2008, in the fourth quarter in particular. In perspective, though, these charges and losses equal only half a per cent of our total credit exposure. 10

11 But if you look at the figure for 2007, the difference is striking: from close to zero to just over 12 billion kroner. When we break down our impairment charges by customer type, you will see that most of them pertain to corporate customers. That is a natural consequence of the economic situation and the many bankruptcies. Our impairment charges for personal customers are still modest, though. Historically, losses on personal customers and unemployment figures have moved in tandem. So we have reason to expect that we will see more losses on personal customers in Finally, there is the financial sector. As mentioned before, we suffered losses on this sector in 2008 both nationally and internationally, for example on Lehman Brothers. Some of the losses on Danish banks came because we participated in the Danish state guarantee launched in October. Slide: Impairment charges: collective and individual But individual charges account for only half of all our impairment charges against financials. The other half and we are talking about 2 billion kroner is a collective charge that we have not designated to specific financials. It is a buffer we have set aside because we expect that the risk on this portfolio will rise. If you look at our impairment charges and losses on corporate customers, you will see that charges for individual corporate customers are much larger. But on top of that, we have made a collective impairment charge of one and a half billion. Slide: Impairment charges for corporates It hardly comes as a surprise that the impairment charges for real property and construction tower over the charges for the other sectors. Together, these two sectors account for almost 3 billion of our total corporate impairment charges of 7 billion kroner. Much of the charge for these two sectors was recognised in the first three quarters of the year. 11

12 But the situation changed in the fourth quarter. In the last quarter of the year, we also had to make impairment charges against a number of other sectors that were finding it harder to meet sales and profitability targets because of the general decline in the economy. I could mention sectors such as consumer goods and transport, but the list is long and varied. It goes to show that the crisis has changed from a financial crisis and a crisis related to the property sector to a crisis that affects all and sundry: a full-blown economic crisis. You can see how bad the sudden and severe downturn in the fourth quarter was if you look at the curves for the two key figures industrial output and consumer confidence. The graphs show that the trend was not specific to Denmark; the rest of Europe was hit as well. Slide: Geographical breakdown, impairment charges Our banking operations in Denmark continue to post the highest lending and the highest impairment charges. Second on the list, in absolute figures, is National Irish Bank. This is no surprise because Ireland is the country that has been hit the hardest by the recession. Ireland s economy deteriorated throughout 2008, taking a drastic turn for the worse in the fourth quarter. Until the autumn of 2008, National Irish Bank s financial results had matched our expectations upon the acquisition in In view of the sharp slowdown in the Irish economy, we had to revise earnings estimates and recognised a goodwill impairment charge of 2.9 billion Danish kroner against National Irish Bank. The best way to compare one country to another is to measure impairment charges as a percentage of lending. That is what we have done, and you can see that Ireland tops the list, followed by Northern Ireland and the Baltic countries. Denmark and the other three Nordic countries have impairment ratios at roughly the same level. On balance, the Danske Bank Group has increased its loan impairment charges, primarily because some of our customers are having difficulties. Banks can limit some of their losses on specific customers through a far-sighted credit policy, and that is what we seek to do, but when the entire economy comes tumbling down, losses will occur also at banks. 12

13 Slide: Financial results 2008 Let us look at our tax payments. The effective tax rate is high because goodwill impairment charges are not tax deductible. The tax item does not include the special financial services employer tax of 652 million kroner, which is recognised under staff costs. Now I understand that not only the Danish Tax Commission but also the government, under the slogan of fewer special corporate schemes, propose an increase of this tax. Therefore, I once again urge the Danish government to abolish this tax, which has no appropriate incentive structure and is in fact a special tax on financial services provided by businesses based in Denmark. In the case of Danske Bank, it also entails a special tax on part of the Group s export income. It is hard to understand that such a scheme has found political backing. Slide: Credit policy Rumours have been going around that lenders are not willing to extend credit facilities and that banks say no to loans. Before the Danish credit package was introduced, we had decided to put our energy into serving our existing good customers rather than new ones. That was because of the mounting economic crisis that had made life more difficult for many people. The credit package does not mean that we will loosen our purse strings and grant credit galore. We will still do our best to support our customers, and we will consider applications from new customers. The credit package will help us do it, but we must take care, now that our markets are in recession or heading there. Slide: Balance sheet Excluding repo loans, lending rose 84 billion kroner, or 5 per cent. Lending to retail customers grew 6 per cent, while lending to corporate customers rose 13 per cent. 13

14 Slide: Economic downturn and failing banks Now let me share my thoughts on the past year s events with you. At last year s general meeting, I said that 2007 was an unusually eventful year for the financial markets. The words I will use to describe 2008 is a year characterised by extreme turbulence in the capital markets, plummeting equity prices, considerable widening of credit spreads and lower economic growth. The US financial markets were in serious trouble throughout 2008 with enormous losses on subprime bonds. For some time, we all thought that the problems would affect only the US financial sector, but we later learned that financial institutions all over the world were hit. Distrust continued to grow in 2008 and dried out the sources of liquidity. When the US authorities let Lehman Brothers file for bankruptcy, the financial markets went from fear to panic. The liquidity stream was clotting up, and the entire global financial sector was close to heart failure a worst-case scenario beyond anyone s imagination. Governments immediately established rescue plans to protect banks against runs many times bigger than, for example, the run on Northern Rock. It is important to keep in mind that even banks that meet all capital and solvency requirements will not be able to withstand large withdrawals of funds over a very short period of time. Therefore, I would like to thank the Danish politicians, who acted promptly and responsibly when they offered a guarantee to help the Danish financial sector. The guarantee is expensive but necessary in extreme conditions with frozen markets. But had the markets remained frozen, all banks Danske Bank, too would have been hit, and that is why the Board of Directors decided to let Danske Bank participate in the guarantee. The guarantee runs from October 5, 2008, to September 30, 2010, and is an unconditional state guarantee for claims against Danish banks, except subordinated debt and covered bonds. The participating banks contribute to the financing of the guarantee. During the 2-year guarantee period, banks may not pay out dividends to their shareholders or buy back shares. Furthermore, the 14

15 banks have committed themselves to covering part of the losses that may occur while the guarantee remains in force. I want to make it quite clear that Danske Bank was able to meet its liquidity targets throughout At no time during the turbulent days in October were we turning out our pockets to find liquidity. Towards the end of 2008, it became clear that an extension of the guarantee was needed because other countries decided to extend the terms of their schemes. With the second bank package, the credit package, banks may opt for a guarantee that will allow them to issue bonds etc. This means that banks will be able to obtain funding that is guaranteed by the Danish state for a period of three years. With effect from October 1, 2010, deposits will no longer be guaranteed by the Danish state, but the general guarantee for deposits will be increased to 750,000 kroner. The credit package also offers subordinated capital from the state to ensure reasonable availability of credit facilities. The reasons for the act passed in February that allows injections of hybrid core capital from the Danish state are obvious: the accelerating economic downturn means that banks solvency ratios will come under pressure in the years head, and that banks will find it difficult to obtain additional capital given the current state of the international markets. At the same time, the markets are focusing on the strength of banks capital bases. The purpose of the new package is thus to create a better financial buffer that allows banks to build a sufficiently strong capital base. The injections from the state are loans that must be serviced. The interest payable will depend partly on the dividends paid out to ensure that interest payments to the state will be larger than dividends paid out to shareholders. The capital injections from the state are temporary, and the package includes a financial incentive for banks to replace capital provided by the state with capital provided by market investors. 15

16 Slide: Solid capital base Looking forward, we expect many changes in the financial sector, including more caution in all types of exposure and higher capital ratios. Banks in Denmark and in other countries are therefore strengthening their capital bases. Those who do not will have difficulties finding room for manoeuvre in the future when the market is not supported by a state guarantee. The Danish government s offer to inject capital in the form of hybrid capital is a good offer in a period when the international debt markets are not functioning. Slide: Solvency ratio At the end of 2008, Danske Bank s solvency ratio was 13 per cent. The solvency ratio includes a core (tier 1) capital ratio of 9.2. And you would think this would be fine. But things have changed. Danske Bank wants a higher solvency ratio because a high ratio will create confidence in the international financial markets. There are two ways to improve solvency ratios without affecting total assets noticeably: issue new shares or raise subordinated loan capital. With a current market price of our shares of 35 against a book value of 142 at the end of the year, issuance of new shares at the current market price would significantly dilute the holdings of our current shareholders. In addition, the markets are so volatile that we are not sure that we could successfully complete such a transaction. Problems during such a process could create significant uncertainty about the Group s position. Also, we do not see the financial markets as a way to raise the same amount of capital as we can through the credit package. Therefore, the Bank has decided not to let shareholders subscribe. Notes issued to fund hybrid capital will be offered only to the Danish government. Please note that the issuance of hybrid capital does not dilute the holdings of existing shareholders as would have been the case if we had opted for a conventional share issue. 16

17 Therefore, the Board of Directors of Danske Bank recommends to the shareholders when we discuss this item on the agenda later today that the Group take the credit facility that the Danish government and the participating political parties have made available as part of the credit package. Danske Bank thus wants to strengthen its capital base by about 26 billion kroner. The injection of hybrid capital as offered will lift Danske Bank s core capital ratio to 12 per cent and our total solvency ratio to 16 a comfortable level even in these times, and probably one of the highest in Europe. Slide: Profit allocation at Danske Bank A/S For the sake of good order I remind you that the consolidated financial statements are prepared in accordance with the International Financial Reporting Standards, while the financial statements of the parent company that is, Danske Bank A/S are prepared in accordance with the Danish Financial Business Act and the Danish FSA s executive order on financial reports of credit institutions etc. When we discuss profit allocation, we are referring to the profit of Danske Bank A/S. For 2008, Danske Bank A/S posts a loss of 448 million kroner. As the slide shows, 3,864 million is recognised as an equity method reserve, which reflects profits on subsidiaries. Consequently, an amount of 4,312 million must be transferred from retained earnings. Obviously, the Board of Directors cannot recommend dividend pay-out because of the financial results. Furthermore, the guarantee provided by the Danish state does not permit dividend payouts. Slide: Corporate governance The corporate governance principles of the Danske Bank Group comply with the recommendations issued by the Copenhagen Stock Exchange except for the recommendations on the term of office of 17

18 Board members, the evaluation of the Board members and the number of their other directorships. As the agenda shows, we propose to adjust the term of office. In accordance with the revised recommendations on corporate governance issued on December 10, 2008, the Board of Directors has adjusted the charter for the Nomination Committee. The charter now explicitly states that nominations must support diversity with respect to gender, age, nationality and other factors. By changing the term of office, we will evaluate the qualifications of Board members on an annual basis. Since the general meeting in 2008, we have made such an evaluation. Within a relatively short period of time, a couple of the Board members will retire, but until then, they will be important members of the Board. I will introduce each Board member in more detail when we get to that later on. The proposal means that the members elected for a two-year period at last year s general meeting, including me, will be up for election this year. Lately, we have been criticised for the many years of service of some of our Board members. True, we could reduce the average number of years of service if we had reason to. But we don t. The Board is as much a group of individualists with special areas of expertise as it is a team, and the team that I have the honour of leading is a well-functioning team with the required fields of expertise within business management, law, international knowledge of the Group s markets, financing and economics, at macro and company level, branding and customer service. All of these areas of expertise are represented on our current Board. Ever since the Group started to expand internationally, we have considered the pros and cons of changing the composition of the Board. In 2008, according to plan, we proposed Mats Jansson as our new member. We work on several profiles to strengthen the Board s knowledge of the markets in which the Group operates and our financial expertise. Current developments in our markets may, however, affect the final choice of candidates. At next year s general meeting, the Board of Directors will, according to plan, propose new candidates. 18

19 We still believe, however, that simply counting the directorships of each Board member is not useful as the workload varies from one company to another. Slide: Share price It was a difficult year on all stock exchanges worldwide. As the slide behind me shows, the US index, the S&P 500, fell 38% in 2008, while the European index fell 47% and the OMX C20 fell 41%. If we look at the financial sector, we see that banks in particular performed poorly in On average, European banks saw a share price decline of 67%. The figure for Danish banks was 71%. We are not satisfied with the performance of Danske Bank s shares. The share price has fallen 74 per cent over the past five years, and the total return on Danske Bank shares is a negative 14 per cent annually. Over the same period, the MSCI Europe Banks Index and the DJ Euro STOXX Banks index posted negative returns of 7 and 14 per cent, respectively. Slide: Outlook for 2009 There is little doubt that 2009 will be a challenging year for most of us regardless of our line of business. Since the last time we were here, the outlook for the Danish and other European economies has deteriorated further. In fact, our forecasts show that the markets in which we operate can expect economic contraction. When things will start to turn around is difficult to say. We must also be prepared to see unemployment grow and accept that earnings conditions in the financial sector will be difficult in We expect to see substantial loan impairment charges, although we do not expect conditions similar to those in the fourth quarter of

20 The performance of our capital market-related activities in Danske Markets, Danske Capital and Danica Pension will depend greatly on trends in the financial markets. We will continue to focus on tight cost control and improved interest margins to give our banking business a strong foundation for future earnings and to help the Danske Bank Group emerge from the current market situation even stronger. I would like to conclude my report by expressing the Board of Directors gratitude to our shareholders for the support shown Danske Bank by investing in our shares. Our management focuses on the right things and we believe that at the end of the economic crisis, we will again be able to meet the goal we had prior to the crisis of providing shareholders with a competitive return on their investment in the form of share price appreciation and dividends. I would like to thank our customers for their patronage and our employees, who made another substantial and proficient effort in With these remarks, I recommend, on behalf of the Board of Directors, that the shareholders approve the Annual Report