Jyske Bank A/S (JYSK) Earnings Call Transcript & Summary

Hi, everyone. Thank you for joining us in Jyske Bank's conference call for the financial results for the first quarter of 2025. This is Simon Hagbart from Investor Relations speaking. With me, I have Jyske Bank's CEO, Lars Morch; and CFO, Birger Nielsen. Lars and Birger will walk you through our prepared remarks. Afterwards, we'll open up for questions. I will now hand over to Lars.

Thank you, Simon, and thank you all of you for joining this conference call for the Q1 results 2025. We have had a strong start to the year, building upon the positive momentum from recent quarters and growing EPS 2% year-on-year, and that is despite significantly lower Danish policy rates. The operating performance is supported by improved momentum with personal clients, higher assets under management and increased activity levels. Net fee income thus rose a full 20% year-on-year. In addition, effective cost management reduced the cost base by 3% year-on-year. Credit quality remains very solid and we have increased our buffer for macroeconomic risks even further. In the last year, we have improved customer satisfaction significantly in all areas. This reflects a number of efforts, including boot camps, a reorganization and increasingly proactive interactions with clients. On the back of this, mortgage financing for personal customers in Q1 reached the highest organic growth rate since 2018. We look to build further upon this as strong customer relationships remain an integral part of our strategy. Lastly, we've gained improved visibility on the impact from upcoming regulation following the implementation of Basel IV input floors on 1st of January this year. This has increased REA and reduced the CET1 ratio a bit shy of 1 percentage points. This is in line with what we have guided. We are comfortable with our current capital position in the lower half of the 15% to 17% target interval, and we'll look to update our capital targets in the coming quarters. We expect no significant impact from upcoming regulation entailing that future earnings lastly can be reserved for other purposes, including obviously growth and capital distribution. Overall, Jyske Bank is in a solid position with a positive momentum, and we are ready to support our customers.

Yes. And moving on and looking at the financial numbers in a bit more detail. Overall, we have a higher downside risk now in interest rates than we had back in '24. We expect 2 further cuts for the rest of the year, and that's one more than we expected formally. And secondly, the uncertainty is higher regarding the macro environment due to the trade war and finally, the third remark initially is that it has led to higher volatility in the financial markets. Looking at the numbers, we are still on a good footing when it comes to RoTE, about 11%; cost to income ratio well about 50. Cost of risk, still very, very close to 0. Earnings per share DKK 19.4, very much aligned with what we've seen in the former quarters. And then the CET1 ratio saw a drop to 15.7% relating to what Lars referred to before and the new implementation of the regulation. If we look at the profit loss statement in the middle of the chart, you can see that NII is down only 1% Q-o-Q and 10% over the year, whereas fee income is up 20% over the year and value adjustment this quarter has performed well due to healthy customer activity. Core expenses is under control and actually down 3% year-over-year. On the right-hand side, volumes, asset under management has been on the rise for many quarters. But here in the first quarter this year, we saw a slightly dip due to the higher volatility in the market, but still a net inflow of funds under management. If we look at the lending line, lending is mortgage-wise, up 1%, and we saw the highest growth for mortgage lending to private individuals in one quarter since 2018. On the bank lending side, it's very stable. Public entities required fewer loans, whereas corporate was slightly up in the quarter. And finally, when I look at deposits, you can see there is a slight uptick of 1%, which is driven both by private individuals as well as corporations. The outlook for the year is unchanged relative to Q4. And please bear in mind that loan impairment charges still is expected to be low in '25 despite the higher uncertainty.

Turning to customer satisfaction. We have seen a big improvement across our 3 main business lines. If we go back to 2022 prior to the integration of Handelsbanken, we saw an okay level of customer satisfaction, but a drop in customer satisfaction after the acquisition, which is normal when the organization is busy integrating and you have new clients on board who has not decided themselves to move to the new bank. So I think everything on this chart is normal up until 2024, a year ago, where we've seen the number of initiatives that we have started starting to pay off. And we see a huge increase in customer satisfaction during the last year across both personal clients, business clients and private banking. On personal customers, we saw the biggest uplift of any bank in Denmark last year, and we've seen that momentum into 2025 also, which is hugely positive. And it is obviously nicer to be an employee in a company where the customers are happy, and it's obviously also gives us a better possibility for landing the next new business that a private individual or business is going to embark on. So this is a positive development beyond also our own expectations.

And the next one, looking at the fee income line, as we said, 20% up year-over-year from a relatively low level in Q1 '24. The main drivers have been asset under management up since Q1 '24 and also higher trading activity as the 2 main parts. And then we have changed the discounts after the Handelsbanken customers migrate to Jyske Bank with a discount on their transactions costs. Apart from that, we also, when it comes to fee expenses, see a more average-wise, average like level here in Q1 of this year. So an uptick of 20% to the highest ever level in a given one -- first quarter of the year. Looking at the cost development, we still believe that we can see and expect a slight uptick in costs for this year versus last year all in. But the development in Q1 has been strong and also from a seasonal perspective, the lowest level for cost of the year. One-off items are significantly lower than in Q1 of '24. And the payment -- the resolution fund is very close to 0. We have seen 2% lower number of employees. And then, of course, the flip side of the coin, wage increases and investments in new strategy has lifted the overall cost level. But still 3% down year-over-year, and the underlying cost is only up 1% over the year. Moving to risk -- cost of risk and post-model adjustments, we have -- they are lifted a bit here in Q1 to DKK 1.9 billion due to the reason that we have seen greater uncertainty relating especially to the trade war. Apart from that, individual impairments are close to 0. Realized losses are very low still, DKK 39 million this quarter or 1 basis points. And if you take the stage 3 level of exposure, still steady going, 1.1% this quarter versus 1.2% in the first quarter of last year. So we are confident and state that we still expect low levels of impairments also for '25. And if we look at the implications of the trade war, National Bank has made some analysis on the implications for Denmark. And if you look at the chart, you can see that there is 3% that crosses Danish borders and will be directly impacted by a tariff. Apart from that, goods that are not crossing Danish borders or production abroad, for instance, will consume 9% or consumes 9% of the total exports and hits the U.S. and services are not impacted are the last 6%. So short term, a small impact and long term, close to neglectable impact because customers or businesses will naturally restructure production and look at different markets. So a very manageable impact for a, say, 10% tariff from the U.S. Finally, looking at the CET1 ratio and the capital situation here post Basel I, we have been speaking about Basel -- sorry, Basel IV, we've been speaking about Basel IV for quite some time, and we are happy now to bring the final outcome of the new regulation. We have guided you up to 1.5 percentage points in implication on the CET1 ratio. Actually, it came close to only 1 percentage point, which is, of course, a positive. The reason for the implication of 1 percentage point is the fact that we have a very large low default portfolio of especially mortgage loans, which are impacted by input floors. And that is the main reason for the big shift in CET1 and REA. Looking at the development from Q4 to Q1, profit, of course, adds to the solvency ratio. Then we paid DKK 2.25 billion for the buyback we announced back in February. And then the Basel on the right-hand side on the chart, as I said, took off close to 1 percentage points on the total level. In the middle, you can see a reservation for stipulated 71% for the payout ratio in '25. And as you recall, in '24 we did reserve 30% of our retained earnings for dividends. And after dialogue with the FSA, we will now deduct in the quarters of '25 another 41% for buybacks, but calculated on the '24 earnings. And please bear in mind that buyback programs will, of course, only be known and the size first known when they are fully approved by the FSA. The total implications in Q1 is a level of 15.70%, in the interval of 15% to 16%, as we have referred to earlier. And if we exclude the extra 41% on buybacks, we are at 16.1%, but fully in line with our former expectations and announcement in the market.

Thank you, Lars, and thank you, Birger. We will now open up for questions. [Operator Instructions] The first question in line comes from Asbjorn Mork from Danske Bank.

If I may begin with net interest income development, obviously quite nice trends for Q1, especially adjusted for interest days. But if I sort of look at the breakdown in your fact book, it looks as if interest from lending is down DKK 150 million-ish, but then your interest cost to deposits is down more than DKK 200 million in the quarter. And I guess the real -- because you also have a benefit from your mortgage NII, obviously, this quarter. So the real struggle comes from your liquidity positions. So you've actually been able to mitigate quite a lot of the NII pressure, it seems, from active management decisions. Now given the next 2 rate cuts that you have in your guidance, could you just elaborate a bit on what kind of impact you would expect from your management decisions on NII sensitivity. So what more can you do to mitigate the pressure from lower rates? And is -- what should we take from Q1 into Q2?

Of course, whenever there is a rate cut from the Danish Central Bank, we do an initial and internal thorough investigation of the possibilities in the market. And as you said, we will try to steer as efficient as possible when it comes to managing rates in the market with the customers. That was -- that happened in Q1. And of course, that will, to the extent possible, continue in Q2 and Q3 with the expected rate cuts. That being said, it's clear that there is a slower or a minor impact from our passing through to customers than what we initially saw in the beginning of the rate cut season here a few quarters ago. And so please expect that the implications on the NII line could be slightly higher because of downside risk being higher when it comes to policy rates.

And maybe just to sum up where we are at currently, so we have lowered the deposit rates for transaction accounts to 0% in April and savings products have been gradually -- deposit rates for saving products have gradually been lowered in recent quarters. So yes -- and as you mentioned, in Q1 we did have a positive impact from the CRE repricing. So I think that would be -- of course, that won't come back in Q2.

So how should we look at your NII sensitivity? So is it fair to assume that given the sort of the management decisions that you've been able to make, your NII sensitivity has been lower, but now going forward, the DKK 500 million for 100 basis points is more the way to look at it? Or would you say it's bigger now than the DKK 500 million because we're getting closer to the 0 floor?

Well, in general, in fact, what we have seen is our interest rate sensitivity has been larger than DKK 500 million so far. And that's due to us being able to increase the deposit margin more than what we assume in our interest rate sensitivity. I think this is the case for -- yes, this is probably not just the Jyske Bank thing, I think that's more of a sector thing. So sensitivity is probably higher than the DKK 500 million going up, and that's likely to be the case going down as well then.

But, Asbjorn, maybe if I could add also, there's also a bit of a market in this one here. We don't know what the other banks are going to do, but I think it's -- you could speculate that the closer you get to 0, the more the banks will also be monitoring their own income in the future quarters and management decisions in terms of pricing is likely to take priority, I think, across the market here, the closer we get to 0. So I think banks will also be focusing on the pricing here.

But what would be sort of your view on deposit pricing going down in terms of savings accounts going to 0 if we get further rate cuts from here?

Well, to the extent possible, given the market conditions, we will follow suit on also lowering savings accounts' interest rates.

Okay. Fair enough. Then on the mortgage NII, the margin expansion that we've seen in Q1, can you just -- how sustainable do you think that is given the Basel IV and the commercial real estate risk buffers, et cetera? So what should we expect going forward from this?

This is highly sustainable, I would say. This is just -- we are basically just repricing to reflect the impact from the systemic risk buffer, which is specifically targeting these types of exposures, but also Basel IV, which largely impacts these types of exposures as well. So this is a sector-wide issue, I think, in terms of profitability. And I think it's fair to say that, that's here to stay.

Yes. And please look at the repricing on the CRE buffer in comparison with Basel IV, higher charges on corporate exposures in general. So yes, it is sustainable.

All right. That's very clear. And final question from my side on the fee income side. If I look at your securities trading and safe custody fees, they're up 18% year-over-year. Your AUM is up 9%. So is it -- if you could sort of break out that line in your fee income, how much is asset management and how much is securities trading and safe custody or more market activity-based fee income? Would be very good to have that split.

Yes, that's fair. Unfortunately, we don't split that out. I think in the annual report, you can find somewhere in one of the notes that how much is asset management activities. But of course, that's not for Q1. But it's fair to say that the vast majority is asset management activities. We did see higher trading activity, but that's a low double-digit million figure that contributes with year-over-year.

If we recall what we said -- if you all recall what we said in '24, the main driver was higher AUM.

This is basically normalization from low -- we mentioned some of the specific factors to keep in mind on the slide here. But it's more -- you should more think this as the normal level than the Q1 2024 level.

Okay. So you would expect the Q1 '25 level to be a recurring level going forward. So hence, quite nice year-over-year growth for the rest of '25.

Yes. Well, that depends on developments in assets under management.

Also, they're also equal.

Yes, quite right. And please be aware, as I said before, that the lending for -- mortgage fees from lending to both private individuals and corporates was at a historic low last year. Now they're lifted up 31%, but still there is room to go even further and much higher on that line in the coming quarters.

And next question in line comes from Martin Birk from SEB.

I have a few questions on buffers. If we start off with your accounting buffer, namely your PMAs, I see those PMAs are going up again. When is enough, enough?

That's a good question. But I think to be totally transparent here, we did a thorough analysis on the uncertainty given the trade war and it still applies when it comes to the market. It hasn't been settled with any firm number. And therefore, we can't give you the exact outcome on our customer base. And that's also the reason why we mentioned the implications in broader terms in a Danish context. That being said, I think it is prudent and it is also -- but it's also timely to be aware that uncertainty has significantly lifted -- been lifted. But please be aware that in our books so far and in our dialogs with the customers, we are still very confident and that's the reason why you can see stage 3 levels are steady, realized losses stay low, individual impairments close to 0. So there are no warning signs as we look in our books. But to the extent that we need to prepare for future events not seen in the books and not heard from customers, we need to take action here. And I think the lift of DKK 0.1 billion is a fair assessment, but it's an assessment on the top of a prudent and strong portfolio.

Okay. But doesn't it -- I mean my point is that we hear that peers, I mean, you saw Nordea reporting earlier, I believe, this month. They took a reversal of their PMAs, and they said that over the coming years they will bring it down to a normalized level. And now you're out saying the complete opposite. You have loan impairment charges, which are -- well, sorry, PMAs, which are 4x normalized loan losses. And you have had that for an elevated period stretching all the way back to the beginning of 2020. Isn't it soon time to start to reverse or address these buffers rather than just every time you have a chance to add stuff to them, you just sort of add to them?

Yes. We have actually a margin reversed a couple of times since '20. And we were also hoping for that to continue. I think this with the possible trade war is going to creep into all banks. It's a matter of timing here. I think in general I think what you should look at here is that we've been prudent in taking this upfront very early on. We still see a book that is extremely strong and performing extremely well in the first quarter here. So hopefully, that can end up as reversals at a later point in time.

Okay. All right. Moving from your accounting buffers to your capital buffers. You have a roughly 100 basis points hit from the implementation of Basel IV, but you do not lower your CET1 target. Why isn't that just a plain vanilla symmetrical adjustment?

Yes, very relevant question. We haven't finalized the dialogue with the FSA. So before we have done that, we can't give you the clear answer to that. That's the reason why we stated 15% to 16% or the lower half of 15% to 17% still, and that applies as long as we are in a dialog with the FSA.

And what's the expected charge from FRTB on 1st of January?

That is actually -- as we state here, we don't see any significant shifts from FRTB or output floors in the very long run. So taking the 100 around close to 1 percentage points here in Q1 is by far the largest chunk of implications on our REA as we can see it now. So FRTB and output floors are only insignificant effects on a real level going forward.

Okay. Then perhaps a final question on capital. I see you have a pretty large accrual ratio in there. There was also another Danish bank reporting this morning having fairly similar capital policy as you do, a fixed dividend policy and then 1-ish annual share buyback and they only accrue for the dividend policy. Why are you having a 71% accrual ratio when other players have less?

I can't answer for other banks than Jyske Bank, but given the dialog we've had with the FSA, we decided on an equal treatment of buybacks and dividends.

Okay. Then a final question from my side. And I think this is a CEO question. The revised Totalkredit framework, does that change anything in your book? Does it change your strategic priorities in any kind of way?

No. I think basically nothing new has happened. They've agreed apparently on how to progress from here. The important part is basically not that agreement, that is the agreement between the competition authorities and Totalkredit which is opening the door for the smaller banks for a potential exit at a point in time when they deem it relevant. And the new agreement, as I understand it, it just incorporates these things into the general framework. Then there are a number of smaller adjustments to that, adjustments that is small and not relevant in terms of the final decision that a bank will make on where to purchase their mortgage loans going forward. The most important thing for us is probably the fact that this opens up for consolidation and consolidation comes when it's relevant. The new agreement will not be an issue in relation to this.

And next question in line comes from Mathias Nielsen from Nordea.

Congratulations on the strong results this morning. So if we start on costs, they came out 3% below consensus. How should we think about this? Is this the new level? Or is it just a timing difference since your guidance is unchanged? And could you also please remind us how much you expect in extraordinary costs from example given the domicile in Copenhagen and what other one-off costs that you have planned this year?

Yes. I think Birger will answer the specifics here. But I think part of this is basically us doing what we have said that we wanted to do. And after the acquisition of Handelsbanken and PFA Bank, we had an integration job to do, and that job is now finalized. And this means that we are approximately 90 employees less at this point in time than we were at the same point in time last year. So this is part of it. Then there are a number of one-offs, the one and the other way. And I think if you could go into that, Birger?

Yes. The Q1 numbers are seasonally the lowest for the year, as I said. And we took off one-offs. If you take the Q1 last year, we had a decent chunk for the integration. We had some lawsuit costs, and we had some VAT issues that gave us some uplift in one-off items. And those elements actually -- well, all of them are not present this quarter. And quarter-by-quarter, this year we expect to see low one-offs and there will be a small implication from the [indiscernible].

Yes, we relocate 3 different locations in -- basically, we acquired BRFkredit ones, we have acquired Handelsbanken Denmark and Jyske Bank has another branch in Copenhagen. And we merged those 3 buildings into one, and that will be done sometime this year. And the implications will be a double-digit million figure, but not in the high end.

And longer term, this will actually be a little bit lower cost in Copenhagen than what we have had historically. So by merging these 3 facilities, over time we'll get cost savings out of this. And on top of that, we expect efficiencies also by having 900 people in the same building.

Okay. So if I come back, so like on a follow-up on this one. So like the start to the year, has that been better on cost than you expected? Or has it been on par with what you had expected internally?

Well, I think Q1 was a slim cost-wise quarter, but more or less as expected because we saw -- we have expected a big drop in one-off costs in Q1. And that's why we still reiterate that we could see a slight increase in '25 versus '24.

Okay. Okay. If we then move on and a follow-up on Martin's questions and what you said about the dialog that you have with the FSA on the capital targets, when should we expect that to be finalized? Is that something that takes 1 month, 2 months, 1 or 2 years, 1 or 2 decades? How long should we wait?

Well, that's a good question. We don't know. But we will do our utmost to finalize it as quickly as possible. So whenever we are ready, of course, we'll announce it to you. But I think don't expect any major shifts in levels. 15% to 16% is a solid level now, and that includes the CRE buffer of 1 percentage point. So doing the math on that alone and if we can exclude that, that, of course, gives us a change in the expectations and the targets. But it's too soon to say because we need to finalize matters with the FSA.

So when that's finalized, will you then send it out in a separate release? Or will it be coming with the following quarterly results? How should we think about that?

I think you should expect us to announce it timely with a quarterly result.

Okay. That's very clear. And then maybe on the lending growth, you also had some small sentence on that on one of the slides into Q2 that you haven't seen any significant changes to credit demand. Is there any difference between the corporate and the personal banking side? How people are reacting to this and how we should think about that going forward? And also on the mortgage business, it seems like it's -- that you have a bit volume growth in the mortgage business and also on the personal banking side, so that seems nice. But how should we think about that when we look at Q2 and going forward as well?

Yes, I would like to be able to give you a very precise answer on this one. Our thinking around this is that Personal Banking and the Personal Banking segment seems less affected. And even the lower interest rates could mean that the momentum is keeping up in that area. We've also seen that our organization works extremely well, and we've seen an increased momentum also compared to the market. On the business and corporate clients, we've not seen a big change in demand so far. But I think people could speculate if some investments could be postponed if there's going to be uncertainty on the tariffs and so on. So we have not seen that yet. We have discussions with our organization and advisers on a daily basis, and we obviously inform them about what they should be aware about in terms of tariffs and other areas. And basically, they come back and say the optimism is still there. And we also see that from some of the cross Denmark analysis that the optimism is still around in the companies. Our view would be that it will be a little bit subdued in terms of demand on the corporate and business clients, but we don't see a big change.

Also like one of your peers also reporting today, they said that they have seen net working capital like coming down among the clients on the corporate side, leading to a lower drag on the credit facilities. Is that something similar that you have seen in Q1 as well?

Not to a large extent, no. And we have not seen the opposite either that people are using their facilities to a large extent that you would normally -- that you could normally also see entering into a crisis. So we have really not seen that the uncertainty that we are talking about creeping into the real numbers yet.

And next question in line comes from Namita Samtani from Barclays.

Just firstly on the commercial real estate systemic risk buffer. Like if that gets taken away, do you then reduce your pricing for customers? Like how does that work? Because you're not going to get both, right?

Well, the CRE buffer will be reassessed in the Systemic Risk Council here in the early days of the autumn expectedly with an outcome later this autumn. Whether it will be an unchanged level, half the level or fully cancellation is, of course, unknown. But down the line over the years, I think if we can demonstrate and the market can demonstrate a strong performance in the CRE segments, and pricing are holding up, equity stakes are well in that segment of the business overall. There are good arguments as to why to bring down the CRE buffer, but the timing is uncertain. When it's brought down and it's canceled, as we said before, we think it's sustainable that we have lifted our pricing for some segments of the corporate businesses due to higher capital charges, one being the CRE. And even though we lift, take it off or cancel it, we still have higher charges for some of the segments when it comes to input floors from Basel. So that's the reason why we don't see that we need to reverse these price changes in the foreseeable future.

Our pricing has not been linked one-to-one with the buffer. So there would also be individual customer cases here, Namita, on this. So some of them, we would not need to reduce necessarily because there will be a change.

That's helpful. And then secondly, in your presentation, when you write AUM has only gone down by less than 2% in April, how is that possible because the market has gone down a lot more than that. So are you seeing inflows or what's going on?

You need to remember that a large chunk of our AUM is also bonds. And there, we haven't seen much of an impact. And we haven't seen much change in terms of inflows so far. But -- and then, of course, the last one is during April there was a nice comeback in some markets at least in terms of equities as well. So we were happy to see that, yes, we didn't see much of an impact at the end of the month.

But I think there's been -- and you're saying that indirectly also, there's been a nice inflow of new investments into the area also.

Do you think that's like Jyske is specific or you think it's like across the market that [indiscernible]?

What I've seen from -- and there are other experts on the call here, I'm afraid of guessing here, but I think I've seen in some of our peers' results that some of the peers also see a positive inflow here. And I think it's due to the net savings of the Danish altogether that -- and the increased interest in investing. So I think there's a general trend. What we saw in last year was that we were better than the general trend and that is also what we hope for this year that we can have a little bit bigger uplift than the market.

Okay. That's helpful. And then just finally on the FTEs, like they were down 2% quarter-on-quarter. Do you expect the FTEs keep declining this year?

They were down approximately 90 FTEs from first quarter last year, and that is predominantly due to us taking out the extra resources that we needed for integration of Handelsbanken or rather taking out the synergies that we promised at the time of the acquisition. This year, you'll see 2 different trends, one of them being continued cost focus, but also part of the strategy is investing in important areas to ensure a strong bank, but also to look at individual profit pools that are interesting to us.

Thank you, Namita. And it seems as if there are no further questions in line. So we would like to thank you for participating in today's conference call. A recording of the call will be made available on our IR website in the coming days. Please do not hesitate to contact us if you have further questions. We appreciate your interest in Jyske Bank and wish you a nice day.