DnB NOR Group Bjørn Erik Næss, chief financial officer Goldman Sachs European Financials Conference, June 10 2010
Agenda DnB NOR and the Norwegian economy Basel III new regulations Actions ahead of Basel III / Funding 2
DnB NOR - Norway's leading financial services group The Bank: 30% market share of the retail market 35% market share of the corporate market lending Credit Ratings: Moody's: Aa3 (stable), S&P: A+ (stable) Norway's largest life insurance company Market capitalisation of NOK 105 billion (EUR 13.2 billion) The Norwegian government has 34% ownership 3
1st quarter 2010 Sound pre-tax operating profit before write-downs: NOK 4.9 billion (6.1) Continued positive cost trend Lower than expected write-downs on loans: NOK 0.9 billion (1.6) Profit to DnB NOR's shareholders: NOK 3.1 billion (3.1) Return on equity: 12.5 per cent (15.8) 4
Norway is of vital importance to DnB NOR More than 80 per cent of our income stems from Norway More than 80 per cent of our lending stems from Norway More than 85 per cent of our deposits stems from Norway 10 bp losses in Norway in Q1 2010 24 bp losses in Norway in 2009 5
Relatively sound outlook for the Norwegian economy 6
In relative terms, the Norwegian economy is performing very well % 4 3 2 1 0-1 -2-3 -4-5 -6 Expected GDP growth, % Norway Euro zone Sweden UK 3,5 2 2,8 2,2 2 2,2 1,4 0,5 1,4 0,5 1,3-0,5-1,5-4 -4,7-4,9 2008 2009 F210 F2011 Source: DnB NOR Markets May 2010 Norway: Mainland GDP 7
The Norwegian economy is more than oil - good terms of trade also for the mainland economy Terms of trade Export/import prices 1996=100 230 210 Norway w/ oil Norway mainland Sweden Denmark 190 170 150 130 110 90 70 50 Q4 1994 Q4 1997 Q4 2000 Q4 2003 Q4 2006 Q4 2009 8 8
Average unemployment in Europe before the financial turmoil was higher than worst case scenario for Norway Unemployment, % of labour force % Norway Sweden Euro zone UK 12 10 9,4 10,4 10,5 10,1 9,7 8 6 4 7,5 6,2 5,7 2,5 8,3 9,1 7,6 7,8 3,2 3,5 8,8 7,4 3,9 8,3 7,0 3,7 7,8 6,5 3,6 2 0 2008 2009 F2010 F2011 F2012 F2013 Source: DnB NOR Markets May 2010 9
The Norwegian state finances are strong debt is not an issue General government surplus (% of GDP) Forecast 2010 Petroleum Fund (% of GDP) Norw ay Denm ark Sweden Japan -5,4-8 -8,2 9,9 64 78 83 108 98 138 144150 129 120 Euro Zone -6,7 40 38 49 52 UK -13,3 25 USA -10,7-5 2001 2002 2003 2004 2005 2006 2007 2008 F2009 F2010 F2011 F2012 F2013 F2014 F2015 0 5 10 15 20 25 Source: OECD 10
11 Basel III new regulations
DnB NOR will be among the least affected of the European banks Capital deductions - Deductions for insurance subsidiaries already accounted for - Deferred tax assets and goodwill fully deducted Capital level - Already compliant - High-quality composition Counterparty risk - Minimal exposure to derivative markets 12
Only proposed changes in net stable funding ratio will create a shortfall Leverage ratio - Strong capitalisation and business model Deposit guarantee scheme - Already above EUR 100 000 and well funded Liquidity coverage ratio - Compliant as of today? Net stable funding ratio - Shortfall, deposit haircuts are unreasonably high 13
A very robust and high-quality capital structure Tier 1 capital ratio Nordic peers 1Q2010, Basel II Core Tier 1 Hybrid 11.2 % 1,1 14.2 % 4,9 14.6 % 2,5 13.9 % 2,2 13.5 % 1,2 9.4 % 0,8 12.0 % 1,0 13.7 % 1,1 10,1 9,3 12,1 11,7 12,3 8,6 11,0 12,6 Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 DnB NOR DnB NOR* DnB NOR** * Full implementation of IRB **Full IRB and Swedish model for calibrating insurance exposure 14
The strongest leverage ratio among Nordic peers Leverage ratio* Nordic peers 1Q2010 5,4 % 3,8 % 3,7 % 3,8 % 4,4 % 4,3 % Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 DnB NOR * Tier 1/total assets 15
16 Actions ahead of Basel III/Funding
Strengthened capitalisation levels through retained earnings and NOK 14 bln share issue in 2009 1) Including 50 per cent of profit for the period 17
Funding Deposit coverage as of March 2010 DnB NOR Group 52 % DnB NOR Bank 92 % (Excluding DnB NOR Boligkreditt) DnB NOR Bank is a well established international borrower: EMTN program of US MTN program of USCP program of ECP/CD program of EUR 45 billion USD 8 billion USD 14 billion EUR 10 billion Capital market funding focuses on well diversified funding sources, by geography and types of instrument Covered Bonds form an important part of the funding profile: Covered Bond program of EUR 40 billion 18
Raised level of long-term funding, tightened internal limits for short-term funding Average residual maturity, long-term senior debt and covered bonds (years) Share of stable long-term funding* Internal target** ** * Deposits from customers, subordinated debt, covered bonds and senior debt > 12 months residual maturity ** Internal target for stable long-term funding increased from 88% to 90% in 2009 19
Stable access to long-term funding longer maturities at competitive prices 2010 NOK billion Maturity Covered bonds 41.1 6.7 Senior bonds 12.1 5.7 Spread (3-month Euribor) Total 53.2 6.5 49bp 2009 NOK billion Maturity Spread Covered bonds 10.7 12.1 Covered bonds, Norges Bank (central bank) 90.3 4.2 Senior bonds 39.0 4.6 Total 139.1 4.9 50bp 2008 NOK billion Maturity Spread Covered bonds 57.5 5.9 Covered bonds, Norges Bank (central bank) 29.1 2.8 Senior bonds 100.5 3.7 Total 187.2 4.3 48bp 20
DnB NOR Boligkreditt a well established international covered bond issuer International Covered Bond issuance Euro 1.500 mn 3 years (2010) Euro 2.000 mn 3 years (2011) Euro 1.500 mn 5 years (2012) Euro 2.000 mn 5 years (2013) Euro 2.000 mn 5 years (2015) Euro 1.500 mn 7 years (2017) Registered Covered Bonds: 2008: Euro 1.000 mn 25 issues Ave. mat: 11 years 2009: Euro 1.000 mn 20 issues Ave. mat: 13 years 2010: Euro 720 mn 18 issues Ave. mat: 15 years CHF market : CHF 1.275 mn 6 issues Mat : 5 10 years 21
Financial ambitions Ambitions 2012 Long-term ambitions NOK 22-25 billion in pre-tax operating profits before write-downs Return on equity above 13 per cent NOK 2 billion in cost reductions Be among the best capitalised banks in the Nordics Cost/income ratio below 46 per cent Long-term AA rating Approx 50 per cent dividend 22
Thank you