US Roadshow Peter Rostrup-Nielsen CRO & member of the Executive Committee Jens Peter Leschly Neergaard Head of Trading Financial Markets Global Risk July 211
Danske Bank is a strong Nordic franchise 5. million customers 2. million active Internet customers 667 branches in 15 countries* 21,434 full-time employees End 21, Nordic countries generated 75% of total income from banking activities Northern Ireland Market position: Leader Branches: 82 Market share: 18-3% Market rank: 1-2 Loan growth (Y/Y):*** -2% Ireland Market position: Challenger Branches: 28 Market share: 3% Market rank: 6 Loan growth (Y/Y): -8% Norway Market position: Challenger Branches: 41 Market share: 5% Market rank: 3 Loan growth (Y/Y):*** % Denmark Market position: Leader Branches: 313 Market share: 25% Market rank: 1 Loan growth (Y/Y): -2% Sweden Market position: Challenger Branches: 49 Market share: 6% Market rank: 5 Loan growth (Y/Y): *** 5% * Excluding agricultural centres in Denmark. ** Loan growth represents total loan growth for Baltic countries. *** Loan growth is calculated in local currency Note: Market share represents market share of lending. Market position: Leader Branches: 12 Market share: 12% Market rank: 3 Loan growth (Y/Y): 4% Market position: Finland Estonia Challenger Branches: 17 Market share: 1% Market rank: 4 Loan growth (Y/Y):** -11% Latvia Market position: Challenger Branches: 4 Market share: 2% Market rank: 12 Loan growth (Y/Y):** -11% Lithuania Market position: Challenger Branches: 13 Market share: 6% Market rank: 5 Loan growth (Y/Y):** -11% 2
Strong public balances % 8 4-4 -8-12 -16 Norway Euroland Sweden Denmark Finland Ireland Baltics GDP 29-12E - Growth Y/Y 29 21 211E 212E Source: Danske Research and Nordic Outlook April 211. Public finances - Nordic economies are still robust Gross public Budget bal. Sovereign rating debt % of GDP % of GDP & outlook (S&P) 21 211 Denmark 43.6-4.1 AAA/Stable Sweden 42..3 AAA/Stable Norway 33. 9.7 AAA/Stable Finland 48.4-1.5 AAA/Stable Ireland* 94.2-1.5 BBB+/Stable Euroland 85.3-5.8 - * Ex one-off bank bailout costs. Source: Danske Research and Nordic Outlook April 211. 3
Strong trading income and declining impairments, but lower NII and higher expenses DKK m Q1 21 Q1 211 Index Q4 21 Q1 211 Index Net interest income 6,7 5,554 92 6,69 5,554 92 Net fee income 2,53 2,93 12 2,396 2,93 87 Net trading income 2,374 2,975 125 72 2,975 424 Other income 1,5 1,2 95 1,35 1,2 97 Net income from insurance business 63 67 11 685 67 1 Total income 12,87 11,691 97 1,887 11,691 17 Expenses 6,423 7,351 114 6,457 7,351 114 Profit bef. loan imp. charges 5,664 4,34 77 4,43 4,34 98 Loan impairment charges 4,273 2,841 66 2,982 2,841 95 Profit before tax 1,391 1,499 18 1,448 1,499 14 Tax 622 792 127 377 792 21 Net profit for the period 769 77 92 1,71 77 66 Cost/income ratio (%) ex integr., gw. & state guar.fee 46.5 54.3 117 57.7 54.3 94 Core tier 1 capital ratio (%) 9.6 1. 14 1.1 1. 99 Risk-weighted assets (DKK bn) 838 855 12 844 855 11 Total loans ex repos (DKK bn) 1,666 1,662 1 1,68 1,662 99 Deposits (ex repos) & issued RD bonds (DKK bn) 1,472 1,49 11 1,529 1,49 97 Total assets (DKK bn) 3,29 3,126 97 3,214 3,126 97 4
Profit before loan impairment charges is back to pre-crisis level DKK m 35, Danske Bank s historical performance 3, 25, 2, 15, 1, 5, - 25 26 27 28 29 21 Profit before loan impairment Net profit 5
Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Q4 21 RD Deposit margin Lending margin Volume One-offs No. of days Allocated funding Other Q1 211 Net interest income was down 8% Q/Q mainly for technical reasons Quarterly net interest income Quarterly change in net interest income DKK m 7,5 Y/Y 8% Q/Q 8% DKK m 6,2 116 47 71 68 25 6,5 * * * * * 5,6 6,69 13 9 62 5,5 5,554 4,5 5, * White segment is the net cost of government hybrid capital. S-T interest rate sensitivity: 25 bp = DKK 7 m 6
Impairment charges continue to trend downwards DKK m 5, Quarterly loan impairment charges bp 1 DKK m 1, Individual impairments - Group ex. Baltics Total loan impairment charges in basis points 8, 3, 5 6, 4, 2, 1, -1, Total impairment charges Collective impairment charges Q1 1 Q2 1 Q3 1 Q4 1 Q1 11-5 -2, -4, Q1-8 Q3-8 Q1-9 Q3-9 Q1-1 Q3-1 Q1-11 Write-backs Increased New Total, incl Baltics 7
SMEs continue to dominate impairment charges DKK m 5, Impairments by customer segment - SME impairments still dominate DKK bn 4 Net exposures in rating categories 1 and 11 - Number of customers in default slowly decreases Rating category 1 3 3, Rating category 11 2 1, 1 Rating category 1 (financial difficulty, not in default) Rating category 11 (customers in default) -1, SMEs Large corp. Financials Personal Q11 Q21 Q31 Q41 Q111 Q11 Q21 Q31 Q41 Q111 Personal customers Q4 21 includes a transfer of DKK.6 bn of collective impairments on investment housing loans from SMEs. 8
Danske Bank s capital ratios and minimum requirements from Basel 2 and Basel 3 % 2 15 1 5 Total capital base Tier 1 State hybrid Core tier 1 Danske Bank Q1 211 Total capital base Tier 1 Core tier 1 Danske Bank pro forma Q1 211* Tier 2 4. % Tier 1 2. % Core tier 1 2. % Basel 2 Tier 2 2. % Tier 1 1.5 % Core tier 1 4.5 % Basel 3 without any buffers Danske Bank pro forma includes DKK 2bn in new equity and repayment of state hybrid Note: G-SIFI buffer, countercyclical buffer and capital conservation buffer have to consist of CET1 capital G-SIFI buffer 1-2.5% Tier 2 2. % Tier 1 1.5 % Countercyclical buffer -2.5 % Capital conservation buffer 2.5 % Core tier 1 4.5 % Basel 3 incl. all buffers 9
Capital ratios for Danske Bank and Nordic peers % 25 Tier 2 Tier 1 Capital ratios CRD/Basel II Q1 211 2 15 State hybrid Core tier 1 Basel 3 requirements: CT1 and T1 incl. both buffers CT1 incl. cap. conservation buffer + countercyclical buffer CT1 incl. cap. conservation buffer 1 5 Danske Bank Danske Bank pro forma* Nordea SEB Swedbank Handelsbanken DnB NOR Danske Bank pro forma includes DKK 2bn in new equity and repayment of state hybrid Source: Company accounts end Q1 21 1
1 month 2 months 2 months 4 months 5 months 6 months 7 months 8 months 9 months 1 months 11 months 12 months Strong loan-to-deposit ratio and liquidity position Loan-to-deposit - Ratio (DKK) and gap (%) DKK bn % 4 125 DKK bn 4 12-month liquidity* - Moody s Financial Strength 3 12 3 2 2 1 115 11 1 End-Q4 29 End-Q4 21 End-Q1 211 Q29 Q39 Q49 Q11 Q21 Q31 Q41 Q1 11 15-1 End-Q4 28 Loan-to-deposit gap Loan-to-deposit ratio Note: Deposits include Realkredit Denmark bonds. * Main assumptions: No access to capital markets; no refinancing of debt to credit institutions, issued bonds or subordinated capital; and moderate reduction of business activities. 11
Funding markets accessible, with stable prices DKK bn 2 New funding, 28-11 - Estimated funding needed in 211: DKK 7 bn bp 15 Trading in Danske issues - Spread over 6M ASW 15 1 1 5 5 28 29 21 211 Issued funding, end-q1 211 Estimated funding needed End Q1 211 Oct-21 Jan-211 Apr-211 214 unsecured (A/A1) 215 covered bond (AAA/Aaa) DKK 31bn raised at end of Q1 211 (including DKK 19 bn prefunded in 21). DKK 3bn raised in Q2 211. 12
Central banks Credit inst. (ex CB) Repo Short-term bonds Deposits Mortgage finance (match-funded) Covered bonds Long-term bonds Subordinated debt Shareholders' equity Well-diversified funding position Funding position - Total borrowing increased by DKK 6.9 bn in Q1 211 Central banks, 4% Repos, 6% Equity, 4% Deposits, 33% % 4 3 Funding sources - Shift towards long-term funding sources Q1 211 Q4 28 Banks, net, 5% 2 S-T bonds, 7% 1 L-T bonds, 8% Subordinated debt, 3% Covered bonds, 4% Match-funded DK mortgage bonds, 24% Short-term funding Long-term funding Issued long-term bonds: DKK 164 bn Issued covered bonds: DKK 122 bn 13
Funding in Q1 211 - Focus on covered bonds In Q1 211 Danske Bank issued bonds for DKK 12.3 bn 9% of the issuance was covered bonds and 1% was senior debt Longest maturity: 17 years Weighted average maturities All issues: 6.1 years Covered bonds: 6.3 years Senior unsecured debt: 4.6 years Issues by type and currency Issue type Currency DKK bn Covered bonds EUR 7.8 NOK 1.5 CHF 1.7 Senior debt EUR.3 GBP.8 Other.2 Total 12.3 14
Liquid, highly rated bond portfolio Danish mortgage bonds 44% Bond portfolio - DKK 427 bn Credit bonds 3% Certificates 3% Quasigovernment 2% Swedish covered bonds 14% Other covered bonds 5% Rating distribution AAA 82% AA+ 6% AA 2% AA- 4% A+ 2% A 1% A- % BBB+ % BBB 1% BBB- % Lower or NA 1% Governments & municipals 29% Level 1-3 assets Level 1 96% Level 2 4% Level 3 % 15
The Danish Bank Package III - How it works Friday Saturday - Sunday Monday 4 pm: FSA sets deadline 1 pm: decision on BPIII Valuation of Assets Agreement on price Green Bank opens with good assets, guaranteed deposits and haircuts on rest. Subsidiary of Fin. St. Bank to decide on BPIII Deposit Ins. guarantee Red Bank Bankruptcy estate bad assets, funded by haircut Haircut depositors and Deposit Ins. Guarantee Fund have claim on bankruptcy estate 16
The Danish Bank Package III - Danske Bank s opinion Are we in? The Board of Directors proposes that the General Meeting state that it does not want to consider a type of winding up The general meeting is free to decide whether or not to consider a type of winding-up. This means that the general meeting is not obliged to consider a type of winding-up or otherwise decide on a type of winding-up Will it be revised? Danske Bank expects Danish legislation to be amended following passing of relevant EU directive/recommendations 17
Bank Package III has been used twice After the collapse of Amagerbanken and Fjordbank Mors Hard facts (DKK) Loans Deposits/bonds Results before impairments 26 21 Impairments 26 21 Use of government guarantees % of deposits/bonds Markets share in Denmark Loans Deposits 21.1bn 7.7/15.2bn 2.2bn 3.bn 13.5bn 59%.6%.8% 8.7bn 7.2/2.8bn 1.bn.6bn 4.1bn 41%.2%.8% Figures are based on the last public financial report Amagerbanken Q3 21 and Fjordbank Mors Q1 211 Danske Bank covers app. 35% of any losses under the Danish Guarantee Fund for Depositors, which covers losses up to DKK 75, 18
Danske Bank s current rating by the three rating agencies Negative outlook Negative outlook Negative outlook Short term Long term P-1 Aaa P-2 Aa1 P-3 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ca Short term Long term A-1+ AAA A-1 AA+ A-2 AA A-3 AA- B A+ C A D A- BBB+ BBB BBB- D Short term Long term F1+ AAA F1 AA+ F2 AA F3 AA- B A+ C A D A- BBB+ BBB BBB- D 19
Cooperation with Moody s continues for Danske Bank Danske Bank Group continues its cooperation with Moody s on ratings Methodology is well described and Danske Bank has a strong ongoing dialogue with the ratings team Danske Bank has the following ratings with Moody s Long-term rating: A2 (negative outlook) Short-term rating: P1 Covered Bonds: Aaa 2
The reasons for Moody s downgrades in 211 February 211, Moody s downgraded a number of Danish banks including Danske Bank o The reason was the Danish Bank Package 3, which Moody s considers to weaken the systemic support available to Danske Bank o Danske Bank was downgraded from Aa3 to A1 and the rating was put under review for possible downgrade May 211, Moody s concluded its review and Danske Bank was downgraded to A2 from A1 triggered by reduced systemic support, however, there were no changes in the bank s standalone financial strength rating (BFSR) and short-term rating o The reason for the reduced systemic support was once again Bank Package 3, including the recent amendment o Danske Bank now has one notch of systemic support above its A3 standalone credit strength (mapped from the C BFSR) o The outlook on the long-term rating is negative, reflecting the negative outlook on the bank s BFSR, due to continued concern about asset quality as demonstrated in high impairments 21
Recent events 23 June 211 Realkredit Danmark terminated its rating with Moody s due to fundamental disagreements on methodology o AAA ratings are maintained with Standard & Poor s 27 June 211 Fitch Ratings announced a revision of the ratings outlook for Danske Bank to Negative from Stable o The changed outlook was based on concerns about developments in the Irish and Danish economies 22
The Danish mortgage system Danish covered bonds issued in volume of EUR 312 bn Danish covered bond market 2nd largest worldwide only exceeded by that of Germany First lender established in 1797 First covered bond act, awarding bond holders a privileged position in a bankruptcy scenario, passed in 185 Defaults have not occurred in 213 years of Danish mortgage banking Danish specialist mortgage banks account for 58 percent of all lending by financial institutions in Denmark In 29, Danish specialist mortgage banks reported a net profit of EUR 65m. Solvency stood at 2.4 percent In 29, the market impairment ratio was.2 percent 23
The Danish mortgage system is based on the balance principle Mortgage origination Mortgage deed Covered bond Mortgage proceeds Proceeds from bond sale Payments Borrower Mortgage bank Investor Principal and interest payment Principal and interest payment Margin Reserve fund payment if in arrears 24
The Danish mortgage system is based on the balance principle Remortgaging - Origination of new mortgage Mortgage deed II Covered bond II Mortgage proceeds Proceeds from bond sale Borrower Mortgage bank Investor Prepayment of old mortgage Value of covered bond I Min(par value ; market value) Value of covered bond I Min(par value ; market value) Covered bond I 25
The Danish mortgage system is very different from the US system On balance sheet of the originator Transparent mortgages Registration in a central registry Mortgage banks possess a senior claim on the proceeds from a property sale in the event of a borrower s default The track record for foreclosure processes is exceptionally good: timely execution at relatively low cost Mortgage borrowers remains liable for the full Mortgage debt when falling property prices result in negative equity positions Originate to distribute Opaque mortgages (e.g. teaser rate mortgages) No registration in a central registry In practise, loans are non-recourse debt Foreclosure procedures costly in comparison with the recoupable value. Mortgage banks typically obtain repossession via a non-judicial foreclosure process Distressed borrowers simply walk away magnifying negative equity 26
www.danskebank.com/ir 27
Appendices 28
Nordic impairments: Denmark is gradually improving *Acc. imp. DKK 15,385 m DKK m 3. Denmark, 57% of Group s lending - Individual 142 bp 114 bp - Collective 21 bp DKK m Finland, 8% of Group s lending *Acc. imp. DKK 1,935 m - Individual 123 bp - Collective 13 bp 2. 1. DKK m 75 5 2.735 2.254 1.498 1.162 79 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Sweden,11% of Group s lending 15 bp 93 bp 62 bp 48 bp *Acc. imp. DKK 1,233 m - Individual 62 bp - Collective 5 bp 11 bp 1 bp 11 6 33 bp 1-1 bp -4 DKK m 16 12-34 24 bp 84 26 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Norway, 7% of Group s lending 7 bp 4 bp 15 8 bp 29 *Acc. imp. DKK 1,583 m - Individual 121 bp - Collective 5 bp 4 bp 25-25 62 6 bp 8 24 bp 47 46 124 26-5 bp 4 73 4 bp 2 bp Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 12 1 bp 5-21 4 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 * Accumulated impairments at the end of period in DKK m and as basis points of total lending. 29
DKK m 5 4 3 2 1 Other impairments: High in Ireland, but Northern Ireland is improving Northern Ireland, 3% of Group s lending 96 bp 12 185 bp 254 33 bp 356 bp 49 *Acc. imp. DKK 3,319 m - Individual 623 bp - Collective 52 bp 464 267 bp 329 DKK m 2. 1.5 1. 5 Ireland, 4% of Group s lending 576 bp 1.89 883 bp 1.647 561 bp 1.2 *Acc. imp. DKK 1,692 m - Individual 1,416 bp - Collective 128 bp 691 bp 741 bp 1.213 1.283 DKK m 2 15 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Baltics, 1% of Group s lending 211 bp *Acc. imp. DKK 2,817 m - Individual 1,19 bp - Collective 195 bp DKK m 3 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Corporate Banking DK, SE, NO, FI, 6% of Group s lending 78 bp *Acc. imp. DKK 1,12 m - Individual 94 bp - Collective 14 bp 1 5-5 57 bp 15 214 138 146 8 bp 6 bp -27 bp -42 bp bp 51 36-29 bp -69 bp Q1 1 Q2 1 Q3 1 Q4 1 Q1 11-77 -111-18 -1 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11-4 -15 * Accumulated impairments at the end of period in DKK m and as basis points of total lending. 3
Commercial property exposure in Denmark, Ireland, Northern Ireland and Baltics DKK bn 125 1 75 5 25 15 112.2 Total loans.2 78.5 Gross lending Value of collateral DKK bn Denmark Northern Ireland NPL/total loans: 11% 6.7 2.8 12.5 2.8 Impaired loans (NPL) Individual impairments Collective impairments DKK bn 25 2 15 1 5 4 2.8 Total loans.1 8.5 Gross lending Value of collateral DKK bn Ireland Baltics NPL/total loans: 65% 13.6 4.8 6.1 6.1 Impaired loans (NPL) Individual impairments Collective impairments 1.2 NPL/total loans: 27% 3.1 NPL/total loans: 44% 5 13.1 Total loans 6.9 1.6 3.6 1.7 1.7 Impaired loans (NPL) 2 1 2.6 Total loans 2..1.7 1.1.7 Impaired loans (NPL) Gross lending Value of collateral Individual impairments Collective impairments Gross lending Value of collateral Individual impairments Collective impairments 31 Note: Value of collateral is capped by size of loan and is after a haircut of at least 2%. 31
Danske Bank s exposures to PIIGS is limited compared to total lending Credit exposure DKK m Government Other Nordic countries 95,457 1,76,166 Ireland 2,6 71,269 Baltics and Eastern Europe 626 24,727 Other EU member states 25,285 23,84 Other European countries - 7,476 North, Central and South America 13 5,139 Africa, Asia and Oceania 87 14,572 Total 124,95 2,159,153 Total credit exposure Irish exposure as % of total credit exposure 2,284,58.11% 3.12% The government exposure to Portugal, Italy, Greece and Spain was close to zero end Q1 211. Bond positions DKK m Government Covered bonds Other Nordic countries 52,741 3,485 267,844 UK, Germany and France 53,76 1,744 3,827 North America 1,93 228 5,342 Ireland 52 9 343 Spain 1,122 6,375 523 Italy 6,588-231 Other 7,599 536 3,574 Total 123,45 21,458 281,684 Total bond portfolio Irish exposure as % of total bond portfolio.12% 426,547.2%.8% Spanish exposure as % of total bond portfolio.26% 1.49%.12% Italien exposure as % of total bond portfolio 1.54%.5% The exposure to government bonds issued by Ireland, Portugal, Italy, Greece and Spain amounted to DKK 9.4 billion end Q1 211 and the net exposure was DKK 1.3bn. 32
211 212 213 214 215 216 217 218 219 22 221 222 223 224 225 226 227 228 Danske Bank s has a well diversified maturity profile DKK bn 9 Maturity profile of issued bonds 8 7 6 5 4 3 2 1 CB SENIOR SUBORDINATED 33
US CP ECP French CP UK CD SAMPO FIN CD NOK CP SEK CP EMTN CB programme SEK MTN FIN MTN SAMPO EMTN SAMPO FIN MTN Separat dok. 144A US Struc note Prog SAMPO_CB Aug/9 Oct/9 Dec/9 Feb/1 Apr/1 Jun/1 Aug/1 Oct/1 Dec/1 Feb/11 Apr/11 Jun/11 A well diversified funding base, with less reliance on USCP funding DKK bn 5 Funding programs, end Q1-211 USD m 3, Total USCP 4 25, 3 2 2, 15, 1, 1 5, - Unused share of program Issued under the program 34
Danske Bank Group Covered Bond Universe Legislation and history behind three business lines Covered Bond issuer since 1851 Based on Danish legislation Specialized Mortgage Bank Fully owned subsidiary in Danske Bank Group Only loans from Denmark Follows the Specific Balance Principle = Fully match funding Funding via daily tap issues in DKK through the Danish Market AAA rating Covered Bond issuer since 27 Based on Danish legislation Loans from the Groups banking activities in Denmark, Norway and Sweden Issued directly on the balance sheet Multiple Cover Pool set-up Full recourse to Danske Bank Follows the General Balance Principle Funding through EUR benchmarks and PP issues in multiple currencies 25bn Global Covered Bond Programme AAA programme rating Sampo Housing Loan Bank (SHLB) Specialized Mortgage Bank Covered Bond issuer since 25 Based on Finnish Legislation Fully owned subsidiary in the Danske Bank Group Support mechanism from Sampo Bank plc Only residential loans from Finland Full recourse to SHLB Funding through benchmarks and PP issues in EUR. 5bn Medium Term Covered Note Programme AAA programme rating Cover Pool D Cover Pool I Cover Pool C (Cover Pool R) 14
Covered Bonds is a valuable funding tool DKK bn 12. 1. D pool I pool C pool Eligible loans in the D, I & C pool 8. 6. 4. 2. Q4 7 Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q4 9 Q1 1 Q2 1 Q3 1 Q4 1 Q111 43
The three cover pools RETAIL RETAIL COMBINED Characteristics Cover Pool D Cover Pool I Cover Pool C Pool notional DKK 32.9 bn DKK 95.8 bn SEK 11,9 bn ( 1,3 bn equivalent) (EUR 4.4 billions equivalent) (EUR 12.8 billions equivalent) Number of Loans 54.492 116.28 3.924 Substitution collateral DKK 1. billions DKK 6.6 billions Number of Borrowers 2.527 Total Value of Properties SEK 43,7 bn ( 4,9 bn equivalent) Number of Properties 3.44 Average Loan Size Average Property Value Property Type 1% owner-occupied 76.2% owner-occupied, 23.8% housing cooperatives SEK 3 Mill. SEK 12,8 Mill. Agricultural, Forestry etc. 11%, Industrial 26%, Coorperative Housing 8%, Rental Housing 3%, Retail 25% WA LTV 6,% 59,% 48,9 WA Seasoning 4 years 3. years 3,7 years WA Remaining Term 25.8 years 36.6 years 21,3 years Rate type Floating rate Floating rate Floating rate Geographical location 1% Denmark 49.3% Sweden, 5.7% Norway 1% Sweden Number of loans in arrears (>3 days) Current balance in arrears DKK millions DKK millions SEK millions OC at cut-off date 18.9% 2.8% 29.1% Cut-off date 1-4-211 1-4-211 1-4-211 Rating Aaa/AAA/AAA Aaa/AAA/AAA AAA/AAA 16
www.danskebank.com/ir Danske Bank s Investor Relations website has a sub-section dedicated to debt investors The section contains detailed information about Danske Bank s: Funding strategy Ratings Debt issues Covered Bonds Securitisation 17
The reasons for Realkredit Danmark s termination of Moody s Realkredit Danmark has discontinued Moody s ratings on covered bonds issued out of Capital Centre S and the General Capital Centre with immediate effect The discontinuation follows a dialogue with Moody s since mid21 on the methodology applied for the rating of Realkredit Danmark and the covered bonds issued out of Realkredit Danmark capital centres Realkredit Danmark believes, that Moody s methodology for rating of Realkredit Danmark and the resulting requirements for maintaining the covered bond Aaa rating are misaligned with the underlying strength and risk profile of the mortgage bank Realkredit Danmark further believes, that Moody s underestimates the fundamental strength of the market and the Danish mortgage banking model as evidenced by the performance during the recent crisis and the more than 2 year history of no defaults Realkredit Danmark plans to raise fees to a level at which Realkredit Danmark remains competitive and funding costs are maintained at a low level For the purpose of adding to the long term robustness of the Danish mortgage banking system, Realkredit Danmark will establish a new capital centre for the funding of interest reset loans Covered bonds issued out of Capital Centre S and the General Capital Centre will remain AAA rated by Standard & Poor s 39
Moody s rating approach Mid 21 Danske Bank Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Realkredit Danmark Since mid21, Moody s has assigned a privately monitored issuer rating to Realkredit Danmark The issuer rating is assigned pursuant to the Special Covered Bond Issuer method designed to apply only to those financial institutions that specialise in the issuance of covered bonds on behalf of an owner bank. In addition, the institution may also have very limited lending activities Based on this approach the issuer rating of Realkredit Danmark has been pegged to the Danske Bank issuer rating with a two notch deduction to reflect the level of formal parent support The downgrades of Danish banks during 211, in response to the Danish bank restructuring scheme (Bank Package III) and the collapse of Amagerbanken, impacted Realkredit Danmark directly though Realkredit Danmark was explicitly excluded from the scheme 4
Moody s rating approach Mid 211 Danske Bank Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Realkredit Danmark The 2 May downgrade of Danish banks would have implied a further downgrade of the issuer rating of Realkredit Danmark to Baa1 but at this stage Moody s initiated a complete review of their rating approach towards Realkredit Danmark Before concluding this review, Moody s lowered Timely Payment Indicators and raised refinancing margins. This had an impact on requirements at par with the impact from an issuer rating downgrade Realkredit Danmark believes the approach is misguided The financial strength of Realkredit Danmark is not factored in Baa2 The history of Realkredit Danmark is not factored in Baa3 The Realkredit Danmark brand value is not factored in Realkredit Danmark clearly has lending activities of its own Realkredit Danmark is clearly not a SPV 41
RD s over collateralisation requirements from Moody s DKK bn 16 147 12 97 8 54 63 Pending on 4 29 Moody s review Original OC Mid 21 February 211 May 211 June 211 Downgrade scenario Gen. Cap. 5.5% Gen. Cap. 9.% Gen. Cap. 5.% Cap. S 1.5% Special Covered Bond Issuer approach first applied RD issuer rating of A2 Cap. S 11.5% Downgrade of Danish banks RD issuer rating automatically changed from A2 to A3 Gen. Cap. 5.5% Cap. S 18.% The TPI for Danish covered bonds changed from Very High to High Cap. S 27.% If the single notch downgrade materialises 42
RD s loan impairment charges have not exceeded 1% during the last two crises 5% Loan impairment charges to loan book ratio 3% 1% -1% 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 The over collateralisation requirement of 18% on covered bonds issued out of Capital Centre S is contrasted by loan impairment charges not exceeding 1% during the 1988 to 1992 crisis and.2% during the recent crisis 43
RD s covered bonds have been attractive through the whole financial crisis bp 525 475 425 375 325 275 225 175 125 75 25 Covered bond asset swap spreads -25 2/Feb/8 2/Dec/8 2/Oct/9 2/Aug/1 2/Jun/11 iboxx EUR UK iboxx EUR Ireland iboxx EUR Spain iboxx EUR France iboxx EUR Germany DM SEK Sweden DM DKK Denmark During the financial crisis asset swap spreads on Danish covered bonds remained low relative to peers This reflected investors remained confident in both the credit quality and liquidity of Danish covered bond and the underlying strength of the market 44
The OC requirement from Moody s was almost four times bigger than the regulatory requirement Capitalisation end 211Q1 97bn 17.bn Capitalisation 45.5bn 49bn Capitalisation floor 11.2bn 15.1bn 2.9bn 24.6bn Pillar 1+ Economic capital Transition Capital base Senior unsecured Standard & Poor's Moody's Realkredit Denmark's Core Tier I capital ratio stood at 35.5% end 211Q1 The binding regulatory capital requirement is the CRD transition rules at 24.6 billion The gap between Moody s OC requirement and regulatory capital requirements has grown extreme 45
Disclaimer This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Danske Bank A/S in any jurisdiction or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation contains forward-looking statements that reflect management s current views with respect to certain future events and potential financial performance. Although Danske Bank believes that the expectations reflected in such forward looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of various factors many of which are beyond Danske Bank s control. This presentation does not imply that Danske Bank has undertaken to revise these forward-looking statements, beyond what is required by applicable law or applicable stock exchange regulations if and when circumstances arise that will lead to changes compared to the date when these statements were provided. 46