Good afternoon, and welcome to the Danske Bank Q1 2024 pre-close call. My name is Claus Ingar Jensen, and I am head of Investor Relations. With me, I have Katrine Strøbech, Olav Jørgensen, and Nicolai Tvernø 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 before the start of our silent period on next Friday, the twelfth of April, ahead of the publication of our Q1 2024 report on the third of May. I will go through the P&L statement line by line and comment on capital at the end. Afterwards, we will open up for a Q&A session. In today's call, I would also like to highlight an upcoming restatement of our financials as we are aligning our reporting fully with IFRS 17, which I will go through in more details later. 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 data.
In this connection, I wish to stress that development in specific indices may not always have the same effect on our performance. Before we go through the income lines, I would like to start with a brief comment on the most recent macroeconomic development. During the first quarter of 2024, the Nordic economies continued to show resilience despite monetary policy tightening and critical geopolitical situation across the world. The benign environment is particularly evident in Denmark, where unemployment remains very low, supported by a service-based economy, including the strong pharmaceutical sector, and where household finances remain strong. In this regard, we also have noted the latest upward revision of the 2023 GDP numbers from Statistics Denmark, which supports the growth prospects.
The housing market has stabilized faster than anticipated, and prices are expected to increase during 2024, despite the uncertainty around the new tax appraisal system that took effect on the first of January this year. Generally, turnover in the housing market has recovered somewhat from very low levels, but it varies across regions and segments of the markets, with especially owner-occupied apartments in the capital region seeing lower activity. This would lead to lower credit demand, all else equal. With an expected rise in real wages, this should support activity and consumer spending. However, sentiment continues to be negatively impacted by geopolitical uncertainty. Now let's have a look at the NII. There were no changes to policy rates in Q1 in any of our Nordic markets, nor from the European Central Bank.
In the fourth quarter of 2023, only the Norwegian Central Bank changed its policy rate when they hiked by 25 basis points on December 13. Giving the lagging effect in connection with the notice period to customers, we are expecting limited Q1 impact, as most of the rate changes we have subsequently implemented did not take effect until the 22nd of February. Kindly note that Q1 2024 has one less interest day than Q4 2023. However, given that 2024 is a leap year, Q1 2024 has one more interest day than Q1 2023. The estimated day effect is around DKK 80 million. Regarding recent volume developments, we refer to publicly available data. In terms of lending, we note that overall credit demand remains somewhat muted. In addition, we remind you that we expect to see continued attrition from the PC Norway portfolio throughout the transition period.
On retail deposit volumes, we continue to expect a stable level benefiting from diversification and healthy household balances. Corporate deposits also benefit from the sound degree of operational deposits, but be mindful that this level may be impacted by tax and dividend payments that are typically made in Q1. Looking at funding costs, we note that NIBOR and STIBOR saw a largely flat development during the quarter. And as always, please be mindful of currency fluctuations in the market where we operate. Both SEK and NOK depreciated around 3% in Q1, while pound sterling appreciated just about 1%. In terms of wholesale funding, we issued around DKK 30 billion during Q1, progressing in line with our full year guidance of between DKK 80 billion and DKK 100 billion of debt issuance across instruments.
Our year-to-date issuance includes a EUR 750 million Tier 2 benchmark transaction, priced at three-month EURIBOR +203 basis points, along with a EUR 750 million non-preferred senior, priced at three-month EURIBOR +149. We have also issued a $2.25 billion dual tranche, senior preferred, senior non-preferred, equivalent to three-month EURIBOR +81 and +129 respectively. Though the impact to the Q1 result is modest, you should also keep in mind that we have now called a $750 million AT1 at a spread equivalent to three-month EURIBOR +321. Please visit danskebank.com debt section for further details on terms and pricing for each issuance.
And then finally, on our NII sensitivity, we reiterate our guidance of approximately ± DKK 500 million per 25 basis point change across all currencies on average over the next 100 basis points within a 12-month period. As the balance sheet effects from hold-to-maturity portfolio and unhedged fixed rate assets are gradually taking hold, we would all else equal expect to see a two-year and a three-year impact of another DKK 300 million and DKK 200 million, respectively. Please note that by far, most of our sensitivity relates to DKK and Euro in that order. And in respect to fee income, the development is, of course, always subject to market conditions in the financial markets, housing market activity, and your general activity level among our customers.
Starting off with investment fees, this will be impacted by the development in asset under management as well as the investment activity among our customers. Year to date, we have noted that equity markets globally continue the positive trend observed during the last part of 2023. In the fixed income markets, the expectation of fewer Fed rate cuts have resulted in higher yields for both euro and dollar rates, which all else equal, reduces asset under management in our fixed income funds. Also, I would like to remind you that investment fees for Q3 of 2023 were positively impacted by around DKK 0.3 billion from the seasonality effect of the booking of performance fees in asset management. Turning to activity-driven fees, we note that the Danish consumer sentiment, as measured by Statistics Denmark, continues its upward trend, however, still negative.
Looking at consumer spending for February, we saw an uplift in real term spending above 3% when comparing to the same period last year, making it the largest increase in real spending since April 2022. Looking at fees from lending activities, we are mindful of the current state of the Danish housing market, as mentioned earlier. You should, however, note, as in other years, the refinancing auction at Realkredit Danmark takes place in Q1, similarly to other years. Remortgaging activity remained low, however. Finally, on capital markets activity, we note that the recovery from the low level last year has continued with improved financial market sentiment, and especially DCM activity remained constructive. Now turning our focus to trading income, noting that the main driver of our trading income is customer activity. In general, credit spreads improved in Q1, including spreads on Danish mortgage bonds and government bonds.
And then Danica, where we know where we don't have any specific comments for Q1, please be aware that Danica's result are always subject to development in the financial markets and in the health and accident business. We have no comments on other income, and there are no one-off items to be communicated for Q1. On the cost, we have no specific comments regarding the quarterly development, but in terms of the announced DKK 0.6 billion of non-recurring costs for 2024, please note that most of these costs relates to our new domicile and will be largely evenly distributed over Q, through Q2, Q3, and Q4, so no Q1 impact. The remaining costs related to our PC Norway divestment are more evenly distributed over the year.
We have no specific comments on asset quality other than to note that the benign macroeconomic environment continues to support our full-year impairment guidance of around 8 basis points, and we have no comments with respect to tax. On capital, we do not have any specific comments on RWA, besides noting that market risk remains subject to volatility in the market. In Q1, our total capital and CET1 capital ratios will be reflecting the full deduction of the DKK 5.5 billion share buyback program that was initiated in February. All else equal, the execution of the full program would have reduced our Q4 2023 CET1 capital ratios by around 66 basis points. As mentioned at the beginning, I would like to highlight 2 changes to our disclosure going forward.
Firstly, as of Q1, we will fully align our reporting to IFRS 17, and therefore no longer show financial highlights. The change implies a reclassification of part of our trading income, which hereafter will be classified as fee income as it relates to fees associated with income from automatic FX transactions. Using 2023 full-year numbers, around DKK 1.3 billion of trading income would be reclassified as fee income, with an insignificant amount allocated to net interest income. Naturally, this will alter our general expectations for normalized trading income from previous around DKK 4 billion per annum to now around DKK 3 billion per annum, subject to market conditions, of course. There are no changes to our full year guidance for total income. For the upcoming consensus contribution, please keep this in mind.
No later than Monday next week, we will publish a file with restated numbers going back eight quarters. Secondly, in our personal customers business unit, we will only disclose a full PNL for PC. For each of the countries, we will disclose NII, fee income, and loan impairment charges, along with volumes. The changes will take effect from Q1 this year, and comparable figures for the previous eight quarters will also be part of the file I just mentioned. And briefly on the PC Norway transaction in February, the Norwegian FSA granted their approval for the sale of our PC Norway business to Nordea. Expected deal closing is still during Q4 2024. This concludes our initial comments in this pre-close call.
But before we move to the Q&A session, I would like to highlight that we enter our silent period on Friday, the twelfth of April. At the beginning of next week, we will also start collecting consensus estimates, with a contribution deadline on Friday the twelfth at noon. Please note that we will publish our Q1 2024 results on the third of May at 7:30 A.M. CET, and that the conference call for investors and analysts will take place at 8:30 A.M. as usual. We are now ready for the Q&A session. If you wish to ask a question, please use the Raise Your Hand function. I can see that, Sofie Peterzéns, you have a question?
Yeah. Hi, thanks, Claus. Yeah, so, just on net interest income, how should we think about the net interest income benefits from the previous rate highs? Could you just talk us about kind of the repricing of the Finnish and Swedish loan book? Should we still, given that you have, like, the year two and year three sensitivity, and could you also just remind us of your hedging portfolio and the tailwinds to net interest income? How we should think about the tailwinds to net interest income from those items, please?
Yeah, I think that if we go back to what we communicated at Q4, Q4 was the quarter where you saw this effect from a significant repricing of deposits and savings accounts in Denmark. We have also clearly stated that we expect that NII will peak sometime during this year with the. There is no changes to that communication, as we have just highlighted a couple of times during the last couple of months. Based on the expectation for central bank rate cuts that we have for this year, we would expect that we would expect NII to peak around mid-year.
That is, that is what we have said, and, and we have also, you know, guided for higher NII. I think we have stated that we are not necessarily completely disagree with the consensus that we have for now. So I think that's essentially what we have communicated on NII, and that is, of course, still valid communication. The effects from the deposit hedge, the hold-to-maturity book will gradually kick in.
There will also be a gradually positive impact from the unhedged assets, in particular, those in Sweden that are three-year mortgages, whereas the positive effects on the Finnish book has more or less come through since we are here talking about floating rate loans with six-month or primarily 12-month reset periods. And given the history around rate hikes, most of these effects have actually been implemented by now. I don't know if I forgot any of your questions, but then please repeat them, because I heard a couple of questions from your side, Sofie.
Yeah, no, that, that was clear. Could you also remind us, the negative DKK 85 million tax one-off that you had in the fourth quarter, will that reverse now in the first quarter in 2024, or how should we think about that?
That was a pure Q4 effect, yes.
It will reverse now.
Yes
... in the first quarter?
Yeah.
Okay.
Yeah.
Okay, perfect. And the salary increases in Denmark, they only take effect from first of July this year?
That, that's correct as well, yes.
Okay, perfect. That is all for me. Thank you.
Okay, you're welcome. Jan Erik?
Thank you for taking my questions as well. The fee arrangement or the trading arrangement you changed around, or-
Yes
... you're taking on, the one point three billion is the full year 2023 amount. Is it sort of evenly distributed, or how should we think about it?
... When you say evenly distributed, what do we have in mind?
No, no, it's-
Over the year or?
Over the areas, over the quarters, or is it sort of skewed towards, the activity-
No, it's evenly... I would say it's evenly distributed, but there will be more clarity when we send out the restatement file.
Yeah.
You will see the effect, and you will also, in the restatement file, be able to see where does it come from in terms of business units. So, this is primarily a business customer/LC&I move that you will see here, but there will be more color on that in the restatement file.
Yeah. So it's more or less the FX business that you-
Yes
... sort of say it's a fee-based business rather than-
Yeah
... a margin business as you have done in the past.
Yeah.
Great.
Part of the, part of the FX business.
Yeah.
Not all, but part of it. Yes.
When it comes to NII, you said that you were quite happy with consensus level of DKK 37.4 billion, it sounds like, for 2024.
Yeah, I think we said at the time we had consensus around DKK 37 billion, right?
Okay.
When we made the statement. Yes.
Okay. Perfect. Very good. Do you think user volumes, et cetera, wasn't that supportive or, or even though the macro seems to be supportive, what kind of other trends stand on the margin impact as well as the changes to, to NIBOR, which is also... or, or the, the IBORs-
Mm-hmm
... which is also very limited-
Mm
... would sort of change the Q-on-Q trend for into Q1 versus Q4 this year?
You mean specifically on what line? On fee or-
On the NII. On the NII.
On the NII. No, I really don't see that many changes into Q1 of this year. No. As you can hear from our comments, it seems to be a little bit of a dull quarter when it comes to volume development. And I think that we are also making a reference to publicly available data. The publicly available data I have seen from the Danish Central Bank also points to relatively flat development for residential lending, with a small uptick in corporates. For corporates, which is usually the case, that line is a little bit more volatile, but overall pretty quiet, I would say.
Yeah. Thank you. On the insurance side, one of your peers mentioned that there were some technical issues around some guarantees that you had to take in IFRS 17 at the start of the year. Is that something that will sort of take down your insurance income line at the start, and then, of course, equally be good for the rest of the year? Or how should we think about your life insurance and guarantees in the IFRS-
Yeah
... IFRS 17 perspective?
Yeah, I think we have done IFRS 17 adjustments to Danica last year, and I'm not aware of any changes in Q1. But there might be some different patterns comparing where you see some changes in one company, but not in other companies. But, you know, that's only speculation from my side. But I'm not aware of any special effects in the Danica business in Q1.
Thank you. Very clear.
Okay, that seems to be the questions. So thank you so much for attending, and please give us a call if there are any follow-up questions during the day or next week. As I said, we will go into silent on next Friday, so there should be plenty of time. And having said that, I wish you all a very nice weekend. Goodbye.