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

Good evening, and welcome to Danske Bank's conference call. My name is Claus Ingar Jensen. And with me today, I have our Group CFO, Stephan Engels; and our Head of Group Legal, Kasper Friis-Hansen. Given the significance of the announcement we have made today in relation to the bank settlement of the Estonia matter with the U.S. and Danish authorities, we wanted to provide you with an update on the settlement and financial outlook. We aim to keep this presentation brief and we'll open for a Q&A session afterwards, keeping the entire session to around 30 minutes. Please go to slide 2, and I will now hand over to Stephan.

Thank you, Claus, and good evening everyone, and thank you for joining us on this short notice so late in the day. Today marks a significant milestone for Danske Bank as we have reached the final resolution with the U.S. and Danish authorities, which will finally allow us to move on from the regrettable mistakes that were made in relation to our Estonian operations. The legal consequences and our full admission is outlined in the company announcement from earlier this evening. Under the terms of the coordinated resolution and as part of the [indiscernible] agreement, the financial impact amount to DKK 15.3 billion, in line with our Q3 communication. With the prudent capital management practices, the Board has taken to cancel the remaining 2021 dividend as well as the proposal not to pay out any 2022 dividend. This has kept Danske Bank sufficiently capitalized to mitigate the impact of the settlement while keeping a buffer for the upcoming regulatory requirements and ability to support our clients through the current macro uncertainties. At Danske Bank, we have taken important and necessary steps to ensure that the bank has robust measures in place to do everything possible to prevent past failures taking place again. As an integral part of our strategy, we aim to be a positive contributor to the societies we operate in, supported by the investments we have made to improve Danske Bank's resilience. We remain committed to learn from the past mistakes, and I will now outline some of the many ways we have improved our financial crime prevention. Next slide, please. Going forward, and with the lessons we have learned from Estonia, we remain committed to fight financial crimes in all forms. Since we launched our Better Bank agenda in 2019, we have deployed significant resources to our financial crime plan agenda and taking extensive action to address previous failings in order to prevent a recurrence. We have invested more than EUR 12 billion in AML compliance since 2018 and now have over 3,500 FTEs occupied with fighting financial crime. This has also led to a complete refresh of due diligence data of 2.6 million customers against the new and improved standard covering 99.9% of targeted customers. Furthermore, we have a completely new leadership in place and enhanced our operational setup with the intention to establish a compliance function based on international best practice. Moreover, we have derisked our footprint to focus on our core markets in addition to the exit from Russia and the Baltic countries also encompass the sale of our Luxembourg branch and the closing of our Hamburg branch. With the continuity in leadership that Carsten Egeriis has brought as a CEO and relentless execution in our car markets, we are setting Danske Bank up so we can quickly adapt and mitigate our future threats. Through our central role in society, we strive to be a key adviser to our clients on all aspects of fighting financial crime, including how to navigate new sanctions as we have seen this year. Finalizing our financial crime plan transformation, thus remains a key priority for us, and we are doing so in close collaboration with the independent expert appointed by the Danish FSA. We remain on track for completion by the end of next year, after which we will enter a business as usual stage, leveraging of the vast improvement that has been made to KYC and digitalization of transaction monitoring and sanction screening and so on. Finally, strengthening our culture throughout the organization to foster a strong compliance culture where potential mistakes and mishabits are escalated and addressed with transparency and integrity is how we intend to run Danske Bank, a tone that is clearly set from the very top. Next slide, please. As we are about to wrap up an eventful year, we have continued to make progress across Danske Bank for all stakeholders. This final settlement resolution with the U.S. and Danish authorities that we have announced today, coupled with the announcement from August regarding the solution for our debt collection customers, underlying a year where we once and for all can put these legacy cases behind us. Coupled with heightened geopolitical uncertainties, changed macro landscape and volatile financial markets, the provision and one-off costs we have taken in relation to our legacy cases will lead to a net loss for the year as we have communicated in our Q3 release. As business activity remains sound, we reaffirm our outlook for the banking income as well as financial market-related income. On this background, we now expect net profit for the full year to be better than a loss of EUR 5.3 billion as the financial impact of the amount resolution is slightly lower than our initial provision. For 2023, we remain comfortable that the foundation of Danske Bank and the enhancement of resilience and operational efficiency will result in a positive trajectory in our cost-to-income ratio. The growth in our core banking income driven by higher rates is expected to more than mitigate the impact of higher inflation on costs and any potential impact on asset quality. As such, we remain committed to our return on equity ambition of 8.5% to 9% with upside potential to current guidance as we are tracking towards the upper end of the range. With that, I will hand back to Claus.

Thank you, Stephan. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to 2 questions. If you are listening to the conference call from our website, you are welcome to ask questions by e-mail. A transcript of this conference call will be added to our website within the next few days. Operator, we are ready for the Q&A session.

[Operator Instructions]. Please stand by while we compile the Q&A roster? Our first question or comment comes from the line of Jakob Brink. Mr. Brink your line is open.

Thanks a lot, and good evening, and thanks for hosting this call, and congratulations as well on final settlement. Actually, my questions are not so much related to the actual fine, but I'm a bit surprised, it's almost a bit ironic that while you choose to keep basically your underlying guidance for this year unchanged, only upgrading with the slightly smaller fine, Spar Nord, Danish peer bank is out for the second time within a month and upgrading their profit guidance for this year by another 10%. I think every other Danish bank have upgraded by around 10% over the past month. And yet, there's nothing to see in your guidance. So why is that? What is it that Danske is not doing right?

Jakob, thanks for the congratulations, although that doesn't feel like a day to celebrate to start with, but nevertheless, I think on the guidance, I would claim that we have just updated the guidance a couple of weeks ago with Q3. And I think not that much has changed since then, other than the early estimate has seen some final adjustments, which we have reflected in the guidance. So better than 5.3% is what we are guiding for right now.

But the guidance you gave in connection with the Q3 report, as far as I recall, that was exactly the same as the one you had before, just deducting the fine and the goodwill impairment. So then you got to DKK 5.5 billion loss. Then as rate has come up significantly since you gave that guidance, which was even older than Q2, I think the DKK 10 billion to DKK 12 billion was from the 10th of July, which was before the first rate hike. So significant grade support, mortgage spreads have narrowed, high activity, no losses. So I guess I'm still just a bit puzzled why that doesn't impact Danske Bank?

Jakob. Thanks again for the question. But again, I think the guidance that we have given today is the best of our knowledge for now. And I think that is what it is for the moment.

Okay. Fair enough. And then on the capital position of Danske, as you pointed out in the announcement, you had 16.9% CET1 at Q3. The new target I think you said you would return with that in connection with the Q4 report. But it looks like still there should be some room for excess -- for payouts. Now you say you will propose not to pay a dividend for '22. Is there any time line of when you could maybe resume some kind of payout. It is a few years finish you last paid anything.

First of all, technically speaking, we are making a loss for 2022, which means that paying out a dividend is, I would say, a very, very unlikely event and in that sense, also the BOD has decided to propose no dividend to the AGM in early '23. Secondly, given the outlook for the year to come, I think -- and that's what we also said in Q3 that we believe a capital level above 16% is what we feel comfortable with and that remains unchanged. And to more detail, I would -- or more specific guidance, I would point you a little bit towards our annual report, which is due on February 2.

Okay. So we get more details on the capital targets and/or payouts at that time?

I think you get definitely more details on a lot of numbers, and I can say that much, that our capital distribution policy as you know that has been published for the last couple of years remains unchanged. But again, for 2022, I don't see any potential way to pay dividend.

Okay. Very clear. Thanks a lot, Stephan.

Okay. I think that was the only question we had. So thank you all for your interest in Danske Bank and for your questions. As always, you are welcome to contact our Investor Relations department. If you have more questions after you have had time to look at the announcement in details. Good evening.

Thank you very much.

Thank you very much.