Good afternoon, everybody, and welcome to the Danske Bank Q1 2025 pre-close call. My name is Claus Ingar Jensen, as you know, and I'm Head of Investor Relations. With me from my team, I have Nicolai Tvernø, Olav Jørgensen , and Lewis West. Please note that this call is being recorded for compliance reasons, and the script used for this call will be published on the investor relations website after the call. Given that we conduct this call via Teams, please be aware that if you want to ask questions, you must log on via the Teams app or your browser. If you participate via a telephone line, the IR team will be available for questions after the call. In today's call, I will highlight relevant public data and macroeconomic trends in our markets. I will go through the relevant P&L lines and comment on capital at the end.
Afterwards, we will open up for a Q&A session. For the sake of good order, I would also like to highlight the following: I will only answer questions related to already disclosed information as well as publicly available information unless otherwise noted. Connected to this, I wish to highlight that developments in specific indices may not always have the same effect on our performance. Before going through the income lines, I would like to start with a brief comment on the most recent macroeconomic development based on our Nordic Outlook published in early March. During the first quarter of this year, we have continued to see declining inflation across the Nordics, and GDP growth has improved further along with a robust development in the labor markets, with an increasing level of employment and real wage growth supporting households.
Specifically in Denmark, the macroeconomic indicators look particularly strong, and while our growth outlook for 2025 of almost 4% is clearly supported by the strong performance of the pharmaceutical sector, it is also broad-based as many sectors are supported by increased economic activity. Despite this positive macroeconomic development and outlook, geopolitical uncertainty has clearly increased in Q1, especially regarding the impact of global trade and security policies, which significantly affects consumer sentiment. All sales equal, this has led to higher savings rates and modest credit demand, according to the latest statistics. Nevertheless, consumer spending continues to hold up well. When looking at the housing market, we also observe a moderate positive trend in activity, and the lower interest rates, along with a relatively modest supply of homes for sales, should support house prices' development throughout the year.
Corporate sentiment and activity have remained encouraging despite tariff concerns and geopolitical uncertainty, with a significant fiscal stimulus package implemented in Germany playing a positive role. While this is not a near-term catalyst, the Danish economy is naturally interlinked with the increased investments from Germany, one of our closest trading partners. Now, let's have a look on net interest income. Let me start by highlighting the relevant changes to the central bank policy rates. Following the two cuts in Q4 of last year, which will have full quarter impact in Q1, we have seen two additional rate cuts of 25 basis points by the ECB, which were followed by the Danish central bank in the first quarter. Subsequent to the cuts that occurred in January and March, we have made selective changes to our customer rates.
Most notably was the recent change in retail transaction accounts in Denmark, which was reduced by 15 basis points to 0.10% for deposits up to DKK 25,000. However, this will not come into effect until early May. Rates on saving products have generally reflected the full policy rate cuts. Similarly, we have selectively adjusted relevant lending rates to various degrees on front and back book. In Sweden, Riksbanken decided to reduce its policy rates by 25 basis points in January but kept the rate at 2.25% at its March meeting. As a response, we adjusted rates on certain saving products as well as on lending products. However, they had already been lowered to 0% as a response to the lower policy rates last year. Rates on business customers' products have in general been lowered in tandem with central bank rate cuts with varying effective dates.
Regarding recent volume development, we refer to publicly available data. In terms of lending volumes, we note that overall credit demand has modestly improved, though we still observe a cautious approach in both the housing market and corporate investment appetite. In terms of deposits, we note that the saving rates among Danish households have remained elevated, while corporate deposits can be more volatile in Q1 due to tax and dividend payments. Please note that Q1 has two fewer interest days than Q4, and the day effect is estimated to be around DKK 75 million. As always, please be mindful of currency fluctuations in the market where we operate. The pound sterling depreciated around 1% in the first quarter, while the NOK and Swedish krona appreciated almost 4% and 6% respectively against the Danish krone.
Looking at funding costs, we note that CIBOR, STIBOR, and NIBOR have decreased during the quarter, with CIBOR lower by 42 basis points, STIBOR 39 basis points, and NIBOR lower by around 15.15 basis points, all based on quarterly averages. In terms of wholesale funding, we have issued around DKK 20 billion during the first quarter, and we are progressing well according to our full-year funding plan of between DKK 70 billion and DKK 90 billion of debt issuance across instruments. The amount issued compares to around DKK 18.18 billion of matured and redeemed funding during the first quarter. Most notable issue was our $500 million AT1 transaction launched on the 12th of February. It was well received by investors, highlighted by the final order book being more than eight times oversubscribed. The AT1 has a coupon of 7%, equivalent to a spread in Euribor terms of three-month Euribor plus 287 basis points.
You can also visit danskebank.com, the debt section, for further details in terms of pricing for our issuance. With respect to our NII sensitivity, we note that structural hedge continues to have impact. We also reiterate our sensitivity guidance of approximately DKK 500 million per 25 basis points parallel moves across all currencies and on average over the next 100 basis points within a 12-month period, with an additional year two and three effect of DKK 300 million and DKK 200 million respectively related to our structural hedge. Please note that by far most of our sensitivity relates to Danish krone and euros in that order. In respect to fee income, we will start by noting that development is not always subject to conditions in the financial markets, housing market activity, and the general activity among our customers.
Looking at investment fees, these are naturally impacted by the development in assets under management as well as the investment activity among our customers. As fixed income indices and equity markets in general have been impacted by ongoing uncertainties, for example, evident by the Bloomberg Global Bond Index being lower by around one percentage point and the Danish OMX C25 equity index being down around 7%, this will likely affect our level of assets under management. Please also recall the seasonality around our performance fee booking in Q4, which benefited by around DKK 0.7 billion, and for reference, Q1 performance fees in 2024 amounted to DKK 10 million. Turning to activity-driven fees, according to the latest Consumer Spending Monitor from Danske Bank Research, we continue to see an increase in spending even compared to the same period last year, which included one extra day.
Consumer sentiment in Denmark, as measured by Statistics Denmark, however, remains negative. Corporate activity also remains encouraging, including customer demand for FX risk management solutions, as we also observed in Q4. Turning to fees from our lending activities, we note that we have seen some positive signs in the Danish housing market when it comes to higher prices and outlook for further increases, and we have also noted gradually improvement in number of transactions. Furthermore, we note that Q1, like Q4, includes refinancing options for variable-rate mortgages. For reference, Q1 2024 income amounted to approximately DKK 100 million, slightly lower than the level observed last quarter. In addition, we can add that remortgaging activity has remained low in the first quarter.
Finally, with respect to capital markets activity, DCM, or debt capital markets, has seen a continuation of the strong customer activity from last year, while similarly, primary equity capital markets and M&A activity remain modest. Now turning our focus to trading income, market sentiment has been impacted in the first quarter by elevated volatility on the back of material headline risks related to tariffs and geopoliticals in general. Looking at the development in the fixed income markets in Q1, we have seen elevated volatility in spreads and yields driven by higher expected issuance in mainly euro sovereigns due to higher defense spending in the coming years. Overall, we have observed more defensive market behavior with a cautious approach, as mentioned before in our comments for fee income. All else equal, this could impact customer activity.
Turning to Danica, our net income from insurance business, please be aware that Danica's results are always subject to developments in the financial markets. For Q1, we expect an additional one-off impact on the net income from insurance activities of around DKK 0.2 billion related to a higher provision for a legacy life insurance product. The soft guidance for normalized net income from insurance business remains unchanged. Please recall that other income recognized in the fourth quarter included a positive one-off of around DKK 180 million related to the sale of Danske Invest Funds in Norway. During the past year, other income has been affected by low value of assets available for resale in our leasing business.
With further reduction in the price for electric vehicles, we expect asset values to continue the declining trend and thus lead to a lower run rate for other income going forward. On costs, we have no specific comments regarding the quarterly development. We reiterate our outlook for full-year expenses of up to DKK 26 billion. On impairments and credit quality, we have no specific comments in respect to the first quarter other than to note that the solid macroeconomic environment continues to support credit quality and no single-name exposure related to renewables or other industries has led to a revision of our impairment guidance of around DKK 1 billion. We have no comments with respect to tax, and in respect to one-offs, there are no new one-offs expected for Q1 other than the one I referred to before related to Danica.
On capital, and as highlighted with the release of our Q4 result, the full dividend distribution approved by the AGM, as well as the share buyback program of DKK 5 billion that is underway, has been fully reflected in the reported CET1 ratio. You will, however, see the reduction in our share count reflected in our Q1 report, which reflects the completion of last year's share buyback program. Please refer to company announcement number five from the 3rd of February, where you will see that slightly more than 27 million shares were bought back. Finally, please note that, as communicated previously, we have front-loaded the expected Basel IV impact from January 2025 with an additional DKK 20 billion increase in REA in the second quarter last year, and as such, we do not expect any significant regulatory impact in Q1.
On market risk REA, we note that this remains subject to market volatility. 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 end our silent period on the 11th of April, next Monday, and we will shortly start to collect consensus estimates with a contribution deadline on the 11th of April as well. Please note that we will publish our Q1 result on the 2nd 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 ready for the Q&A session. If you wish to ask a question, please use the raise your hand function. I think we have a question from Mathias from Nordea. Please go ahead, Mathias.
Thank you very much.
My question goes on this asset quality and PMA slide. Can you remind us of the process of when you decide to release them? Is that in connection with finalizing the report, or is that something that takes place before the end of the quarter in terms of dates?
Yeah, yeah, it's something that is included in our quarterly processes, and there are a number of meetings ongoing, including what you just are mentioning here, how to treat impairment charges, releases of post-model adjustments, etc.
Okay, so it's not decided yet. That's what I hear you say.
Yeah.
Perfect. That was very clear. Secondly, if I may, if you can remind us of how the risk rates, how sensitive the risk rates are to this, what we see now, like recession fears going up and such things.
It seems like the risk rates compared to 2018, so before COVID, it seems like it's fairly stable, a bit up on risk rates on average, despite asset quality looking strong. What is the sensitivity actually on that?
No, I would say they are basically now adjusted to a downturn scenario, and it has been so for quite many years, you can say. As you have seen from the latest history, the improvement in the economy and the credit quality has not led to lower risk rates. I would not expect that we will look into any higher risk rates.
Thank you very much. The last question, remember when the COVID wave was coming into the market, there were a few banks out stopping the buybacks and such things.
Is that something that you think we should risk this time around as well, that the regulators are coming and saying, "I think it's time to stop those things"? What's your thoughts about that?
I think it would be, given the I think we have all been surprised and also shocked by the development in the equity markets over the last couple of days. I think it's too premature to make any comments around that. We are looking into a worsening of the macroeconomic climate on a global plan, I dare to say, but I think it's too premature to make any comments on how it will impact. If there should be an impact, we will, of course, do a company announcement and if there are any changes to the outlook for the full year, and that is not where we are today.
Thank you very much.
It is Johannes from HSBC.
Yes, can you hear me? Okay. Good afternoon, everybody. Three questions from my side. First of all, on the fee income, we had a one-off in Q4 of DKK 700 million. How much else of seasonality should we expect in the fee income, or are there other trends seen in Q4 similar as in Q1?
No, I would say the only, and I just want to, if I may, correct you a little bit, Johannes. The DKK 700 million was not a one-off. It was the seasonality around the performance fees that we collect in our asset management division. That is essentially the only one-off, or sorry, now I use the expression myself. That is the only seasonality that we are guiding for. No, there are no other seasonalities.
You can argue whether they are in some of the lines around activity-driven fees, some effects around vacation periods when it comes to credit card usage and so on, but that is not of a magnitude that we would guide for any seasonality on that front. You can say, when we are talking about capital markets fee income, that tends to be somewhat higher activity when we are talking about the ECM business. You can argue whether there is a slightly higher activity in the latter part of the year, but again, it is not something where we can point to any specific amount of seasonality here.
Okay, thank you. Secondly, can you elaborate a bit more on the insurance result, the one-offs of DKK 200 million?
Because it's like last year we had in Q4 also a different kind of impact, but it seems your insurance result gets always distorted, and we never talk about it in the calls.
Yeah, I mean, you are, of course, welcome to ask all the questions you want in the call, Johannes. What exactly is your question here?
The 200 million, where is this legacy? What is this about? You flagged the 200 million.
Yeah, it is about an increasing amount of the pension schemes that we are running are unit-linked products, right? And then we have the traditional products where there is an interest rate guarantee attached to, and then there is a smaller amount of legacy products, which essentially is products which can be defined as defined benefit plans, and that's the one we are talking about here.
That is where there has been a need for a further provision, and that's behind the one-off that we flagged of DKK 0.2 billion.
Okay, otherwise, it should be a normal quarter in insurance.
I'm not aware of anything else in respect to one-offs, but of course, I do not know the quarterly result as such, right?
Yes. Last but not least, did you give any tax guidance for the full year and any impact or difference from the quarter?
No, I mean, we are maintaining, of course, our full-year guidance, and that goes for all lines. If not, I think we would have announced it or will announce it in another forum than a pre-close call. I can only confirm that the full-year outlook is as it has been communicated previously.
Thanks.
Jan Erik from ABG. Hey, Jan.
Hello. Thank you for taking my question.
It's about the net interest income. Last time we saw this big downtick for the deposit margin of DKK 667 million and another fantastic Treasury impact of DKK 636 million. Last time around, it wasn't sort of the change in interest rate where, of course, they're in the interbank rate, and then we saw no changes from the central bank the quarter before. Is this sort of then thinking into the first quarter here now, is it so that we should expect a more drop and then less impact from your hedges, or how should we look at the fourth quarter levels versus how you look at these Q1 levels just in terms of the impact for the high hedges versus the lower interest rate and the drop from the central banks?
I would say the hedge will continue to have a positive impact.
It is working as it should, as it is a hedge, and it will smoothen out the interest rate volatility you see from central bank rate cuts or hikes. The reason why Q4 came in also slightly higher than we expected. I know that we mentioned something around that it would peak in the third quarter; however, it did not. It peaked in the fourth quarter. That was due to that short-term interest rates, which forms the background for funding our deposit hedge, came down much faster than what we expected, and that was positive for the NII number. We are guiding towards lower NII this year as we expect lower rates. That is what we have seen so far. I think that is the conclusion on our comments for this line for now. Yeah.
Okay.
The DKK 35.2 billion which you had as a full-year consensus number, is that a fair number, or is that elevated, or how should you think about it versus your guidance?
I think we have been a little more round in our guidance, so we have just said it will be above DKK 35 billion, but we have not put any decimal on the number. We can see that the market has taken that into account given that the consensus number is DKK 35.2 billion. I am not able to comment in more detail whether when we say more than DKK 35 billion, whether that is DKK 35.2 billion or 0.5 or 0.7, right? There is, of course, as you know, a lot of uncertainty connected to interest rate development and maybe also an increasing uncertainty given the last couple of days' financial market development.
Agreed. Just one more.
Is there any more one-off costs in 2025 at all, or is everyone thinking behind us now? Just remind me.
Yeah, I'm not aware of any more one-off cost. It's something we will guide on a quarterly basis, but for the time being, I'm not aware of what the next three quarters will bring in that respect.
Okay. Thank you.
Yeah.
No problem. Thank you.
Okay. Thank you for your questions, Jan. And then Namita.
Hi, Claus.
Hi, Namita.
Hey, thanks. If long-end rates move and that impacts the valuation of your fair value OCI bonds, does that impact your CET1, or are you hedged?
Only to a very small extent. The vast majority of the hedge still belongs to what we call assets held for sale, and the evaluation effect or the potential evaluation effect is taken via a Pillar II add-on.
Since we are slowly reallocating the hedge into what we call available, the assets held for sale, this effect will go via other comprehensive income into the CET1 ratio. It is only a small amount that is now being allocated to that portfolio, but over time, it will be an increasing amount, and that is why potential value adjustments will also be more and more visible in the CET1 ratio over time.
Okay, is it just the hedge? Because I can see from your annual report you have other bonds in that category.
Yeah. No, we also have other bonds in that category, but I would say the deposit hedge represents the longest duration in this context. The other portfolios are shorter than a year, and that is why the valuation effect will, of course, be minimal.
Okay, that is very clear.
On the net interest income, just on the FX, the strength of the SEK and the NOK, I would assume that's a stronger impact than the depreciation of the pound. I would think it's a positive impact on NII. Is that correct? Am I thinking about that in the right way or not?
I think it's fair, it will have a positive impact on NII if we see a higher SEK and Norwegian krone, of course. I think you can look the numbers of our balance sheet up, and then you can get a feeling for the impact that way around.
Okay, cool.
Of course, we have a higher balance sheet allocated to Norwegian krone and Swedish krona, hence there will also be a higher impact if these currencies are appreciating against the Danish krone.
Okay, fine. Thanks.
My last question, just on this DKK 0.2 billion one-off. Sorry, I know nothing about insurance, but it sounds like the impact you had last quarter, this quarter is a difference. There's something else going on. It's not a model adjustment.
No, it's of a different nature. The last quarter, it was the provision for higher claims in the health and accident business. This time, it's for a legacy pension product where we have identified a need to do higher provisions.
Okay, that's perfect. Thank you.
I think those were the questions. Thank you very much for your interest and for your participation in the call. I wish you all a nice weekend and look forward to talking to you going forward. Bye.