Earnings Call: Q4 2012

Feb 7, 2013

Summary

2012 net profit rose to DKK 4.7bn as impairments declined and capital and liquidity strengthened. 2013 guidance targets DKK 7.5bn–DKK 10bn, with flat NII and lower trading and insurance income.

Welcome to the Danske Bank Annual Report 2012 conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to your host, CEO, Eivind Kolding. Sir, you may begin. Thank you very much. First of all, let me welcome everyone to this conference. We are looking forward to present the highlights of our 2012 annual accounts, and of course, are open to many questions after the presentation. With me in the room here, I have the CFO, Henrik Ramlau-Hansen, and our Head of Investor Relations, Martin Gottlob. We might as well get started. I will start and turn directly to page 3, where we have our headlines for 2012. Our income improved by 10%. Impairments were down by 5%, actually the lowest level since the financial crisis began. The net profit improved by DKK 3 billion to DKK 4.7 billion, and this is then our best result after the financial crisis began. We arrived at the end of 2012 at very solid and strong capital and liquidity levels, a Core Tier 1 ratio of 14.5% and LCR of 121%. We have presented a rather detailed outlook for 2013, where we expect a net profit in the range of DKK 7.5 billion-DKK 10 billion. Turning to page 4 with some details of the results, first comparing 2011 to 2012. Some of the highlights you have already seen, and I will get back to a bit later, but at the bottom you see that our net profit, the DKK 3 billion, is an increase of 276% over last year. We will not spend so much time on Q4 in itself, but at this page you have a comparison with Q3. You see our net fee income is up by 25% compared to Q3, primarily driven by Danske Capital, whereas our net trading income from Danske Markets was a bit lower, 20% lower than Q3. Finally, our insurance business did well, and we did book some of our reserves from the shadow account in Q4. Expenses did shoot up quite a lot in Q4, 14%, but primarily or basically only one-offs. We have extra expenses to our renaming campaign and so on. Impairment charges, and we are coming back into that in details, are following the downward trajectory. You see the line risk-weighted assets, and actually we have been able to reduce them quite a bit over the year by 10%, so they are now DKK 819 billion. Turning to page 5. Net interest income. Well, I guess the trend is that it is very flat. I think it is quite obvious. That means that whatever we have done to increase our lending margins have been mitigated or have been eaten up by reduced deposit margins and also higher funding costs. But we have been able at least to maintain the level of DKK 6.2 billion. We have put down here the sensitivity of everything else being equal at 25 basis point move in interest level, and obviously it does give an indication of the quite significant floor risk of our business. But obviously now hope for time to see interest rate levels coming up, even though it will be quite modest in the time to come. Page 6, net fee income. Also fairly stable but a positive development in Q4. But those are basically one-offs from Danske Capital, who also had a very good, I think, record year in 2012. Page 7, which is the trading income. As I'm sure most of you know, this is an income which is fairly stable year on year, but not quarter on quarter, and this is quite clear from what you see the development here. Overall, seen in totality, we regard 2012 as a good year for our trading income, relatively high earnings, but a slightly disappointing Q4, especially December month was not very good, but nothing really to worry about. It is a very solid business with those quarterly fluctuations that we see. Page 8, as earlier mentioned, our insurance business, of course, reflecting that we can book some of our allowances from the shadow account, and we did that in Q4. So overall actually also in our insurance business, a fine result in 2012. In page 9, we dive in a bit to the expenses. It's always a little bit difficult actually, also for ourselves to make the absolute right division between underlying expenses and one-offs. We have made an attempt here. But by and large, you can see the underlying expenses are flat to declining. A main driver here is the total headcount, which came down 5% in 2012. Actually, we just met our target of reducing headcount by 1,000. And as you know, we have also targets going forward, which we believe that we can meet. But even despite this reduction, it's not that the underlying costs come down tremendously. There's nothing really to worry about Q4, I think even though the underlying is up a bit, this is normal for us in December. Page 10, impairments, declining trend since Q4 2011, and obviously still Non-core Ireland is a big part here, but also here we are pretty comfortable and we'll come back to our guidance on this. If we disregard Non-core Ireland, we are seeing still that we are approaching normalized levels, not all the way down there, but definitely some steps here in the right direction, not least in Denmark. And in page 11, you have a split by geography and in Denmark, again here compare quarter on quarter, it is perhaps a little bit misleading because again, this is something that can vary a bit quarter by quarter, but the long-term trend is definitely declining in all markets. But it's up a bit in Denmark, but overall a declining trend over the year. Very low in most of the other geographies. Then we come to Non-core Ireland, where we see a bit of a drop, but still a quite sizable DKK 1.18 billion impairment in Q4. On page 12, we highlight a little bit some of the things we do in our strategy. These are just a couple of examples of an array of initiatives that we have. We do not want to bore you with all of it, but just highlighting two here. One is our personal banking, where we have launched in Denmark our new customer programme, which is to a large extent a new way to operate our personal banking, how we direct our resources, how we design packages for our four main customer groups, which are attractive for each group, but also which ensures that we at least cover our costs for all groups. Those of you who are close to Denmark, or at least read the Danish press, will know that this has been met with quite some media focus. But we still believe it is very much the right program, and that it is reasonable that we actually make sure that at least we get covered our costs by all our customers. On the business banking side, we here mentioned that there is a lot of focus in our countries, but not least in Denmark on trying to get more financing through the bond market, especially for companies which are just below the size of the large corporates. We are very active here and feel we can do quite a lot in order to help both investors and companies to meet. We have the expertise in doing that, and we have great expectations to see that moving onwards. Then moving on to page 13 and the balance sheet, I will leave the word to Henrik Oldag. Thank you very much. On slide 13, you get an overview of our capital ratios where you can see that by the end of 2012, we had a total capital ratio of 21.3% and a core tier 1 ratio of 14.5%. That is quite an increase compared with end 2011. The main contributing factors has been that we have done the equity issue we did in the fall, but also that we over the year 2012 have been able to reduce our risk-weighted assets by almost DKK 100 billion. Then of course also the earnings impact during the year. There is no doubt that we have really strengthened our capital position during the year. But you should also bear in mind that it is still our intention to redeem the state hybrid capital that comes due, or at least would like to repay it in 2014. That has an impact on the total capital ratio of 2.9 percentage points. We have also other tier 1, tier 2 risk instruments running off in 2013 and 2014. But definitely a step in the right direction for the bank. On slide 14, you can see more details on our risk-weighted assets. You can see the decline of almost DKK 100 billion during the year. We have also sold some securitization positions we had that had a heavy risk weight, and also our operational risk have declined during the year. We have also continued to work on our capital efficiency, and then also the slight decline we have experienced in lending is also a contributing factor there. On page 15, we would like to comment upon, as you may be aware of, that together with our Annual Report 2012, and there are also comments relating to that in the Annual Report 2012, the Danish FSA have published a letter stating that they have issued three orders to the bank during the summertime of 2012, and we now are well ahead of schedule to live up to the three orders. The situation was that in summertime last year, we were downgraded by Moody's and S&P together with all the other banks Moody's downgraded, and in that connection, of course, we decided that we needed to strengthen our liquidity position. The Danish FSA was of the same opinion, and in that connection, we got those orders, and we agreed with the FSA, and we had full understanding of their points of view. Here on slide 15, you can see the topics that the orders dealt with. First one was that, as we also have stated in our reports Q2 and Q3, that we have an intention to live up to coming LCR requirements already by the end of 2012. We do that and now have a coverage rate of 121 in terms of the LCR. Going forward, we have made an agreement with the Danish FSA that we will target an LCR of at least 110%. There was also an order relating to, so to say, the term of our funding curve, how it should run off, and those cases are easily fulfilled if you have an LCR of more than 100%. So that is not really an issue. Then the third order we got by the Danish FSA was they asked us to reduce our deposit lending ratio of DKK 75 billion towards the end of 2013, and we also now live up to that. That has also been part of our liquidity management to attract more deposits and, so to say, get the deposits back we lost in connection with the downgrading. Then finally going forward, we have made an agreement with the Danish FSA that something called the funding ratio, which is technical terms, but basically says that you need to have a prudent ratio where you take your lending divided by your long-term funding being deposits and long-term funding sources, equity, subordinated debt, covered bonds, et cetera. That ratio going forward to have a more prudent level compared with the threshold of one. So this is behind us. We are continuing to work on our liquidity and capital in order to regain our ratings going forward. That is also further illustrated on slide 16, where you can see that over 2012, from end 2011 to end 2012, we have improved our Moody's liquidity curve by actually more than DKK 100 billion, and that is also the reason why we are now living up to LCR with coverage of 121%, and we have a huge liquidity buffer of more than DKK 400 billion, most of which can be repoed and are central bank eligible. Slide 17 shows that we have regained deposits and our deposit base is roughly back to the end of 2011, before we got the downgrades, and that we are very well prepared also for 2013, where we, roughly speaking, have a funding need of DKK 30 billion-DKK 60 billion. Given the improvement in our results, the reduction in our spread cost, et cetera, we do not expect that to be a challenge in any way. On slide 18, you will see in our Annual Report 2012 that we have restated to some extent our 2012 figures in order to form a new basis for moving into 2013, where we will start reporting on the three new business units. In that connection, we have introduced internally a new funds transfer pricing, where we have a more granular, more detailed model for pricing deposits and lending. We have also shifted some funding costs from our treasury to net interest income, and that is why on the adjusted basis, the net interest income is reduced, and there is a similar increase in the net trading income. Similarly, we have adjusted the definition of non-core slightly to now also cover some securitizations we actually are in front of this bill. We have also made an adjustment to our expense definition where we are going forward moving cost related to leasing assets sold due to leasing, why our expenses are reduced, but other income is then also reduced by the same amount. On slide 18, you can then see our guidance for 2013, where we guide flat net interest income, increasing net fee income. Net trading will be below very good results in 2012. Net income from insurance will probably come below because we booked risk allowance and part of the shadow account in 2012. Loan impairment charges we expect to decrease, and it all adds up to the guidance of a net profit of DKK 7.5 billion-DKK 10 billion going forward. On slide 19, we will not spend so much time on that, but on slide 19, you can see how the adjusted 2012 figures then look like in the new format of the bank, where we have the three main business unit, personal banking, business banking, CIB, and then also Danica Pension and Danske Capital and other activities. These figures, when we report on Q1 2013, then you will see similar figures for Q1 2012 have, but we will see that when we come with 2013. On slide 20 is an overview of our strategy and our 2015 ambitions we went through at the Capital Markets Day in London in the fall, and we have tried to give you an indication in what direction we are moving. We actually already now live up to the capital ratios. We are not paying out a dividend yet because, as we have mentioned a couple of times, it is really important for us to get rating upgrade, and we also need to be prepared for any upcoming SIFI rules, whatever they are going to be. We are adjusting the guidance on cost because we have removed these leasing costs. Therefore, our new guidance on cost is not below DKK 26 billion, but below DKK 24 billion in 2015, and therefore also is cost income ratio below 46, 2015. Otherwise, I think things is as we have communicated. Finally, on slide 21, you have the more comments to our guidance. We are still in an environment with low interest rates, a difficult macro environment, low growth or negative growth in some markets. We expect net interest income to remain level. We are still doing pricing initiatives. We have also 2012 initiatives that will have an impact for 2013, but still we have for now in 2013, probably get a full year with low interest rates, and we have also some funding costs reducing net interest income. Fee income should come up. Trading income and insurance will be below, as we have mentioned. Expenses flat, but we expect to see a significant drop in our non-core activities due to the fact that we are now guiding that the Irish impairment for 2013 and 2014 will be around DKK 2.5 billion. So we remain within the original community DKK 5 billion-DKK 7 billion intervals. For core activities, probably impairments, which is likely below 2012 level. All in all, hopefully in 2013 and other make a step forward for Danske Bank with a profit in the range of DKK 7.5 billion-DKK 10 billion. I think that was the introductory part, and then we are pleased to take questions. Operator. Thank you. We will now begin the question and answer session. If you have a question, please press star and then one on your touch tone phone. If you wish to be removed from the queue, please press the hash key or the pound sign. If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star and then one on your touch tone phone. Jacob Bank from ABG is online with a question. Yeah. It's Jacob Bank here from ABG. Just a few questions, if I may. First of all, as you write with regards to the reduction in RWA, it's led by a drop in the corporate loan book of around DKK 10 billion in the fourth quarter. Could you maybe just talk a bit more of what is going on here? Along the same lines as you mentioned, there's been quite a lot of media stuff about your New Standards strategy. I don't know how much of this is just the media writing negative articles and how much of this are you actually seeing in the numbers here in the beginning of the year. My final question is just regarding this LCR strengthening you have had towards the end of the year. I see that at the end of Q3, you are still below 100% LCR. Now you're at 120. I also see that the negative impact on NII quarter-on-quarter has been DKK 95 million due to funding. I was just thinking, is this really enough or is there something that we will see in Q1 2013, i.e., that you have only reached 120 towards the end of the year? Thank you. Let me just cover the media side first. It's right that there has been quite an intensive media focus on Danske Bank in Denmark. We do not at all see that in other markets. We don't really see it affecting our business as much as one should expect. Actually, it's very little. When we look at customers who close now on personal customers, we interview them carefully, and they leave for the traditional reasons, price, credit. Sometimes they are not happy with the advisor. Practically no one mention image as a reason. So we maintain our business. At least we don't lose it because of the media attention. There's also been some negative angled articles around how we act with the big corporates. That's a Prospera analysis, and it's correct that in Denmark We go one step down the ladder. So we're only number three in Denmark. On the other hand, if we look at the entire Nordic area, including Denmark, then we're actually moving one step up. So overall, of course, media takes time and attention, but at least so far has not had any real or any significant business impact. Jacob, you had a couple of questions. The RWA reduction in Q4 is so to say, across the board. I think there is a drop in 20, 25 billion in our lending, and that creates a part of this reduction in our risk-weighted assets. Part of the other reduction also comes from some capital efficiency we have done in Finland. You asked about our LCR strengthening, and that has come gradually during the second half, mainly during the second half of 2012. Of course, strengthening our funding with roughly DKK 100 billion, as I mentioned, over the full year has a cost. So that is DKK 400, DKK 500, DKK 600 million, but that is included in our plans. I think we also mentioned during the Capital Markets Day that is part of the program that we need more funding in order to be LCR compliant. I think you are referring to slide 25 on the net interest income is broken down or the change is broken down. There is a funding cost of 95. I think that is an allocation of the tier 2 loan we took in September that is allocated to the institution. Yeah. Thank you. Next question, please. Claire Kane from RBC is online with a question. Hi, good afternoon. I have a few questions, please. Firstly, related to your guidance, it is quite detailed on all the income lines and also on expenses, but you still have quite a wide range for net profit for this year, and you have also now moved up or clarified your guidance for Irish impairment losses from 5 to 7, and you are now at 6.6. Can you tell us if it is Ireland that leads you to be more uncertain for the impairment losses for this year, or if it is something else which is driving that range? That is my first question. My second question then is on the RWA efficiency, and if you could perhaps give us some update to the targets you set at the Capital Markets Day. I think you told us RWA inflation from Basel III would be DKK 90 billion-DKK 110 billion, also DKK 30 billion of parameter changes. Where are we in kind of targeting all of that, which I think you want full mitigation of that by 2015, and have you had any losses on some of those securitization portfolio sales? My third question really is on NII. Can you just talk us through some of the dynamics a bit more? I think we are seeing quite good lending margin increases in some of the business areas, and you are now at the LCR 120, and I understand that you want to start refinancing the state hybrid. But really, is the flat target for NII a bit conservative? Are you thinking much more of a decrease in the overall volume of the book, which is why we are not getting any uplift? Maybe if you could just talk us through that in a bit more detail, please. Thanks. Try to introduce again on our profit guidance and the range that we have. Of course, the most unpredictable lines would be trading income, followed, I guess by insurance. But impairments are also to some extent uncertain. Not so much if things follow the base case, I think we know exactly or quite closely what they will be. But we do not have to go back longer than to 2011, where we saw a change in the macroeconomic scenario in August, and that had a huge impact on our impairments in Q4 2011. So it is not that we have a particular worry on impairments at this point of time. I think it is just flagging that if you look 12 months ahead, there will always be a bit more uncertainty on impairments compared to, let us say, cost and net interest income. Then on RWA targets. Yes. Okay. On some of the other questions, I think you had a number of questions actually. The RWA efficiency, that is working according to plans. I would like to then encourage you to look into our Annual Report 2012 on page 41, where we have shown our current new full expected impact of CRD4, including both the impact from market risks, CVA, but also the impact from including Danica. There we are now guiding, and it's roughly what we have also previously guided a net impact of 2 percentage point down both the impact from new market risk, but also for the reduction of Danica. Regarding Ireland, we are confident that this new guidance, 6.6 to or 6.7, as you mentioned, we are comfortable with that, and that's why we stated the DKK 2.5 billion additional impairment in Ireland for 2013 and 2014. We cannot give you a more narrow guidance than the DKK 7.5 billion to DKK 10 billion. But the dynamics on the NII is that we have done some price increases in 2012. That will improve our NII income in 2013. In addition to that, we now have, at least in Denmark, a full year with very low interest rates, or at least that's what our assumptions are. So that is a drag downwards. We have also, moving into 2013, a little bit higher funding cost than what we had in 2012 because our funding cost for a period has been higher. We have taken on additional funding. But the spreads have now come down. So the new funding we will take in 2013 will probably be to a much lower price than previously. You ask whether the sale of our securitization have had any loss. No, not to any noticeable size. Thank you very much. Can I just add one thing, Claire, regarding the NII? If you look at the Q4 NII of DKK 6.2 billion, in that is pretty much what we have in funding costs at the moment, as well as all the increases we have had on the lending margins. Interest rate has stayed quite stable in that quarter. Going forward, there need to be new initiatives to move the interest rate either up or down. We might take up a bit more extra funding cost during the year that could actually put a little bit pressure on this. Or you could see maybe some of the volumes going down a little bit more than we have seen, and these things put a little bit pressure. Other things that could be positive is that we saw the Danish Central Bank increase their rate by 10 basis points a couple of weeks ago. So there are small pluses and minuses here, but by and large, we don't see that the DKK 2.6 billion, before we make the adjustments in outcome can change that much in 2013. Excellent. Thank you very much. It's all very clear. Next question, please. Andreas Håkansson from Exane is online with a question. Yes. Hi, thank you. It's a question on the risk-weighted assets as well. I'm looking in your fact book, and you see that property-related retail lending RWA has gone from 17% last year to 14% this year. I look in your fact book, and I just want to check a few things with you. You said that in the fact book from 2011 on page 55, where you show the LTV table, you said that the Danish LTV was 69%, and you had DKK 7.3 billion above 100. All of a sudden now you said that in 2011 you had a 77% LTV and DKK 21 billion. So there's been a very big move of last year. Could you just explain what's going on? Also in the fact book on page 53, I look at the portion of the retail book that's unsecured, and it's been rising over the last couple of years, and in 2011 it was DKK 207 billion. That has dropped very sharply down to DKK 148 billion in an environment with falling interest rates. Could you really explain what drove that and if that has had an impact on your risk ratings? Thanks. Andreas, please, where are you looking at these numbers? We're looking at the fact book. I mean- In your fact book on, let's say start on page 54 on your fact book. In fact book page- No, not the fact book, the risk, the Pillar 3 book, whatever you call it, the risk management book. Okay. We don't have that here. Could we take it bilateral that you call- Okay. But still, yes. If you said that the senior unsecured portion of your retail lending has dropped from DKK 207 billion to DKK 148 billion with the same amount of total lending, then there should have been a very drastic improvement in your collateral values. Has that been a driver of the improvement of risk ratings on the retail side? Because it is a bit surprising that retail RWAs are falling quite significantly in an environment where unemployment is going up quite sharply and house prices are going down. House prices in Denmark has been quite stable this year. Or gone down a little bit. Yes, a little bit. It is not much, especially in the second half. Yeah. They shouldn't improve the loan-to-value at least. I can't square the numbers there. The risk rates on Danish mortgages has been quite stable this. They've been 14%, 15%, 16% in that range. I said it went from 17% to 14% in the risk book, but okay. I can take that with you, Martin, afterwards. Can I just then quickly take another question? On the loan loss provision side, if I look at the industrial production came out this morning, that looked really bad and domestic demand has looked really bad in the beginning of the year. Unemployment is flat, of course, but employment is falling very quickly. What is the thing that you worry about when it comes to asset quality for 2013 for Denmark? What are the drivers that we should look for that could go wrong rather than or compared to expectation? We do not expect a quick drop in the Danish impairments. We expect them to roughly be flat, of course, with some variations during 2013. Unemployment for many of our customers is relatively, and unemployment in Denmark is relatively low. It's relatively stable. The people have still good salaries, interest rates are low and so on. Of course, some of our customers are struggling a little bit, but not to a great extent. Denmark is still impacted by relatively high bankruptcies among small SME companies and so on. There is still challenges in the Danish economy, but overall with our impairments around 30-something basis point, we are quite comfortable that that could also be the case for 2013. You can see that almost all our customers are servicing their loan 100%. The arrears we have is still very low, and has not shown any sign of any increase. We cannot see that in the near future that could happen, especially as long as interest rates are staying where we are. You can also see on page 33 of the conference call or the appendix page 33, we have an average loan to value of 73. That may be a few percentage points higher than what it was some quarters ago, and the arrears are below 1% and so on. Okay. Well, just push my luck since you did not answer the first question. Just on the LCR, you said that you are above 120, and you put an asterisk saying that includes your own covered bonds. Yeah. Correct me if I am wrong, you cannot pledge them with the central bank, right? So what would be the number of your LCR if you would not include your own covered bonds? That would be lower. I do not have the figure here, but that will be lower. But as you mentioned, we can repo them in the central bank. So for the time being, it is not an issue. Can you repo your own covered bonds or just other people's covered bonds? Yes. Your own as well. Okay, thanks. Yeah. Okay, thank you. Next question. Matti Ahokas from Handelsbanken is online with a question. Yes, good afternoon. Could you a bit elaborate about your NII guidance? Martin, you touched a bit on that already, but if we look ahead, the pressure on interest rate is decreasing, and we just heard from DNB that apparently you have already started to adjust your mortgage rates in Norway, for the potential higher risk weight. What are the kind of other underlying assumptions that the NII would only be flat in 2013? The second question is, I would like to hear some thoughts about what are your plans regarding issuing senior unsecured during the year, and what kind of cost do you expect or margin spread do you expect to pay if you would issue that? Thanks. On the NII, as we mentioned, we have some price increase interests that we have already done in Denmark and other countries, which have not had, in any way, full effect that would help us going into 2013. On the other hand, we will, especially in Denmark, have very low interest rates for the full year effect in 2013, which we have not have had to the same extent in 2012, and that will be a drag on our income side. We may also have some additional funding costs we did not have in the first part of the year. That could also contribute on the downside to our net NII, and that is why we overall guide roughly flat NII into 2013. We will probably, at some point, issue senior unsecured, but we have not made any decisions yet. What do you think the cost could be? For example, a five-year senior unsecured. I would just say that we have stated in the presentation that we expect our funding this year will be between DKK 30 billion and DKK 60 billion. Normally we have split that fairly equally between senior unsecured and covered bonds. That will also be the case this year, of course, depending on the prices in both these markets. Pricing-wise, last year, we paid on average, somewhat above 150 basis points. Hopefully, we will be able to pay somewhat below that this year. But again, this depends on how prices develop. We have seen our spreads coming in very nicely in the last six months, and we hope, of course, they can stay there or even be better. That will reduce the new prices we are paying considerably from the 150 basis point plus we paid last year. Great. Thanks a lot. Thank you. Next question. Jeff Devers from Soc Gen is online with a question. Yeah. Hi, good afternoon. Jeff Devers here from Soc Gen. Two very brief questions. First of all, on net interest income and pre-provision profitability. You have gone through a lot of the negatives and positives that you can put through on your own book. Is it fair to just summarize those as saying that until we see a significant increase in base rates, net interest income and pre-provisions are going to be broadly the run rate that we currently see going forward? Second question is on Ireland. You are guiding towards the very top end of your initial Irish guidance of DKK 5 billion-DKK 7 billion, and that is despite really quite a big improvement in sentiment from some of your peers on the Irish workout. Is there anything different about your book or the way that you are approaching the workout process that is perhaps leading you to be a little bit less positive on the guidance there? Thank you. If you take the level of our pre-provisioning income, I think you have a good point that can be relatively stable. I think where we of course will try to focus is on the fee side. I think we could have opportunities to expand business with a number of customers, and there will be a focus on that part. So there might be potentially an upside there, if we are successful. Broadly flat until we see base rates higher. Yeah, very broadly, yeah. On the Irish part, I am not sure whether we are in a different position than others. We are quite eager to divest but not at any price. We do see some activity in the market at the moment, not a lot, but some. We have also divested a bit, and we think we can accelerate it over the coming time, and we definitely intend to do so if the market is there, but we will not do it at any price. So it is really, see how things are developing. We see that real estate prices, Dublin in particular, are turning upwards, and that provides some opportunities. In the rest of Ireland, though, it is not that optimistic yet. We have been able to sell some properties to the booked value. That is an example that we have been able to, so to say, have the right provisioning, and we stick to this more additional impairments of DKK 2.5 billion for 2013 and 2014. Maybe I should add that we have not, in that number, included any recovery gain from selling some assets above the book value. That is not part of the guidance. Okay. The incremental DKK 2.5 billion, I assume that is almost entirely workouts that has taken place below the amount that you currently have provided for rather than new losses. It is to a large degree, additional impairments to existing cases. But of course they may also- Yeah add some new ones. Be aware that the 2.5 billion also includes the core part. This is still a guidance on the entire Irish business. That's very clear. Thank you for your time. You're welcome. Next question. Ronnie Ring from KBW is online with a question. Yeah. Hello. Here's Ronnie Ring from KBW. Ronnie. Just maybe a few timing issues. On the Irish loan loss charges, when do you expect the bulk of those to come through? Is it still in the next one or two quarters? On the securitization that you have sold, is there any meaningful revenue impact that you associate with that and that we should be aware of? Lastly, just on loan loss charges, I just want to get your feeling for loan loss charges in Sweden and in Norway for 2013. What should be the rough direction? Thank you. The Irish, there we expect to book the major part of our guidance within the next two quarters as you mentioned. I can confirm that. Then in terms of- The guidance you mean the DKK 2.5 billion within the next two quarters? Yeah. Yeah. A major part of it. A major part. Major part. Fair enough. Yeah. You ask whether there's been any revenue impact from the sale of the securitizations. Roughly zero impact. There's no impact there. We are, of course, well following it carefully, the development in Sweden and Norway real estate prices and so on. But our expectations for 2013 is still modest impairments in these two countries. Okay. Just one quick follow-up since you- And we have in a- Okay number of cases we have, so to say, we have strengthened or tightened our underwriting or credit policies in terms of real estate lending in Norway and Sweden. New Standards. Just quickly on Norway, when you reprice your book there, and you run your own internal assessments, do you expect this to have any negative impact on loan loss charges, first? Secondly, what do you think is the volume impact associated with repricing your book, like 30, 40, 50 basis points, if any? I think that the impact of repricing Norwegian books should not, as such, lead to additional impairments. That's not our expectation. And if there's, we do not neither expect it to have any significant impact on our number of customers, volume, et cetera. I have a feeling that the other Nordic banks are doing something similar. Fair enough. Thank you so much for the comments. You're welcome. Are you ready for the next question? Sofie Peterzens from JP Morgan is online with a question. Yeah. Hi, here is Sofie Peterzens from JP Morgan. I had one question around your guidance of net income between DKK 7.5 billion to DKK 10 billion this year. At the same time, you say that Irish losses will fall by or to DKK 2.5 billion in 2013 and 2014. If I do a very simple math, I take that your and yeah, then you said also that your Danish losses will fall to roughly 30 basis points. So Denmark, you should have DKK 1 billion lower impairments. In Ireland, you should have DKK 3 billion lower impairments, then you had DKK 1 billion almost of one-off, so that is DKK 5 billion. If I just add that to your reported net income this year, which was DKK 4.7 billion, I get to almost DKK 10 billion. Why do you think that your net income might only be DKK 7.5 billion for 2013? My second question is around Finland. You still have very poor profitability in Finland. What can you do to actually improve your profitability in the Finnish business? Thank you. First of all, your guidance and your numbers, I think the way you added the numbers together was roughly correct. Be aware that we are guiding lower income on trading. Also we will probably not be able to book the same income in insurance. So that is a negative part. In that way, we still hope that our guidance of DKK 7.5 billion to DKK 10 billion will be correct. In terms of Finland, you are right. It is We are not satisfied with the bottom part in Finland, and we are working on mainly cost and pricing and will continue to do that. This new customer programme we are launching in personal banking will also be exported or try to travel to Finland. We are working heavily on cost and also on pricing. We have actually taken some pricing initiatives, getting mortgage rates up. There are problems with the fact that it is very difficult on the personal side to reprice the back book. The Finnish business is very impacted by the very low interest rates. If, when short-term rates go up, there will be a huge upside potential in the Finnish business. Okay. Thank you very much. Actually, if I could just ask one quick question. On insurance, you mentioned that you expect very low or lower insurance income in 2013. Why is this? My understanding is that you have a new discount rate for the insurance business that actually should help your insurance performance. Plus, the equity markets are actually doing a lot better this year compared to last year. Why do you see a much lower insurance income in 2013? Main reason being that we have booked an extraordinary income of roughly DKK 400 million, which we have taken from something called the shadow account. That is an account you can book from if you have very good investment results, then you can book more than your ordinary income. You can also book part of what is called the shadow account. When we give the guidance, we do not include any booking of additional extraordinary income from this shadow account. So that's the reason. There was extraordinary DKK 400 million including in 2012. So that's the reason why the guidance on insurance for 2013 is below the 2012 result. But how much do you still have in the shadow account? DKK 800 million by the end of 2012. But booking part of that is not part of the guidance. Yeah. But then actually you could have an 800 million beat then on insurance. If we are lucky or have very good investment result in 2013, there is a possibility of booking part of the 800 million in 2013, but it is not part of our guidance. Okay, thanks. That is very clear. Operator, I am just interrupting here because I have got a couple of questions from our website to this conference. One question is our guidance of DKK 7.5 billion-DKK 10 billion for 2013. Could you give some more details on expected loan losses by division and perhaps what the low and versus the high end of the range assumes in terms of total loan losses? I think we could very simply. I think we are not giving these very detailed intervals, but the main contributing factor to the improvement in our income is high risk losses, impairments coming down. Okay. The second question is, could you provide some guidance of the impact of the announced monthly charges to different client groups that will be implemented from the beginning of September? That is at least for 2013 expected to be quite small. We are not quite clear yet of the drift of customers because a number of customers will actually be encouraged to do more business with us, then they will reduce the fees. But of course, overall they will be more profitable customers for us. But the impact in 2013 will be quite small. That is all. Thank you. Operator, you can go on. Christoffer Rosquist from Barclays is online with a question. Yeah. Hi, this is Chris from Barclays. Just a few questions. Can I ask about the dynamics first behind your impairment? Because you mentioned earlier on the call that we could see some quarter-on-quarter volatility. But if you look on the numbers, I think in this quarter we see almost all divisions except Non-core Ireland and the corporate booking larger impairments in the previous quarter. Is that just a coincidence or does it have anything to do with, for example, deteriorating macro indicators, which you have also in your presentation? So that's one question. Secondly, on the funding that you've mentioned, the impact earlier on the call as well, is it possible to in any way quantify how much relatively cheaper funding that did mature in 2012 and how much funding that has been issued in that same period that is maturing in 2013, maybe 2014, just to gauge the negative impact of that being replaced? Finally, please, you mentioned also that there was a negative impact on NII from decreasing volume. Would you necessarily say that decreasing volume is a negative thing? Some Swedish banks are actually quite worried about household indebtedness in Sweden. Are you comfortable with the Danish indebtedness levels in your various business segments, or are there some segments where you would welcome less growth or even deleveraging? Thanks. Maybe I can start on the last question in terms of growth and not growth. I think by and large, it's not that we are generally concerned of growing our business. As mentioned, we are a little more cautious when it comes to real estate in Sweden and Norway. In Denmark, it seems to be quite robust, and various analysis, and this also made by the Danish Central Bank, actually indicates that even with quite some severe changes in the Danish economy, we should not expect a huge negative impact on the housing market and people's ability to pay. But of course, everything has a limit. If we look more broadly, yes, we see on the corporate side that in particular shipping is still an area of concern and will continue to be that in 2013. Of course, we are well provided for as we see it right now, but it's not really looking bright for shipping, so there might be some more to do in 2013. I'll hand back to- You had a question relating to our impairments. You are right, our impairments are down in Ireland, Northern Ireland, CIB, and they are up, as an example, in personal business in Denmark. But you should bear in mind that the increase is slight, and it's mainly attributed to an additional collective impairment we had done in Denmark personal business. But the underlying individual impairments is actually trending downwards. I would mostly treat it as standard quarterly variations you can experience. You asked about our funding cost, and you are right that our funding cost in 2012 has been higher than they were in 2011. Because we have taken on more funding and the spreads we have paid have been much higher than they were previously. Roughly speaking, I think we could say that our funding cost in 2012 has roughly been DKK 600 million higher than what they were in 2011. You asked about how much we are going to, or the pattern of our debt, how it runs off, and you would see that on page 41 of the appendix, the further pages that are included. There you can see that we in 2013 have roughly DKK 50 billion of various types of senior covered bonds and sold out on net debt running off, and that's why we have this funding plan of funding DKK 30 billion to DKK 60 billion during 2013. Sorry. What I meant with on the funding side is that some of those, the senior unsecured that is running off in 2013. Could you give any detail about how much of that was issued in a period where you had tighter spreads than you have today? Most of it, the funding running off in 2013 probably have in most cases a tighter spread than we have today. Okay, thank you. Next question, please. Asbjørn Mørk from Carnegie is online with a question. Yes. Hi, Asbjørn from Carnegie here. I have two questions on your top line in Denmark. First of all, on the mortgage side, you raised your prices in October. Is there any chance you can do this also in 2013? That was the first question. The second question concerning central bank rates. You mentioned, Martin, that higher central bank rates would improve your NII. Is there any risk that we'll see a downward pressure on your lending margins if we see higher central bank rates, so you can't pass on the full thing to the lending side? Thanks. First, you are right. We have done a number of price increases on mortgages, Realkredit Danmark in 2012, and that is also going to have positive impact in 2013. I think we also have done quite a bit on the pricing side. We will probably not do to the same extent in 2013. Then you asked about the central bank rates. I doubt that if it's all just minor increases, we should be able to pass that on. Let me maybe just elaborate on the first part to be more exact. That we have no plans at the moment to increase RD margins in Denmark. Okay. Thank you. Very clear. Thanks. Okay. Omar Keenan from Nomura is online with a question. Hi. Good afternoon. Thanks very much for taking the questions. I just wanted to ask about whether you could give us an update as to how you're thinking about the state hybrids and timing of when that could be repaid. Okay, thanks. That's quite clear. We can repay it in April 2014 and not before. As it looks right now, this is what we intend to do, repay it at that time. Before we do that, we have a running cost of around DKK 1.5 billion-DKK 1.6 billion for that. Okay, thanks very much. Welcome. Yeah. Sorry. Next question, please. Simon Christensen from Nordea Markets is online with a question. Yes, good afternoon. I have three questions. The first one is probably to you, Erwin. There's quite a substantial decline in loan losses in the CIB division. What's your view on the shipping business going into 2013 in terms of credit quality? Secondly, you mentioned, and the page concerning the impact from Basel III on your Core Tier 1. Could you explain what the 40 basis points in other effects are? And lastly, I can see that you expect a one percentage point deduction point from Danica. Is that on financial conglomerates directive? And I can also see that you're actually paying quite handsome dividends from Danica into the parent company. Would that reduce the impact if it was Basel III? Thanks. Okay, thank you. I will take the shipping question. Yes, we are still concerned about shipping. This is where we will see still some impairments. Of course, if we knew it, we had already impaired, but we do not really see any improvements amongst our clients to speak of. So we are concerned there. Again, we have a relatively good book. We are well provided for, so hopefully nothing dramatic going forward. So we are cautious yet. There is definitely uncertainty in shipping. We cannot shy away from that fact. Regarding the Basel III Core Tier 1 impact, we are talking about the illustration on page 41. There it is still based on the conglomerate directive, where the assumption is that the solvency of Danica will be a deduction in the bank's Core Tier 1. In addition to that, there will be a risk weight on the additional investment in Danica, and that is assumed to be risk-weighted by 250% in this illustration, and that is the 0.4 I think you refer to. Then it is right that we have taken out a dividend of Danica, and we have a general philosophy that our subsidiaries should be well capitalized, but otherwise any excess capital should reside with the parent company. Okay, thank you. One short follow-up. I can see your senior spreads unsecured are down to roughly 95 on five-year basis. On the CMD, some time back, they were around 175. If I know you correctly, you would probably not have used 95 in the 12% ROE target or your CMD material. How does today's pricing compare with those assumptions? Well, of course, we do have, as you know, a target of getting a better rating. We think we will achieve that. So our 12% target does actually include that our spreads will come down to some extent. Okay. Thank you. Okay. Thank you. Next question. Mads Tinggaard from Nykredit Markets is online with a question. Hi, this is Mads Tinggaard from Nykredit Markets. I just have two questions. The first question is regarding the DKK 200 million collective provision you make in Denmark. Is that related to private customers, and do you see a trend here, and could you also confirm that there's no link to the new Danish write-down rules? Further, returning to the LCR, you make full inclusion of Danish mortgage bonds and covered bonds, and you do that until you know the final guidelines. Could you state what the LCR would be, or perhaps just if it would be below 100%, if you couldn't make this full inclusion? Thank you. First, the DKK 200 million provision is related to personal customers in Denmark as a collective provision. As you mentioned, it is not related to the new Danish rules from the Danish FSA. Regarding the LCR, we will need to come back on that, but we do not have the numbers yet. Let me just add to the LCR. Of course, we can make a technical calculation what will happen if we cannot use our RD bonds. Then I am sure we will find ways to somehow mitigate the effect or part of the effect. So it is not just a technical change because then we will also change our behavior. Even though if we could give a technical number, it will probably not tell you that much because then we will do something and the LCR will come up again. I am sure that we will be able to swap some of our RD bonds within the Nykredit bonds. Yeah. For instance, just one suggestion. Maybe I interrupted, but we have Nykredit bonds. We can use them instead, just as an example. Okay. Thank you. Okay. Next question, please. Jacob Kruse from OD Hornman is online with a question. Yeah. Hi, it's Jacob from Autonomous. I just wanted to ask you, there was an article saying that you have had major outflows of private clients over the past seven months, I think about 100,000 in Denmark according to that study. I just wanted to see if that's correct and to what extent that loss of market share makes you less keen to cut back on cost or marketing spending or distribution spending in Denmark. Secondly, just on your shipping losses, have you reduced the amount of provisions against the shipping book in the fourth quarter by about DKK 200 million? What would be the driver behind that? Thank you. On the loss of customers, I am happy to address it because fortunately, what was referred to in that paper is factually very wrong, actually by a factor of 10. We have a very exact number of lost personal customers in 2012. In Denmark, it is 21,000. That is 1% of our customer base. Out of the 21,000, actually quite a lot of them are not very active customers. It could be customers that just held an inactive account for months or years. It is not very dramatic, and it is not really measurable in market share because at the same time, we do see that the customers we retain or those we protect actually bring more volume. At this point of time, we are actually quite comfortable with our Danish personal business. It is not yet a stable situation. We have launched our new customer programme, and it needs to sort of settle in over the next couple of months, and there might be some fluctuations still. Fortunately, the 100,000 number is simply not right. And shipping? Yeah. On the shipping part, I am not quite sure. Let me at least say something, and maybe it is not addressing your question, but shipping, of course, the impairments in shipping will come not on a linear basis. That would be quite ad hoc when we actually do see problems on a particular client. So there is no sort of clear trend on this. We have, of course, provided today as we should be, and we hope that we still are well provided for. But even those shipping companies who in the past were seen as strong shipping companies, of course, they do not generate a cash flow for some time even though they will face some problems. Then we have an impairment issue. Maybe that was not. It did not address your question, please. It was just if I am looking at your shipping exposure and allowance disclosure in the presentation, in Q3 you have DKK 2.2 billion of provisions or allowances, and today you have DKK 2 billion. Also given that you had such low provisions in the CIB division, I was just wondering if part of that low provision is for recoveries on the shipping book, which just seems a little bit strange given that you are expressing that this is still an area of concern. No, I am guessing now, but my colleagues will correct me if I am wrong. The impairments can go down if we actually make a full write-off. But then you probably would not have low credit losses as a P&L number. Well, we have taken it. When we impair, that is when it goes out. Yeah on the P&L, and afterwards we can make a write-off, and then that does not. That does not impact That does not impact the P&L. No. Exactly what is happening that we have one large shipping company where we maximize all cash flow. Yeah. Okay. So you have one large shipping company where you have some recoveries in the quarter. No, write-offs. Write-offs. Oh, write-offs. Okay. Both the loan and the impairments. So they are out of the book. Okay, fine. Thank you. Yeah. It would have been nice for some recovery. Yeah. Okay. Thank you. Next question. Andreas Håkansson from Exane is online with a question. Yes. I just have some follow-up question. First one is to Mr. Kolding. You said that you are worried about Norwegian and Swedish households, but you are relaxed about Danish. Could you just tell us how that square with your fairly sharp increase in Danish impaired retail loans in the quarter and your view that you needed to add collective provisions? Then to Henrik, you said that you want to keep your divisions adequately capitalized and that excess should go back to the group level. Could you just tell us, Realkredit Danmark has a massive core tier 1 ratio, but you seem to increase the capital rather than to bring it back to the group. Could you tell us why you are doing that? On your first question, my concern really relates to the fact that if you compare to levels just pre-crisis, we have seen a drop in real estate prices in Denmark of 25% and basically nothing in Sweden and Norway. You can argue, but that's a viewpoint. It's not a fact that there is a bigger risk of a drop in Norway and Sweden, whereas in Denmark, you know the bubble have already been bursted. This is why, and my expression was we are a bit concerned on Sweden and Norway compared to Denmark where we already have taken the hit. Relating to the question of capitalization of subsidiaries, you're right that we have a substantial equity in RD, and that's also why we have been working hard on the pricing side in RD in order getting our earnings up in Realkredit Danmark. I think actually when you look at the figures, we have actually achieved that. As you may also notice that we are actually taking a dividend out of Realkredit Danmark. I think that actually is quite similar to the treatment of Danica. Okay. I think we have time just for one more question, operator. Okay. Anton Kryachok from UBS is online with a question. Good afternoon, everyone. It is actually Nick Davey here from UBS. Two quick questions, please, and one comment. The comment briefly just to formally thank Martin for all of his work over the years and to wish him well. The questions please, firstly on LTROs, both European and Danish. I read some commentary, I think, this morning around intentions there. Please, can you just outline those again, gradual repayment of European LTRO through the year, but maybe keeping the Danish LTRO for the full 3 years. Could you maybe just elaborate on that and whether or not you think accelerating that process towards being completely independently funded, it should perhaps be part of the New Standards strategy. Then the second question, really just a broader one and linked to Jacob on the general reaction to the fee introduction on current accounts. I just wondered whether you could just talk a little bit about brand recognition, customer satisfaction, just early observations really about responses and reactions to the New Standards strategy, both domestically and I guess internationally, where you have gone through the rebranding exercise to the Danske Bank brand, really. How closely are you monitoring the customer response to each of these initiatives, and are you noting anything which would deviate you from your originally set out path? Thanks. Thank you. Starting on the last part. On the New Standards strategy, actually, we are still quite convinced this is the right move. We see we are moving in the right directions, we are following our plans. Still very early times. We have to achieve a lot to get where we want to be in 2015, but we are comfortable that we are right. What has happened, though, that, of course, the communication that follows the strategy has been received differently, different countries. In 8 out of 9 countries, actually quite well. Take an example, in Northern Ireland, the recognition of the Danske Bank name, which is new to Northern Ireland, is already now at 70%. So it is working quite well there and also well received in other countries. However, in our biggest market being Denmark, we have had quite a lot of noise around our strategy and our campaigns. There is a lot of opinions in Denmark about Danske Bank, about the sector, about what happened during the financial crisis and so on, and it seemed that we triggered a lot of those discussions and emotions in the society, and you could say that the debate in Denmark got a little bit out of control. So if there is an adjustment that we are making is, of course, a little bit to how do we communicate in Denmark, because we are not really capable of getting our messages through mass communication at the moment. That will change, but this is how it is right now. So you can say that is a slight adjustment just to the communication strategy, but the strategy as such, we are actually quite comfortable about. A quick comment about the LTRO before I hand over to Henrik is that we have a quite objective view on this. This is not something we have emotions about. We simply do what is commercially sensible, and if it's to use these programs, yes, fine with us. If they are getting too expensive, we'll of course take the alternative route. Not that we have as a principle matter that we cannot use those programs, but more specifically Yes, we are looking into it. We have decided to redeem the first tranche we took a year ago of €1.5 billion. I don't think that is a secret. There's another one opportunity coming up later this month. We have not decided on that. Regarding the Danish Central Bank, the first time slot for redemption, I think, would be later in the year, and we haven't made any decisions regarding that. But as mentioned, we are repaying the first €1.5 billion we took roughly one year ago. Actually we have repaid the €1.5 billion at this point in time. Okay. Thank you, and also thank you for your initial comment. I think I will try to echo that because many of you, all of you, I guess, know Martin Gottlob quite well, and this is his final telephone conference after quarterly results. He's been a great help and assistance for all of us, served us very well in the bank. I also get the impression, and it's also how you score him, that he has served you also quite well. He will still be around as long as we can hold him to it, but sometime within a month or so, he will leave to make important stuff for our main shareholder, or our largest shareholder. But let me at least express here, I'm sure on behalf of all of us, thanks for his great efforts. I am sure he will miss the conference calls in the future. That is no doubt. I am sure I will. Thank you so much. Thank you. Bye-bye.