Danske Bank Conservatism or weak asset quality? Henrik Hoffmann Executive Vice President, Group Credits March 27, 2009
Agenda 1. Market situation: Very pessimistic outlook 2. The credit organization in Danske Bank is well prepared 3. Credit quality 1. Business areas 2. Sectors 3. Impairment 2
All our markets are under pressure 6 4 Growth in Q4 2008 GDP growth, y/y 6 4 percent 2 0 Denmark Finland Norway USA 2 0 percent -2-4 -6 Sweden Lithuania Q4 08 Germany Ireland -2-4 -6. 3
Sharp downturn in the Nordic economies, but significant fiscal firepower Macroeconomic key figures - 2009 estimates GDP growth Budget balance Gross publ. debt Unemp. rate % % of GDP % of GDP % -2.8-0.5 25.2 2.9-2.5 2.4 32.0 7.0-4.5 1.1 35.7 8.8-0.5 12.0 26.0 3.7-2.7-3.0 67.0 8.5 Source: Danske Research = worse than EU average = better than EU average 4
There is more bad news to come 12 Correlation between credit tightening and defaults 100 10 75 8 50 6 4 Net % US banks credit tightening 25 0 2 Global default rate -25 0-50 dec 90 dec 92 dec 94 dec 96 dec 98 dec 00 dec 02 dec 04 dec 06 dec 08 Source: United States, Business Surveys. 5 5
Agenda 1. Market situation: Very pessimistic outlook 2. The credit organization in Danske Bank is well prepared 3. Credit quality 1. Business areas 2. Sectors 3. Impairment 6
Strong Credit Organisation Centralization reduction in DLA Strict lending criteria Group specialist functions (shipping, private equity) Extra staff to the credit area Increased focus to portfolio limits and classifications Restructuring of credit functions in Ireland 7
One platform Exceptional brands Shared concepts including credit eases day-to-day management of multi-brand organization Shared terminology eases communication Shared data structure facilitates easier analysis and reporting Common IT systems facilitates easier implementation of changes and instructions Shared development base for products and systems unsure pursuance of group solutions 8
Credit modelling in pursuance of Consistency Objectivity Validity (up-to-date customer information) Enhanced surveillance and control Faster response to changes PD models Collateral Value Models Strengthened credit control Limit Models 9
Credit Rating - Process Monthly follow-up lists Rating request Relationship Manager Rating request Event Rating request FS Rating office Credit Rating Credit file Credit file Bank system 10
Rating responsibility Rating department #of customers, % Exposure, % Group Credits 29% 91% Local rating departments 71% 9% Statistic as of 31.12.2008 11
Agenda 1. Market situation: Very pessimistic outlook 2. The credit organization in Danske Bank is well prepared 3. Credit quality 1. Business areas 2. Sectors 3. Impairment 12
Lending and credit exposure - Diversified low exposure to shipping and commercial property Lending by region, end-2008 (ex repos ) Credit exposure by industry, end-2008 (DKr 2,520bn, including DKr 2,019bn in loans) Norway 8% Sweden 10% Finland 10% Baltics 2% Ireland 4% Northern Ireland 3% Other 2% Denmark 61% Other industrials 8% Transportation and shipping 3% Personal customers 33% Central and local governments 3% Consumer discretionary and consumer staples 10% Subsidised housing companies 6% Energy and utilities 2% Banks 10% Commercial property 8% Construction, engineering and building products 2% Diversified financials 9% Other financials 6% 13
Danske Bank has been successful in improving lending margins - More to come and more is needed % 3.00 2.65 Marginal net interest margins Q4 2008* 2.58 2.50 2.00 2.16 2.02 1.69 1.58 1.50 1.00 0.50 0.00 Danske Bank Nordea DnB NOR SHB SEB Swedbank Source: FPK, Nordic banks, Feb. 23, 2009 * Marginal NIM is absolute change in NII over change in loans YoY. 14
Known and potential problem exposures relatively modest vs. peers % 70 60 50 40 30 20 10 0 Percentage of total loans 65 60 53 50 44 38 SEB DnB NOR Nordea SHB Swedbank Danske Bank Potential problem exposures -Shipping -Nordic real estate - Nordic corporate (non-mortgage) -UK Known problem exposures -Baltics - Ireland & Northern Ireland - Ukraine & other New Europe - Distressed real estate, development & construction Source: FPK, Nordic banks, Feb. 23, 2009. 15
Credit quality DKK bn 60% 50% 40% 30% 20% 10% 0% 12 10 8 6 4 2 - BA Denmark BA Denmark BA Sweden Non-performing loans DKK 32.7 (2007:9.5) BA Sweden BA Finland BA Finland Business area BA Norway BA Norway BA Irela nd BA Ireland Note: NPL = rating category 10 & 11 BA No rthern Irela nd BA Northern Ireland Rating 5,6,7 Rating 8,9 BA B a ltic 's 2007 2008 BA Baltic's Danske Markets Danske Markets Other Other The exposure-weighted average PD was 0.64% against 0.41% in 2007 Source: Risk Management 2008 Increase in NPL in 2008 due to Q4 16
Ireland (exposure at Dkr 81bn) Customer segments Corporate Other 58% 3% Personal 39% Type of exposure at 2008 Mortgage Commitments Guarantees Money market Other lending 0 10 20 30 40 50 60 DKK bn Strengthening of the credit organization DLA centralized more than Group-average Commercial property exposure 20.3bn Hereof 6.8bn related to developers Majority of CP-exposure is to investment properties with few vacancies only 17
Modest Eastern European exposure for Danske Bank SKr bn SKr bn and share (%) of total loans, Q4 2008 300 250 19.5% Poland 200 150 100 11.8% 5.7% Russia Ukraine Lithuania Latvia 50 3.5% 1.7% Estonia 0 Swedbank SEB Nordea DnB NOR Danske Source: UBS, Swedbank: Too much uncertainty, Feb. 25, 2009. 18
Baltics (exposure at Dkr 32bn) DKK bn 18 16 14 12 10 8 6 4 2 0 Product split 2007 2008 2007 2008 Corporate Personal Investment loans Business leasing Short term loans Housing loans Consumer loans Consumer leasing 2/3 of corporates covered by prime collateral A large part of the exposure is in euro Low level of individual losses, but will increase Arrears below market average Estonia (corporate exposure of DKK 9bn) Materials 6% Commercial property 29% Other 5% Financials 9% Consumer discretionary and consumer staples 26% Industrials 25% Lithuania (corporate exposure of DKK 6bn) Utilities 8% Industrials 9% Other 10% Financials 24% Consumer discretionary and consumer staples 27% Commercial property 22% Latvia (corporate exposure of DKK 1bn) Consumer discretionary and consumer staples 27% Other 10% Industrials 33% Commercial property 30% 19
Mortgage lending Group level Mortgage % of BA Rating 5-11 Rating 8-11 y / y DKK bn lending total Personal Corporate Personal Corporate BA Denmark 806 71% 4% 42% 61% 9% 16% BA Sweden 96 44% 3% 44% 78% 4% 4% BA Finland 95 46% - 69% 57% 9% 26% BA Norway 75 43% -12% 55% 86% 4% 7% BA Ireland 51 63% 9% 83% 93% 17% 25% BA Northern Ireland 24 43% -26% 83% 89% 13% 15% Other 7 8% -33% 37% 43% 11% 0% Total 1.153 46% 11% 48% 67% 9% 16% BA Denmark Banking activities Denmark Total Personal Corporate Danske Bank, DK 139 116 23 RD 667 398 269 Total, DKK bn 806 514 292 RD split of commercial real estate (DKK 269bn) 70% 60% 50% 40% 30% 20% 10% 0% BA Denmark LTV Residental lending of DKK 691bn 2007 2008 BA Finland BA Sweden BA Norway BA Northern Ireland BA Ireland BA Baltic Total Rental Residential 46% Urban trade 36% Agriculture 18% 20
Personal customers House prices are declining in all business areas A record high amount of houses are for sale Unemployment increase rapidly Customers are interest rate sensitive % Unemployment rate in our business areas 14 12 SE 10 8 IE FI 6 NIE NO 4 DK 2 0 04 05 06 07 08 09E 10E DKK bn Exposure Of this property related Denmark 559 475 Sweden 57 41 Finland 88 67 Norway 48 48 Ireland 32 28 Northern Ireland 14 12 Baltics 13 19 * Other 9 - Total 820 691 * Baltics figure are including total book of mortgage loans 21
Shipping (exposure at Dkr 48bn) Reefers 0% Car Carriers/RORO 15% Container 2% FSO/FPSO 3% LPG 5% LNG 5% Cruise/Ferries 7% Relative strong exposure to offshore, tankers and roro Some and especially small customers are struggling with cancelling orders Reduced ship values can set collateral under pressure and breach covenants. Dry bulk covers 9% share of exposure Offshore Rig 15% Offshore Supply 12% Crude Tankers 11% Product Tankers 8% Chemical 8% Dry bulk 9% Index 12000 10000 8000 6000 4000 2000 0 Freight rate indices << Dry bulk Container >> << Dirty tanker << Clean tanker $/Teu 200 150 100 50 0 2003 2003 2004 2005 2005 2006 2007 2007 2008 2009 Source: Clarksons 22
Agriculture (exposure at Dkr 89bn) Output prices have decreased Expectations of land price will decrease, especially in Denmark and Ireland Feeding stuffs segment is facing challenges in terms of increasing price volatility and a stagnating market Source: Eurostat and Statistics Denmark 23
Financial customers General reduction of exposure to financial customers 68% of exposure fully secured Dkr 25bn of exposure covered by state guarantees Exposure Collateral 24
Private Equity (exposure at Dkr 34bn) 60 transaction Primarily to Nordic countries Exposure 17bn to acquisition vehicles 17bn to operating entities Drawn amount Dkr 28bn 14bn to acquisition vehicles 14bn to operating entities Swedbank SHB Deals done in the period 2003 to 2008 17 53 # deals where total debt to EBITDA multiple > 5x Danske 80 DnBNOR 85 SEB 86 Nordea 123 0 50 100 150 Source: Reuters, Pareto Securities 25
Loan loss ratios outstripping peers bp 75 Loan losses as bp of loans 2008 57 50 16 Collective impairments Write-off as bp of loans 2008 25 41 29 25 25 18 11 0 DB DnB NOR SEB Swedbank Nordea SHB 26
Loan impairment charges - Significantly higher than forecast Impairment charges DKr 12bn Higher than forecast due to rapidly worsening economic crisis in Q4 Collective impairments of DKr 3.3bn to vulnerable industries DKr 2bn on facilities to international financial counterparties Few losses on retail customers Highest impairment charge ratios in Ireland, Northern Ireland and the Baltics DKr m 5,000 4,000 3,000 2,000 1,000 0 Loan imp. charges by business unit (2008) <= Loan imp. charges Loan imp. ratio => DK FI SE NO NI * Danske Markets is included in Other IE Baltics * Other bp 400 300 200 100 0 DKr m Total loan impairment charges Loan impairment charges in 2008 (Total DKr 12.1bn) 15,000 12,000 9,000 6,000 57 bp Collective DKr 3.3bn 3,000 0-3,000-7 bp -3 bp 3 bp 2005 2006 2007 2008 Individual DKr 8.8bn 27
Allowance and loan impairment charges broken down by industry 28
Loan impairment charges and write-offs - Write-offs still at a low level DKr bn 15 10 Loan impairment charges 5 Write-offs 0-5 2005 2006 2007 2008 29
Conservatism or weak asset quality? www.danskebank.com/ir 30 30
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 managements 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 Banks control. This presentation does not imply that Danske Bank has undertaken to revise these forwardlooking 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. 31