Danske Bank A/S ($DANSKE)

Good afternoon, everybody, and welcome to the Danske Bank Q1 2026 Pre-Close Call. My name is Claus Ingar Jensen, and I'm Head of Investor Relations. With me, I have Olav Jorgensen and Nicolai Tverno 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 up 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 developments 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 March. Concerning the euro area, we continue to see that the base case for growth is better than expected. In addition, the labor market is resilient and inflation back below 2% target. For the Nordic region, the outlook is positive as we expect broad improvement in our latest Nordic outlook. The 2026 GDP forecast was increased to 3% from 2.7% for Denmark and for Sweden to 2.8% from 2.6%. Focusing on the Danish economy, the solid economic development is expected to continue. Unemployment is low, and growing real wages is expected to drive domestic growth despite a sustained lower consumer sentiment. Housing market activity continues to be strong, both nationwide, but especially in the Copenhagen area. Now let's have a look at net interest income. Let me briefly highlight our expectations concerning Central Bank key policy rates. Geopolitical turmoil and higher energy prices would lead to higher inflationary pressure. The ECB also acknowledged this at the meeting on the 19th of March, keeping policy rates unchanged while citing new uncertainty and commitment to their data-driven approach. Forward rates have recently been repriced substantially. The market has gone from pricing in around 10 basis points caught by early 2027 to now pricing more than 2 hikes of each 25 basis points before the end of 2027 -- sorry, '26. Our in-house view from Danske Bank's macro research, updated as recently as this morning, reflects this accordingly in their revised expectations, now calling for 2 25 basis points rate hikes from the ECB to take their policy rate to 2.5% by the end of 2026. This could subsequently be reversed in 2027. However, the policy rate trajectory is particularly uncertain. Note that the observed changes in forward rates are not expected to materially impact NII for the first quarter. For reference, we highlight that in Q4, we had a nonrecurring benefit to the NII line of around DKK 0.2 billion as part of the ordinary tax assessment. Regarding recent volume developments, we refer to public available sector statistics released on the 26th of March. In terms of lending volumes, we note that overall credit demand has improved slightly in the beginning of Q1. Please note that Q1 has 2 fewer interest days compared to Q4. 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 markets where we operate. During Q1, Norwegian kroner appreciated roughly 5%, while Swedish kroner and pound sterling were roughly flat against Danish kroner as of the 31st of March. Looking at funding costs. We note that CIBOR has been roughly flat, while NIBOR and especially STIBOR have increased during the quarter, STIBOR by around 12 basis points and NIBOR by around 3 basis points, all based on quarterly averages. In terms of wholesale funding in Q1, we have issued around DKK 42 billion, well in line with our full year funding plan of between DKK 90 billion and DKK 110 billion of debt issuance across instruments. We have simultaneously redeemed around DKK 20 billion in Q1. Of noteworthy funding transactions, we recently issued a new $500 million perpetual non-call [ 7 ] AT1 transaction that despite a volatile market backdrop, saw significant investor demand following us to obtain a coupon of 6.6% equivalent to a reset spread of U.S. treasuries plus 255 basis points. Please visit danskebank.com, the debt section, for further details on pricing and terms for our issuance. Moreover, we reiterate the interest rate sensitivity given at the Q4 interim report release, which is an approximately DKK 650 million negative impact per 25 basis points [ but ] across all currencies. Correspondingly, per 25 basis points hike, we estimate a positive 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 euros, in that order. In respect of fee income, we will start by noting that the development is, as always, subject to conditions in the financial markets, refinancing activity and the general activity level among our customers. Everyday banking fees continues to benefit from healthy corporate activity and somewhat improving customer sentiment. With respect to investment fees, we note that this line is naturally impacted by the development in assets under management, as well as the investment activity among our customers. In addition, we highlight the significant volatility in financial markets in March 2026, which could affect the investment appetite of our customers and impact asset under management. Also, please note the seasonality around performance fees which are booked in Q4 and where we saw a record performance fee booking in Q4 last year of DKK 0.9 billion in asset management. In respect of fees generated from financing, we expect refinancing fees of adjustable rate mortgages in Realkredit Danmark in Q1 to be approximately [ EUR 50 million ] lower than in Q4. As a reference, in Q4 '25 it amounted to around [ EUR 160 million ]. Finally, concerning fee income from capital markets activity, we note that primary markets activity has been somewhat impacted from the recent volatility. Especially, ECM activity has been subdued. Now turning focus to trading income. Please note that customer-driven trading income, primarily in LC&I, is impacted by the level of customer activity in Q1. And then turning to Danica. Danica's results are always subject to developments in the financial markets and in the health and accident business. The investment result in Q1 is naturally subject to the rate and spread development, given the current financial market turmoil. Note that in Q1 of '25, we booked a negative one-off on net income from insurance of around DKK 0.2 billion related to a higher provision for a legacy life insurance product. Also, we highlight for reference that net income from insurance in Q4 of '25 included a one-off related to model calibration for past years following an FSA order of negative DKK 0.2 billion. The soft guidance for normalized net income from insurance business remains unchanged. We have no specific comments to other income. And for costs, we have no specific comments regarding the quarterly development in costs. We reiterate our outlook for full year expenses of up to between DKK 26 billion and DKK 26.5 billion in 2026. Turning to loan impairments and credit quality. We have no specific comments to credit quality in the first quarter, but I want to emphasize that despite the uncertainty from the war in the Middle East, we don't see any immediate impact on our credit portfolio, and our macro scenarios already capture a severe downturn scenario. As such, we reiterate full year loan impairment guidance of around DKK 1 billion. We do not have any comments with respect to tax, and we don't have any comments in respect to one-offs, we do not expect one-offs in Q1. In respect to -- then jumping to capital. In respect to the REA, we expect [ a ] credit REA to reflect growing lending volumes, particularly in the corporate segment. We also note that the market risk REA is subject to the volatility which we have seen in the financial markets. Finally, the implementation of the conglomerate directive has led to around DKK 4 billion REA increase in credit risk REA related to our insurance business. Regarding capital, as shown in the release of our Q4 results, the additional distribution outside of already accrued 60% related to the ordinary dividend policy has been fully reflected in the reported Q4 CET1 ratio. This concludes my initial comments in this pre-close call. And before we move to the Q&A session, I would like to highlight that we begin our silent period on the ninth of April. We will shortly start to collect consensus estimates with a contribution deadline on Wednesday, the eighth of April. Please note that we published the Q1 interim report on the 30th of April at 7:30 a.m. CET, and that the Q1 conference call for investors and analysts will take place at 8:30 a.m. The call, alongside presentation of financial results for the first quarter, we will, as previously mentioned, provide an update on the Forward '28 strategy, including updated financial targets for 2028.

We are now ready for the Q&A session. So if you wish to ask a question, please use the Raise Your Hand function. And I can see that Mathias is ready with a question. Please go ahead, Mathias.

So it's more like in terms of guidance, if I remember and recall right, you used the assumption around 2% when you set the full year guidance in connection with the Q4 report. How would you think about like updating the guidance based on rate assumptions already at Q1? Is that something that we should expect now given that you say that the in-house view is now reflecting 2 rate hikes under -- [ spot market ] is pricing something looking like 2, 3 rate hikes this year? How is the process historically been around such things like that? I know you can't comment on the future, but in the past, how has your way of working around those things worked?

Yes. I think we can just say we have a pretty pragmatic view on this. We will keep an eye on where things are moving. And if we see any material impact on the current outlook, then we will, of course, adjust and comment after Q1. That is what I can say for now, Mathias.

Okay. That's at least something.

And then Jacob Kruse?

I guess [indiscernible]

I think, Jacob, the line is breaking up somewhat. I hardly hear you. Now you disappeared.

Apologies.

Can -- are you on the line, Jacob? Apparently not. I think we have lost him. Is there any more comments? Or questions? If not, I thank you for your participation -- I think Tarik, is having a comment? Yes.

Just a quick one from [ practice reasons ]. So on the Q1, how you proceed with the update on capital and sub targets will be the same as Q4, same time? Or you will have like an adhoc event around that?

No, we will have an extended conference call in the morning, where we will do a more condensed presentation of the Q1 result in order to reserve ample time for Carsten Egeriis and Cecile Hillary to comment on the strategy update. So it will take place as usual at 8:30 [ a.m. CET ]. And then it will be followed up with a with this presentation in the afternoon or a roundtable event where investors and analysts will have the opportunity to ask questions -- follow-up questions to the CEO. And then there will be a roundtable event for investors only in the afternoon. And that's the way we will present the Q1 result and the strategy update. It's -- the roundtable event is quite similar to what we normally do with Q4. But because of the strategy update, we have decided to postpone it to Q1 this time. And then the following week, we will be in London where we have invited -- and I think you have received the invitation already -- analysts for a breakfast presentation, and then there will be investor meetings during the day in London. And we will then have also activities in New York. So that is the setup for the day, Tarik. And Jacob, I can see that you're back?

Yes. Let me try again. Can you hear me now?

Yes.

Great. I just wanted to ask if you have -- if you could say anything about pricing in the -- in particular, in the Danish market on your products. Have you -- is there anything you would highlight or anything that has been done that might affect Q1?

No, not really. Because what we have done so far has been a repricing of the front book of the housing loans in Realkredit Danmark. And so I would not -- I don't think that will have any material impact, to be honest, on the Q1 result because it will take quite a long time, given the long duration of the book before you will see any material effect here.

And just on that, would it be fair to assume much of that comes through after 1 year? Or is it more like 3 to 5 years?

Well, I would say it's very difficult to give a specific day on this. Because the rollover goes on very slowly in the portfolio, and there can, of course, also be additional pricing actions in the market in that period. So that's very difficult to say, when it will have any impact on the back book. It will come gradually. That's also what we have seen back in time. And then I think Namita, please go ahead, Namita.

I'm just a bit confused, the -- so on the CET1, the conglomerate directive, that DKK 4 billion increase in credit risk. What exactly is that? Because I thought in the third quarter, you took something for Danica and that was going to reverse. So how do these two elements coexist?

It's -- they are, of course, very much linked because part of the conglomerate directive is now that the exposure we are having, so Danica is now being risk-weighted. Before, it came as a deduction in our capital ratios. So it is essentially the deduction you have seen in the capital ratio of close to DKK 4 billion, which leads to a DKK 4 billion increase in REA. And so -- yes?

The net-net, it's neutral?

Yes, it should be. Yes, agree.

Okay. perfect. And secondly, I was just looking at the refinancing data, like the mortgage refinancing data, the system data. And it looks down year-on-year in January and February. I was just wondering why that was the case? Like I thought people kept remortgaging in Denmark and things like that?

I think what you are referring to here is not so much remortgaging but more refinancing. And I don't know what the data you're looking at, where they are coming from. Are you sure, it's remortgaging? Because remortgaging has been kept at a very low level because of quite stable long-term rates.

No, it's probably refinancing.

Yes, yes. And there, you can say refinancing, there are seasonality in refinancing. That's also why we that we are trying to remember calling this out on these pre-close calls. So -- but there are -- some of the loans where you have refinancing, not every year, but every second year. And that will, of course, also impact the development as we see it. But otherwise, I would say the development has been towards more adjustable rate mortgages. That is what we have seen on the front book. So that should, over time, lead to more refinancing activity than we have seen in the past. Not much, but slightly more.

Okay. That was perfect. Thank you.

You're welcome. Any more questions? If not, I would thank you for your participation, and thank you for your questions. And you know where to find us if you have additional questions before we go into silent. So just wish you a happy weekend. Bye.