Danske Bank in Northern Ireland has this morning (November 1) reported a profit before impairments of £70.1 million for the first nine months of 2018.Jesper Nielsen, Interim Chief Executive Officer, comments on the financial results: “The business developed largely as expected in the first nine months. We continued to achieve lending growth across the Nordic countries on the back of positive developments in the Nordic economies, and there was solid lending activity among both personal and business customers. Credit quality also remained solid, and net interest and net fee income were in line with the year-earlier levels despite increased pressure on margins. However, total income was affected by the uncertainty in the financial markets. In addition, expenses were higher, among other things as a result of our decision to donate DKK 1.5 billion, corresponding to the gross income from the Estonian non-resident portfolio, to initiatives aimed at combating financial crime. Also internally, we continue to invest significantly both in measures aimed at making it as difficult as possible to use Danske Bank for financial crime and in drawing the necessary learnings from the Estonia case. This is something we take very seriously, and we know that we have a huge task ahead of us in restoring the trust of our customers and society.”
The interim report is available at danskebank.com. Highlights are shown below:
First nine months 2018 vs first nine months 2017
Danske Bank posted a net profit of DKK 11.6 billion for the first nine months of 2018, a decrease of 24% from the level in the first nine months of 2017. The result reflects a continuation of good lending growth and a low level of impairments, but also weaker trading income due to challenging market conditions. Furthermore, the result is affected by the September 2018 decision to donate the estimated gross income from the non-resident portfolio in Estonia in the period from 2007 to 2015 to an independent foundation supporting initiatives to combat international financial crime.
The return on shareholders’ equity after tax was 10.1%, against 13.3% in the first nine months of 2017.
Total income amounted to DKK 33.4 billion, a decrease of 7% from the level in the first nine months of 2017. Net interest income and net fee income were at the same level as in the first nine months of 2017, while net trading income was negatively affected by the challenging market conditions.
• Net interest income totalled DKK 17.7 billion and benefited from growth in lending in all of our Nordic markets, but was adversely affected by margin pressure and negative currency effects. Our activities in Sweden especially showed strong lending growth, driven by our partnership agreements and business customer lending.
• Net fee income amounted to DKK 11.3 billion. The negative effect of lower customer activity was offset by net fee income from SEB Pension Danmark.
• Net trading income totalled DKK 3.7 billion, a decrease of 35%. This was due in particular to difficult rates markets affecting FI&C, and subdued customer activity in Capital Markets.
• Other income amounted to DKK 0.7 billion, against DKK 1.2 billion in the first nine months of 2017. The decline was owing to the first nine months of 2017 benefiting from income from Krogsveen, the Norwegian real-estate agency chain, which was sold in the first quarter of 2018 as well as to a lower risk result in the health and accident business at Wealth Management in the first nine months of 2018.
Operating expenses amounted to DKK 18.8 billion, an increase of 11% from the level in the first nine months of 2017. This was due in particular to the DKK 1.5 billion donation related to the nonresident portfolio in Estonia being recognised in the third quarter of 2018. Adjusted for the donation, expenses rose 2%, with costs relating to SEB Pension Danmark and a continued rise in costs for compliance and regulatory requirements contributing to the increase.
Stable macroeconomic conditions and solid credit quality led to a continually low level of loan impairments. Net reversals thus amounted to DKK 607 million, against DKK 632 in the same period of 2017.
Banking DK saw a decrease in profit before tax of 6% from the level in the first nine months of 2017. The result reflects lower net impairment reversals and higher operating expenses, attributable mainly to increasing costs for regulatory compliance. Income was on a par with the level recorded in the same period last year.
Banking Nordic achieved an increase in profit before tax of 11% from the level in the same period of 2017. The increase was due primarily to an increase in lending that resulted in higher net interest income. Lower operating expenses and impairment reversals also had a positive effect on profit before tax.
Corporates & Institutions generated a profit before tax of DKK 3.6 billion. This was a decline of 29% from the level in the same period in 2017, which was characterised by high trading income due to favourable market conditions and high customer activity fuelled by geopolitical events. Operating expenses decreased 5% from the level in the same period last year due primarily to lower performance-based compensation.
Wealth Management posted a profit before tax of DKK 2.6 billion, a decrease of 20% from the level in the first nine months of 2017. The financial performance benefited from net fee income from SEB Pension Danmark. However, the performance was adversely affected by uncertainty in the financial markets, causing a low investment return in the health and accident business, and by an increase in operating expenses. The increase in operating expenses was due mainly to regulatory costs and costs relating to SEB Pension Danmark.
Danske Bank in Northern Ireland achieved a 13% increase in profit before loan impairments (in local currency) as a result of both higher income and reduced operating expenses. Lending and deposits grew 8% and 5%, respectively (in local currency).
Estonia
On 19 September 2018, we presented the findings and conclusions of the investigations into the branch in Estonia.
The Board of Directors initiated the investigations, which were led by the Bruun & Hjejle law firm. The portfolio investigation, which is still ongoing, covers around 15,000 customers and 9.5 million payments. Finding and reporting any suspicious activities is of primary concern, and we continue to report to the relevant authorities.
We do not wish to benefit financially from suspicious transactions in Estonia in the period from 2007 to 2015. Accordingly, the estimated gross income from the non-resident portfolio in that period will be donated to an independent foundation supporting initiatives to combat international financial crime, including money laundering, also in Denmark and Estonia. If any income from the non-resident portfolio becomes subject to confiscation by relevant authorities, any such confiscation will be deducted from the amount to be donated.
On 4 October, it was announced that we have received requests for information from the US Department of Justice (DoJ) in connection with a criminal investigation relating to our Estonian branch conducted by the DoJ. Furthermore, we are being investigated by the Danish and the Estonian FSA as well as the Danish State Prosecutor for Serious Economic and International Crime (SØIK) and the Estonian Office of the Prosecutor General (the Estonian FIU). Danske Bank is in continuous dialogue with and cooperates with all authorities.
Capital ratios remain strong
Our capital position remains strong, with a total capital ratio of 20.9% and a CET1 capital ratio of 16.4% as of 30 September 2018.
Following an order from the Danish FSA on 4 October 2018, the Board of Directors has reassessed Danske Bank’s solvency and capital needs. This has led to an increase in the total capital requirement of 0.7 percentage points to 16.9%. The CET1 capital requirement now stands at 12.3%.
As a consequence of the increased requirements, Danske Bank’s target for total capital has been revised from above 19% to above 20%. Our CET1 capital target has been revised from 14-15% to around 16% in the short to medium term.
At 30 September, DKK 6.8 billion of the DKK 10 billion share buy-back programme had been bought back.
On 4 October, following the increased capital requirements, it was decided to discontinue the share buy-back programme. This will add some 0.4 percentage points to our CET1 capital in the fourth quarter, providing further flexibility within our new capital targets.
At 30 September 2018, our liquidity coverage ratio stood at 135%.
Outlook
We expect net profit for 2018 to be in the range of DKK 16-17 billion.
We maintain our ambition to rank in the top three among major Nordic peers in terms of return on shareholders’ equity.
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