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

Good morning, everyone, and welcome to this conference call regarding the acquisition we announced in Norway this morning. We thought this would be a good time to go a bit to the details about it. And we all know that there's other banks reporting as well. But let's start with a short intro by Ian about the rationale of the transaction, and then please ask any questions you may have. And I hope that you could use the Raise Your Hand function on Teams or then if you're calling in, just shout after that. But with that, over to you, Ian.

Thanks, Martin, and good morning, everybody. Welcome to the call today. We're pleased to announce that Nordea will acquire Danske Bank's Norwegian personal customer and Private Banking business. and the associated asset management portfolios that come with those customers. This is another important step in executing our Nordic growth strategy, a bolt-on acquisition, which expands our presence in the Norway personal customer business in a complementary manner. It will add significant scale to our personal banking business in Norway. We'll get more coverage in regions where we've not historically been strong, and it offers us, we think, good value creation opportunities through clear revenue and cost synergies. This transaction, when it closes, is expected to enhance Personal Banking Norway's earnings and profitability through increased scale, as well as operational and funding synergies. Just a couple of words about the deal itself, using the year-end 2022 figures. The transaction is expected to increase Nordea's mortgage market share in Norway by around 50%, it should take us to 16% or so from the current 11%. As at end of 2022, the transferring business comprised around 285,000 customers, lending and deposit volumes of EUR 18 billion and EUR 4 billion, respectively, and associated assets under management of around EUR 2 billion. It's important to understand that the size of the portfolio to be transferred. And eventually, the consideration paid will be determined at closing, and we expect that the transaction will close towards the end of 2024. After closing, the transaction is expected to also consume around 40 to 50 basis points of CET1 capital for Nordea Group and to positively impact our earnings, the share and return on equity, in line with the size of the acquired portfolio. Importantly, the transaction is structured as a transfer of assets and liabilities at book value, and the assets will be transferred at fair value, and there's no goodwill expected to be payable. The transaction is subject to customary regulatory approvals, and as I said, is expected to close in late 2024. We're really pleased to be able to take this opportunity. It will be an important step forward for our personal banking business in Norway. And I guess with that, let's open for some Q&A, because I appreciate the time is short.

Thanks, Ian. We already have a couple of questions. Let's take first Andreas Hakansson from Danske. Andreas?

Yes, 2 questions. First one is that given that the transaction is a year out and you have a very decent profitability at the moment, do you see that there is any impact on your current or expected capital distribution plans? That's the first question.

So yes, you're right, it is a long way out, and we're continuing to generate capital strongly. Certainly, the period between now and then, we wouldn't expect it to have an impact on our capital distribution plans. But we will have to see when we get to the deal. We think it's a good use of capital. It's very much part of our policy of managing our capital position with capital distributions, but also bolt-on acquisitions. So no, we weren't expected to impact our plans between now and then.

Okay. Perfect. And then secondly, on the academic and the other labor union agreement, how sticky do you think those clients are? And if I remember correctly in Danske, I think these were probably the least attractive clients who had raises in margins and so on, and are these the clients that you expect that you might lose? And how do you think that's going to impact your business?

So the clients that came to Danske Bank through the academic agreement are really good customers. They're premium customers, but only taking one product. We will expect to see some attrition after the contractors -- the distribution contract has ended. As you say, to the extent that we lose mortgage-only customers at relatively low margin, we'll end up, all other things being equal with a slightly smaller portfolio, but at better margins, and we're happy to accept that. I think though, just putting a foot on the ball there, Danske has -- will look after this customer base between now and closing. And I think we have a good opportunity to hang on to those customers and then to do a lot more with them when they joined Nordea.

We'll take the next question from Geoff Dawes.

Yes. Brilliant. And apologies if you mentioned this on the intro, I had a microphone difficulty, but a couple of questions from my side. First of all, on the EPS uplift, I guess the implication is in line with the loan book increase, which is 4% or 5%. Maybe if you could just give us a confirmation of that? And also when that EPS guidance kicks in. Is that from day 1 or is that implicit on cost synergies in year 2, year 3 or so on? And then the second question would be, obviously, this deal must have come about pretty quickly from your side. Any information on the timelines that you were held to on this. But also if you've had a chance to really look through the books and look at the degree of overlap of clients and the kind of cost synergies that you could potentially get out of this, just to give us an idea of what's gone into the process so far and how much you know really? Those are the 2 questions.

Of course, yes. So yes, we say that it will be accretive and in line with the scale of the deal. This is a relatively small net portfolio for us. The EPS increase will not be of the magnitude you spoke about, positive but small. And this -- I guess, this deal, we've been in discussions for some time about whether this is the right thing to do, and we've had a good chance to look through the portfolio and think very hard about any of the risks in there. It's a very clean prime mortgage portfolio, with some sort of all-around customers as well that have deposits and current accounts and other products, a clean retail book, and we've done the necessary due diligence on it. In terms of when we would expect it to be EPS accretive, I suspect it's year 2 onwards. We've got the opportunity to realize funding synergies. And I guess, once we get past the year 1 implementation cost, the cost of bringing it across to Nordea, we expect it to be accretive.

Brilliant. And any numbers you can share around cost synergies? Or is it just too early for that kind of thing?