Danske Bank A/S (DANSKE.CO) Earnings Call Transcript & Summary

Good afternoon, and welcome to Danske Bank's Q4 2025 Pre-Close Call. My name is Claus Ingar Jensen and I'm Head of Investor Relations. With me, I have Olav Jørgensen and Nicolai Tvernø from our IR team. Please note that this call is being recorded for compliance reasons, and the script used for this call will be published on the Investor Relations website after the call. Given that we conduct this call via Teams, please be aware that if you want to ask questions, you must log on via the Teams app or your browser. If you participate via a telephone line, the IR team will be available for questions after the call. In today's call, I will highlight relevant public data and macroeconomic trends in our markets. I will go through the relevant P&L lines and comment on capital at the end. Afterwards, we will open for a Q&A session. For the sake of good order, I would also like to highlight the following: I will only answer questions related to already disclosed information as well as publicly available information, unless otherwise noted. In connection with this, I wish to highlight that development in specific indices may not always have the same effect on our performance. Before going through the income lines, I would like to start with a brief comment on the most recent macroeconomic development based on our Nordic outlook published in early December. In the Euro area, we have seen growth prospects through 2025 being better than expected despite the tariff announcements and geopolitical uncertainty. In the Nordics, we expect the decent growth trajectory to improve further in 2026, for example, driven by rising real incomes and investments. Looking at the Danish economy, Q4 reflected another solid economic backdrop with a sustained low unemployment and growing real wages. Consumer confidence remains low, however, which, on one hand, is putting a damper on the propensity to spend but on the other hand, leaves a potential for improved growth if and when household starts increasing their consumption. Overall, growth is expected to pick up in 2026 driven by exports and investments with still very solid employment rates and government fiscal spending. Now let's have a look at the net interest income. Please note that as part of the ordinary tax assessment for 2024 concluded in conjunction with SKAT, the Danish tax authorities, we expect a nonrecurring benefit to the NII line of around DKK 0.2 million -- sorry, DKK 0.2 billion booked in Q4. Let me now briefly highlight the relevant changes to Central Bank policy rates. Given the last ECB cut was in June, you should not expect any direct quarterly impact in Q4. We expect that the ECB to keep the policy rate unchanged at 2% in 2026. In Sweden, Riksbanken lowered their policy rate by 25 basis points to 1.75% in September, and now it is also expected that Riksbanken will maintain unchanged rates until the end of 2026. Norges Bank reduced the policy rate from 4.25% to 4% in September with a cut in 2026 widely expected. Regarding recent volume developments, we refer to public sector statistics released on the 6th of January this year. In terms of lending volumes, we know that overall credit demand has been more or less stable during Q4. Please note that Q4 has the same number of interest days as Q3. The day effect is estimated to be around DKK 65 million to DKK 70 million. As always, please be mindful of currency fluctuations in the market where we operate. During Q4, Swedish kroner had appreciated around 2% against the Danish kroner, while Norwegian kroner depreciated around 1% and pound sterling ended Q4, roughly flat versus the Danish kroner. Looking at funding costs, we note that NIBOR has roughly been flat while STIBOR and NIBOR have decreased during the quarter. CIBOR lowered by around 19 basis points, 1-9 and NIBOR lowered by around 10 basis points, all based on quarterly averages. In terms of wholesale funding, we have issued around DKK 90 billion, 9-0 billion, somewhat above our full year funding plan of DKK 60 billion to DKK 80 billion of debt issuance across instruments, an indication of our growing balance sheet and credit demand as well as some prefunding of our 2026 funding plan. Please visit danskebank.com, the debt section for further details on terms and pricing of our issuance. Moreover, we reiterate the interest rate sensitivity given the Q3 interim report release, which is approximately DKK 650 million negative per 25 basis points cut across all currencies. Correspondingly, per 25 basis points hike, we estimate an effect of around DKK 450 million. In addition, we estimate a year 2 and year 3 up and down effect of DKK 300 million and DKK 100 million, respectively, related to our structural hedge. Please note that by far most of our sensitivity relates to DKK and euro in that order. And in respect to fee income, we will start by noting that the development is always subject to conditions in the financial markets, refinancing activity and the general activity level among our customers. Throughout the year, we have benefited from the diversification of our fee income, including our everyday banking fees, which continues to benefit from healthy corporate activity. With respect to investment fees, we note that this line is naturally impacted by the development in asset under management as well as the investment activity among our customers. Note, the seasonality concerning performance is in asset management, which are booked in Q4. For reference, we booked performances of DKK 0.7 billion in Q4 2024, and on average, DKK 0.5 billion for the last 2 years. In respect to fees generated from financing, we expect refinancing fees in Q4 to be slightly higher than Q3. As a reference, in Q4 of '24, it amounted to around DKK 135 million. Finally, concerning fee income from capital markets activity, our LC&I franchise has recently successfully won leading mandates on landmark transactions. However, we note that primary market activity in the fourth quarter broadly has been relatively subdued, especially concerning ECM and M&A. Now turning our focus to trading income. Please note that customer-driven trading income primarily in LC&I is expected to be impacted by usual customer activity in Q4, which tend to be lower towards the end of the year. And then our income from insurance activities, Danica's results are always subject to the development in the financial markets and in the health and accident business. Following an FSA order received on the 1st of September 2025 related to claim patterns for long-term illness in the health and accident sector, we have strengthened our model calibration for the past years. This will lead to 2 effects. Firstly, a net negative P&L effect of around DKK 200 million, DKK 0.2 billion in Q4 resulting in our full year income expectations being below our guidance of DKK 1.4 billion to DKK 1.6 billion for normalized net insurance income. Secondly, related to a correction of past year's model calibration is a capital impact on the group CET1 ratio of around minus 10 basis points. For other income, we reconfirm the lower run rate for other income seen in previous quarters in 2025 due to lower contribution from asset finance activities. Please be reminded that in Q4 of '24, the sale of the personal customers business in Norway to Nordea included the management of 15 Danske Invest or Horisont funds which had a positive effect on other income of DKK 0.2 billion. And then moving to costs. Please be mindful of the expected higher seasonal costs occurring in the fourth quarter and our continued investment spend. For the full year, we thus expect total cost to be just shy of DKK 26 billion. And then impairments and credit quality. We have no specific comments in respect to the fourth quarter as we reiterate full year loan impairment guidance of no more than DKK 600 million. We do not have any comments with respect to tax. And in respect to one-offs, the around DKK 200 million net impact related to Danica's model provision will be booked as a one-off in Q4. Outside this effect, we do not expect any other one-off items for Q4 of '25. And this concludes my comments on P&L, and so let's move to capital. Regarding capital, the EU conglomerate directive has been adopted into Danish law and will apply from the 1st of January 2026. As such, we expect the communicated temporary CET1 reduction of around 40 basis points evidenced in Q3 still to be reflected in the reported end of quarter numbers in Q4 such that the temporary impact will continue to be reflected until our Q1 release. However, fully phased-in capital ratios will be available in our Q4 financial disclosure, reflecting the reversal of the previously guided 40 basis points. And as I mentioned earlier, the incremental health and accident model provision in Danica are expected to have an additional minus 10 basis point impact on the group's Q1 -- sorry, Q4 CET1 ratio. In terms of risk exposure amount, you should also be mindful around the standard procedure in Q4 of calibrating operational risk REA which will likely lead to an impact from this year's net profit level. For reference, the REA increase observed in Q4 of '24 and Q4 of '23 was DKK 4 billion and DKK 6 billion, respectively. Furthermore, the 3-year average net profit used for the operational risk calibration is with our current guidance expected to be higher than the preceding periods. Besides that, we do not have any specific comments on REA other than noting that market risk remains subject to volatility in the financial markets and that our growing lending volumes all else equal, would result in higher credit risk REA. Finally, in respect to our CET1 ratio and similar to the same period of last year, the intended additional distribution outside our already accrued 60% related to the ordinary dividend policy will be fully deducted in our Q4 ratios. For reference, the additional deduction we saw in Q4 of '24 was around 120 basis points. This concludes our initial comments in this Pre-Close call. Before we move to the Q&A session, I would like to highlight that we begin our silent period on the 15th of January. We will shortly start to connect consensus estimates with a contribution deadline on Thursday, the 15th. Please note that we publish our annual report on the 5th of February at 7:30 a.m. CET and that the Q4 conference call for investors and analysts will take place at 8:30 a.m. We are now ready for the Q&A session. [Operator Instructions] Thank you.

I can see we have a question from Sofie.

So just 3 quick questions. So we saw some news around CRE risk rights in Denmark. As far as I can see, there was no kind of decision made by the government. Is that correct? Or -- and if so, do you expect the decision to come anytime soon?

Yes. You're right. Your observation is correct. There are no decisions made for the time being. The proposal is still on the table of the minister. So -- and we do not know exactly when we will have some clarity on what will happen here.

Okay. That's very clear. And then just a clarification. The minus 40 basis points on capital. So that's unchanged compared to Q3 2025, right?

Yes. That is correct. As the conglomerate directive takes effect on the 1st of Jan. And as our full year result reflects the status on the last day in the year, it will not be adjusted until you will see our Q1 disclosure material. So that is correct.

And then a question, the U.S. corporate provision ended now in December, is that in any way going to have an impact on your Q4 numbers?

Sorry, can you -- what kind of provision...

The U.S. corporate probation after the [indiscernible] it ended in December. Is that going to have any impact on your numbers?

No, sorry, I missed it. I thought you said provisions, but you said probation. No, there would be no effect from the end of the probation period.

Okay. And then last question, we've seen some headlines in the Danish press around kind of potential fee gaps. Anything you can comment here?

Sorry, can you repeat? Some comments around Danish what?

Like that -- I think it was your Finance Minister that he was saying that banks are overcharging on fees. I think last week, there was also an article in the local press around the fees and banks recharging SMEs. I guess you have elections in 2026. So do you see any pressure to deliver the fees? Or are there any discussions in the background around kind of that could have an impact on your fee income line in 2026?

I think the [ counts ] actually started on the annual meeting for Danish banks during the last part of 2025. And I think -- it seems to be the perception among politicians at least among some politicians that there isn't enough competition, and that's why they are discussing whether there should be any political initiatives on bank's fee income for certain services. But this is some initial discussions. And as you rightly mentioned, it's election year. It will take quite a while before -- this eventually is something that is coming through and will impact the banks. So there is nothing new here. And I would not expect -- while it's difficult to predict around the future. But as I said, and you said it's election year. So the question is whether there will be anything to be discussed in this session in the parliament before the election. I doubt it, but let's see. And Namita.

Just a quick one on the net interest income. Why are you prefunding 2026 wholesale funding?

Well, I would say it's not unusual that we do some prefunding. We would like to take if there are any opportunities we can look into from different sectors, different currencies, different markets, and that's something we have done before. So it's the standard procedure that from time to time, we do prefund if there are any good opportunities for us. So I don't think you should put anything more into that. You have any more questions? Doesn't seem to be the case. Thank you very much for your participation. And as I said previously, more than welcome to contact IR if you have any additional questions. So I wish you a nice afternoon. Goodbye.