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

Good afternoon, and welcome to the Danske Bank Q2 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 Tvern 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. And 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 June. Looking at the euro area, we expect that the pressure from energy prices is likely to push inflation higher and dampen growth somewhat. However, we expect the overall impact on the economy to be considerably more moderate than in 2022. In our house view from Danske Bank Macro Research, we expect the ECB to hike by a total of 50 basis points in 2026, including the hike we saw last week and then cut the deposit rate back to 2% by summer 2027. We expect the Swedish Central Bank to follow ECB. For the Nordic region, the outlook is overall stable, but the picture is mixed as growth remains solid in Denmark and the recovery is more pronounced in Sweden given improving fundamentals, while Norway and Finland are expected to see a bigger impact on growth and inflation. Focusing on the Danish economy, the solid macroeconomic development is expected to continue with more than 3% GDP growth in 2026. There continues to be growth in employment and growing disposable incomes could lead to higher consumer spending, although consumer sentiment is still very low and the savings rate is high. Housing market continues to be strong, both nationwide, but especially in the Copenhagen area, albeit with some signs of slowing down lately. Now let's have a look at net interest income. Let me briefly highlight our expectations concerning Central Bank policy rates. It should be noted that the vast majority of our short-term NII sensitivity doesn't materialize until we see the actual rate hike, not ahead of a hike based on the market expectations, which, on the other hand, would lead to higher short-term funding costs, e.g. related to our structural hedge. As such, we expect very limited and practically negligible impact in Q2 from the rate hike that was announced on the 11th of June. Regarding recent volume developments, we refer to public sector statistics released on the 1st of June. The sector data showed healthy credit demand as private lending increased 3% year-over-year and corporate lending increased 6% year-over-year. Please note that Q2 has 1 more interest day compared to Q1. The day effect is estimated to be around DKK 75 million, DKK 75 million. As always, please be mindful of currency fluctuations in the markets where we operate. During Q2 and as of this week, NOK and pound sterling appreciated a bit more than 2% and 1%, respectively, while Swedish krona was roughly flat against Danish krone. Looking at funding costs, we note that the 3-month CIBOR has increased by around 13, 1-3 basis points, NIBOR with 32 basis points and STIBOR with 5 basis points during the quarter, all based on quarterly averages. This will, all else equal, add some short-term pressure to lending margins due to the timing of repricing of mainly corporate credit facilities. In terms of wholesale funding in Q2, we have issued almost DKK 65 billion year-to-date, well in line with our full year funding plan of DKK 90 billion to DKK 110 billion of debt issuance across instruments. Please visit danskebank.com, the debt section for further details on terms and pricing of our issuance. Finally, we reiterate the interest rate sensitivity given that the Q1 2026 interim report released. We estimate a positive effect of around DKK 450 million per 25 basis points hike. 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. In respect of 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. Everyday banking fees will likely benefit from healthy corporate activity and somewhat improving consumer spending despite the very low consumer sentiment according to the recent data from Statistics Denmark. 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. In respect to fees generated from financing, we expect refinancing fees from adjustable rate mortgages in Realkredit Danmark in the second quarter to be approximately at the same level as in Q1 of 2026, which amounted to around DKK 100 million. Finally, concerning fee income from capital markets activity, we note that primary markets activity has seen some impact from the recent volatility, especially ECM activity has been subdued. Now turning our focus to trading income, where please note that customer-driven income, primarily in LC&I is impacted by the level of customer activity and market sentiment. Danica's results are always subject to developments in the financial markets and in the health and accident business. For other income, we expect to book a positive one-off of around DKK 0.2 billion related to provisions for guarantees as part of the previous Personal Customers Norway transaction, which can now be released. The one-off will be booked at the other income line. In respect to costs, we have no specific comments regarding the quarterly development. We reiterate our outlook for full year expenses of up to DKK 26 billion to DKK 26.5 billion in 2026. For loan impairment charges, we have no specific comments to credit quality in the second quarter. As such, we reiterate our full year loan impairment guidance of around DKK 1 billion. We do not have any comments with respect to tax, and we do not have other one-offs than the one mentioned earlier under other income. On capital, please note that the extraordinary dividend of DKK 5 billion paid subsequent to our Q1 release will be reflected in our CET1 ratio and account for around 60 basis points. In addition, our revised ordinary dividend policy now results in a 70% dividend accrual. Furthermore, the capital ratios in Q2 will reflect a catch-up of accrual of the 10% higher dividend range, which was not implemented in Q1. All together, that takes the pro forma Q1 CET1 ratio to around 17%. In respect to REA, we expect credit REA to reflect growing lending volumes, particularly in the corporate segment. We also note that market risk REA is subject to the volatility, which we have seen in the financial markets. 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 Friday, the 26th of June, and we will shortly start to collect consensus estimates with a contribution deadline on Monday, the 29th of June. Please note that we published the Q2 interim report on the 17th of July at 7:30 a.m. CET and that the Q2 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] I can see Sofie Peterzens. Please go ahead, Sofie.

So just my first question was on Danica. Could you -- like how should we think about the contribution? Because it has been very, very volatile. So is it fair to assume that it's a bit more normalized? And what would you -- or if you could remind us what a normalized level for Danica is?

Yes. I think I can reiterate what we have said previously that Danica's normalized contribution to our financial result is between DKK 1.4 billion and DKK 1.6 billion per annum. And you're right, it has been volatile for -- mainly due to some volatility on the health and accident business. But we have no further comments on the development in Q2 other than that it is subject to financial market development. And in respect to the health and accident business, as you have noted with what we said in connection with the full year results, we expect to see that being more stable this year. And as such, I would not expect any surprises from the health and accident business in Danica in this quarter.

But is there any seasonal patterns that we should be mindful of?

No, not for the insurance business.

Okay. That's clear. And then my second question would be on net interest income. Clearly, you're not going to see much benefit from the rate hikes.

No, not...

But is it still fair to assume net interest income will be up quarter-on-quarter?

I would say the drivers behind higher NII in the quarter could, of course, be the impact from volume. But the rate hike in isolation will not contribute to the NII in the second quarter.

Okay. And then my final question was your CEO was on TV last week talking about M&A opportunities. I realize you can maybe not comment, but maybe if you could just summarize like what he has said and what the potential targets could be.

Yes. We have also noted there was some interest around what Carsten said at the people's meeting last week. He essentially just repeated what he has been saying to analysts and also to investors. But the message that we would be open for M&A and especially with a focus on Sweden is not something new. That is something that we have stated for quite a long time now. I think the reason why it became a topic last week was because this has apparently escaped the Danish media's attention, and it was new to financial journalists that we are having this kind of statement. But from an IR, from a disclosure perspective towards the market, this is not different to what Carsten have said to investors and analysts in the past.

And just to be clear, there is nothing on the table as of now.

No. So I think the key message, we focus on organic growth, but we are open to do inorganic growth with a focus on Sweden within specific areas. I think that is what we have said a number of times.

That's very clear.

Okay. It doesn't seem as there are any more questions. So thank you for listening in. Thank you for your questions, Sofie, and I wish you a warm and beautiful weekend, and you know where to find us if you have any follow-up questions. Thank you.