Thank you, operator, and hello, everyone. Welcome to the conference call for Danske Bank's financial results for 2020. Thank you all for taking the time to listen in on this call today. My name is Claus Inka Jensen, and I'm Head of the Investor Relations team. With me today, I have our CEO, Chris Vogelsang and our CFO, Stefan Engels.
Slide 1, please. In today's call, we will present Danske Bank's financial results for 2020. We aim to keep this presentation to around 30 minutes. After the presentation, we will open up for a Q and A session as usual. Afterwards, feel free to contact our Investor Relations department, if you have any more questions.
I will now hand over to Bill.
Thanks, Claus. In many ways, the year 2020 was a challenging year. The global society and of course also the banking sector Face major disruption caused by the pandemic. Disruption that had a huge impact on the way we live our lives in general terms and typically on the way we conduct our business and interact with our customers. One of our key priorities in 2020 was a strong and dedicated focus on our 2023 plan to become a better bank for all stakeholders.
Many areas The banks we have made of the bank, we have made tangible progress with our transformation. And we clearly see 2020 as a year when where we turned a corner and laid the foundation for continued execution of our journey for the coming years. One of the key building blocks for our transformation was the redesign of our organization and we have now launched a new commercial and agile organization. We have reduced the number of business units from 4 to 2 with a clear purpose of decreasing complexity and simplifying the organization. This is key for us in order to ensure high quality aligned processes and make us a more competitive bank.
The outbreak of the pandemic has had a direct impact on our ways of working. We have successfully transitioned to a working from home setup while also supporting our customers with a wide range of initiatives ranging from advisory services to providing liquidity facilities and extending credit lines, all with the aim of providing the best possible assistance to our customers during this very difficult period. Overall, our underlying business was stable at the level of the preceding year, driven by Banking Nordic and our business with large corporate customers. At Banking Denmark, we launched several supporting initiatives to help our customers through the corona prices. At the same time, as we continued to focus on our better bank journey, we announced a new setup for servicing retail customers, plans for launch in 2021.
We introduced a fixed rate version of our Flexi Life mortgage loan and a number of services to support the green transition. Late in 2020, given the continually negative interest rates, We adjusted our deposit pricing accordingly also for retail deposits with effect from the 1st January 2021. Banking Nordic was able to continue the onboarding of many new retail customers despite the corona turmoil, We will also support existing customers through the effects of the corona crisis. We continue to make good progress on our bank better Nordic Retail Bank transformation combined with an acceleration of digital offerings. At Corporates and Institutions, we have been busy securing liquidity facilities for our large corporate customers, while at the same time providing advisory services and access to the primary debt and equity markets.
Our investments in capital markets related products paid off in primary debt as well in Equity Capital Markets. There was thus an increasing number of transactions with a strong sustainability focus and finance by Green Loans. At Wealth Management, we continue to expand the product offering with more sustainable solutions at both Danica Pension and Danske Invest. Despite corona crisis related market To our world, we delivered positive returns to our customers. In many of our investment products, we saw the highest above benchmark return in the past 3 years.
Financially, we are today presenting results for 2020 of DKK4.6 billion, slightly higher than our outlook with good evidence of a stable development in most of our income lines when adjusted for one offs. Expenses amounted to $28,100,000,000 and showed good progress as a result of our cost management initiatives. Nevertheless, costs were also impacted by planned costs for our transformation and elevated costs related to compliance remuneration and of course the Estonia case. On top of this, we also booked provisions related to continue transformation in 2021. Impairment charges amounted to $7,000,000,000 and were significantly affected by the pandemic, including charges against legacy oil against legacy oil related exposure.
A good part derives from changes to model assumptions. Most of that was reversed during the year and replaced by post model adjustments due to continually limited visibility for the economy. Only a limited part was due to specific credit deterioration in other sectors. On the basis of the results for 2020 and our continuously strong core Tier 1 capital ratio of 18.3%, The Board of Directors is proposing a dividend of DKK 2 per share to be paid. Finally, For 2021, we expect net profit in the range from €9,000,000,000 to €11,000,000,000 which Stephen will comment on in more detail later in this call.
Slide 3, please. Now I'd like to update you on our multiyear transformation and the deliveries We make in 2020 in order for us to become a better bank for our stakeholders. As mentioned before, 2020 was a busy year impacted by the global coronavirus pandemic, but we have continued executing and transforming Danske Bank. These efforts are also supported by the recent organizational changes made to reduce the number of businesses, Business units were 4 to 2, which will enable us to become simpler and more competitive to the benefit of all stakeholders. Let's look at customers.
Looking back at some of the deliveries of the past year, we have continuously supported our customers during the corona crisis. This led to improved CSAT customer satisfaction levels in a number of surveys conducted by Prospera on commercial and C and I customers. We've also improved our digital solutions, for example, District and Danske Mobile Banking, adding new and improved functionality. Furthermore, into 2020, we have developed and launched various new products Such FlexLive mortgage loan with a fixed interest rate for 30 years and a Danica balanced sustainable choice investment option. With regard to employees, the following.
Our employees are, of course, our main asset, and we aspire to have engaged employees who are proud to be working with Danske Bank. During 2020, the majority of our employees were able to work from home, thus continuously supporting and helping customers despite being challenged by the corona virus pandemic. In order to support from home support our employees while they work from home, we launched Working at Danske, allowing for increased flexibility increasing flexibility of working routines going forward. We've also shaped new purpose and culture commitment, which will be integrated in the organization shortly. Employee flexibility and autonomy will be further increased by the recently launched Agile transformation, which allows us to create an even more engaging workforce, workplace.
We've also launched initiatives to improve diversity. With regards to society, we are making good progress with the societal agenda and with helping our customers with our transformation become more sustainable. We saw significant progress on our sustainable finance agenda in 2020. The total amount of more than DKK100 1,000,000,000 was issued in green loans and bonds. Furthermore, we were able all ready to reach 2 third of our 2023 ambitions for green investments.
A second proof point for our contribution to society is entrepreneurship. In this area, we use our platforms to support a significant number of startups and scale ups. Furthermore, a robust compliance culture is the foundation for fighting financial crime and meeting our regulatory compliance obligations, thus ensuring that we always have the best interest of our customers in mind. In 2020, we completed ongoing due diligence on more than 2,500,000 customers with a substantial portion of this completed on the basis of increasingly automated processes.
With regards
to investors, in addition, we launched Be Well and Set the Agile organization. As mentioned, we are committed to reducing complexity and making Danske Bank a much simpler bank, which is also impacting our product portfolio. While introducing new and relevant products for our customers, we also want to keep all simplifying. In Banking DK, Then Banking Denmark, we reduced the number of products by quarter by 25% and in Banking Nordic and Banking DK and by more than 50% at the corporate and institutions. Our transformation journey is not over As it is a multiyear journey, 2020 was a year of investing.
We're now starting 2021 with an even stronger organizational setup and together with our highly skilled and committed employees, We will continue to push for our ambition to become a better bank for customers, employees, society and of course shareholders. Next slide, please. As mentioned earlier, we recently introduced our Better Ways of Working, which involve almost 5,000 employees. We appointed 4,000 employees to new positions. This continued throughout 500 positions and reduce the number of managers.
The new agile ways of working for our development organization will enable us to develop products and solutions to our customers Faster go to market times and to be more efficient because we have empowered employee with end to end responsibility, broken down hierarchies and simplified our governance structure. In 2020, we laid the foundation. In 2021, we will focus on the digitalization of 3rd, additionalization of our core customer journeys and on utilizing our agile organization. This will enable us to harvest The best fits for our customers with better products and solutions and achieve a more efficient cost base to support our 2023 ambitions of becoming a better bank. Next slide, please.
As you may recall, Last February, we announced 7 quantified targets for our sustainability efforts to be reached by the end of 2023. Today, we have published our 2020 results for all 7 of those targets, and I will be providing some comments on these. However, before I comment on the specific targets, please allow me to say 3 things. Firstly, as we also mentioned last February, our ambitions are broader than the targets, and we are pleased to be able to say that execution on our full sustainability agenda is well underway, It's particular focus on sustainable finance in which area we aim to take a leading position in the Nordic countries. Secondly, we aim we are pleased to note that our progress on the sustainability agenda has recently been recognized by several ESG rating agencies, including CDP and MSCI.
Thirdly, right from the outside, we recognize that the sustainability field is moving fast and these targets would likely need to be recalibrated towards 2023. And indeed, we'll be adjusting some of our sustainability targets during the first half of twenty twenty one Once there are more clarity on EU regulations regulation relating to sustainable finance, particularly the EU taxonomy. Now let's have a look at some of the highlights. For sustainable financing, we ended the year with a cumulative volume of DKK102 billion, up from DKK46 billion at the end of 2019. Our original target was well above $100,000,000,000 by 2023, and as we're now already over $100,000,000,000 we are looking to revise the target upwards during the first half of this year.
Looking closer into the increase in 2020, arranged bonds contributed dollars 41,000,000,000 RD loans, real credit loans, dollars 9,800,000,000 and bank loans, dollars 12,500,000,000 We saw a steady growth of arranged green bonds as well as strong uptick in social bonds arranged for our customers. On the lending side, renewable energy as well as real estate continue to be in major areas of refinancing. In terms of our relative position, we ranked number 1 among Nordic banks in the Bloomberg league tables for green social and sustainability bond arrangements. And as for our efforts to set a climate target for our corporate lending We joined a partnership for Carbon Accounting Financials, PCF, as the 1st large Nordic bank, and we've mapped the climate impact of 23% of the portfolio. We published our financed emissions for the shipping portfolio in 2020, and we look to start disclosing finance emissions for selected sectors in the first half of this year.
On the sustainable investing side, Danica's Pension investments in Green Transition ended the year at DKK 27.2 billion, up from $10,300,000,000 the year before. That means that Danica Pension is well ahead of schedule to meet its green investment milestone targets €30,000,000,000 by 2023, €50,000,000 by 2025,000,000 and €100,000,000,000 by 2,030. It is also relevant to point out that Danske Pen Schon joined the UN convened Net 0 Asset Owner Alliance in 2020, thus committing to transitioning its investment portfolio To net 0 greenhouse gas emissions by 2,050, in line with Paris Agreement climate target. To meet that goal and ensure progress, Danica Pension will be setting milestone targets for its emission reduction for specific sectors. Continuing now to entrepreneurship.
We ended the year with a bit more than 5,000 startups and scale ups supported through our platform, slightly below what was expected prior to the pandemic. Nevertheless, our quick turnaround towards digital execution proved successful, and we were able to help start ups navigate this crisis. Looking ahead, we expect a rebound and remain Finally, for our environmental footprint, we saw a significant positive side effect of the pandemic with a 48% year on year reduction of our emissions, largely driven by significant reduction in travel. It's important to note that this is an annual emissions target. So each year, the meter is basically reset.
This means that there is no Automatic impact on our 2023 target. That being said, we certainly aim to leverage positive learnings from the pandemic such as our increased use of digital meetings in order to achieve more permanent COT reductions. So allow me to conclude this slide by saying that while the sustainability field continues to develop rapidly with regulation and methodologies maturing as we speak, We will continue to push ahead execution as our aim is to play a leading role in the Nordic countries in terms of sustainable finance. Along the way, we will calibrate these targets as necessary. Several of them will be done already in the next few months once we have greater clarity on the criteria in EU regulations.
And as always, for those of you who are interested in further details, More information can be found in our sustainability report and our sustainability sector. Tech book, Slide 6, and that's for Stefan.
Yes. Thank you, Chris. Let us now look at the financial results for the full year, which overall reflects steady progress. Across our markets, we have seen generally lower economic activity with some fluctuations between quarters. However, key economic indicators such as housing market activity and customer spending held up well, while government support packages Low unemployment and few bankruptcies are currently reviewed because caused by the current second corona wave.
The better than expected macroeconomic development evidenced by our Nordic lending activities, which increased 4% in local currency compared to 19. In addition, the positive development in the financial markets was beneficial for both fee and trading income. Despite different degrees of lockdowns throughout the year, customer activity, including housing market activity held up well. The latest positive outlook for development and distribution of vaccines from multiple suppliers looks promising for the economies going forward, However, most likely drifting towards the second half of twenty twenty one. Total income came in at €42,400,000,000 in line with the level last year when adjusting for the one off effects in 2019 2020.
Total income for Q4 in isolation came in at €11,000,000,000 up 4% primarily due to higher fee income and despite negative one offs of €700,000,000 Net interest income was stable year over year as a result of good business activity, however, impacted by headwinds from continued margin pressure and FX development. Increased lending and a strong development for deposits, which increased 24% in the period, primarily because of corporate deposits at market rates drove the development. The increase in retail deposits primarily on ordinary transaction accounts was due to the change we have seen in consumer spending behavior during the pandemic. Net interest income in Q4 was unchanged when adjusting for a negative one off of €100,000,000 As announced in our previous financial report, we have responded to the continuous increase in deposits in what seems to be a permanent negative rate environment. By adjusting the threshold for charging for negative interest rates for both retail deposits and corporate deposits with effect from January 1 this year.
Fee income was overall stable as better results generated by investment and capital market activities We're able to offset the decline in activity related income, including lower remortgaging activity. Fee income in Q4 reflects record high performance fees from asset management and from strong activity in our capital market related activities in C and I. Adjusted for one off effects in both 2019 2020, trading income was up 7 Despite an overall lower headline number, the outbreak of the pandemic had a short lived negative impact in the financial markets, Wealth conditions have been constructive during most of the year followed by strong customer activity. Trading income for 2020 was supported by positive valuation adjustments following negative adjustments the year before. The result for Q4 in isolation reflects Continued good customer activity, albeit to a lower extent than in the previous quarter.
In addition, the Q4 number included negative one Effects related to Danica Pension of €300,000,000 Expenses came in at 28 €100,000,000 in line with our guidance for the full year. Transformation initiatives under our 2023 agenda, Elevated but non sticky costs for the Estonia case and compliance remediation had a significant impact on our total cost for 2020. The cost management initiatives were launched during the year had a positive impact on underlying costs, which I will comment on later in this call. In addition, the Q4 numbers includes a provision for part of the transformation costs for 2021 in form of additional severance pay and other restructuring costs. We will continue to reduce our cost base further in 2021 in order to ensure good traction In relation to the redesign of our organization as we announced in Q3, We have booked an extraordinary write down of intangible assets in Q4.
The write down relates to software and amounts to SEK 400,000,000. Loan impairment charges, which to a high degree explain the difference in the financial results for 2019 amounted to SEK 7,000,000,000 for the period, up €700,000,000 in line with our guidance. Overall credit quality remained strong with very limited losses directly linked to the pandemic. Two items explain the development. Firstly, Model driven charges recognized in early 2020 have been reversed and replaced by post model adjustments.
Secondly, an adverse development for our oil related exposure. I will come back to credit quality later in this presentation. Slide 7, please. Now let us take a closer look at the underlying development in the net Income for the group. I will make more specific comments for our business units on the next slide.
Compared to last year, NII saw positive effects Good customer activity in the form of volume growth and deposit margins benefited from a steeper yield curve in the short term money market in Denmark. The positive effect was to some extent offset by headwinds from currency effects, but also from the pressure on lending margins resulting from the low interest rate environment. Adjusted for currency effects, NII was up 1%. In Q4, NII was stable adjusted for 1 off of €100,000,000 related to a correction of income for the held in Group Treasury. The decline in deposit margins from the preceding quarter was due an adjustment of the funds transfer pricing model, which to a large extent is offset in NII Other.
As part of the pricing initiatives I mentioned earlier, We have now adapted to current market conditions in Denmark by lowering the threshold for charging of negative interest rates on retail Deposits from DKK1.5 million to DKK250,000 and altogether removing the threshold on corporate deposits, which was previously DKK 200,000. In isolation, both initiatives will contribute positively to NII with an annual effect of approximately €500,000,000 all as equal and subject to changes in customer behavior and deposit balance developments at Banking DK. At the end of 2020, redeemed long term funding of €64,000,000,000 has been replaced by new long term funding of €75,000,000,000 in various instruments at average Higher spreads confirming the negative impact on NII. For 2021, we expect NII to be slightly higher as volume growth And pricing initiatives is expected to offset margin pressures, whereas the effect from funding cost is expected to be neutral, however, subject to market conditions. Lending and Banking DK on Slide 8, please, Was down 1% year on year due to declining demand because of various effects resulting from the corona crisis support measures.
However, lending volume was slightly higher in Q4 from the level in Q3, driven by the commercial segment. The pressure on lending margins was most evident at Banking DK, where we see the effect of our customers' shift towards longer term fixed rate mortgages with lower margin. Deposit margins benefited as mentioned from the hike in interest rate from the Danish Central Bank. At Banking Nordic, we saw growth in business activity with lending up 3% or 4% in local currency As a result of strong growth in Retail Sweden and Norway, where the inflow from the partnership agreement continued during the year. We also saw higher lending in the commercial segment in all three countries.
NII at Banking Nordic improved from the same period last year, benefiting from lending volume growth as well as an improvement in lending margins. C and I saw higher customer reflecting higher corporate credit demand, primarily in the 1st 3 quarters of the year. The demand was for short term credit facilities in order to strengthen Customer liquidity positions during the corona crisis. Overall, average lending at C and I was up. However, we saw a decrease in lending volume towards the end of the year.
NII and C and I benefited Year over year from higher lending and significantly higher deposit volumes at market rates. The elevated level of Deposits as well as some of the short term lending facilities provided to corporate customers should be seen in the context of the current uncertainty and are therefore not necessarily of a permanent nature. Slide 9, please. Let's have a look at fee income. Overall fee income maintained the good momentum and was in line with 2019.
Adjusted for extraordinary items at Banking Nordic, fee income in 2020 was slightly up compared with the year before. In 2020, investment fee income, in particular, benefited from a strong increase in performance fees from Wealth Management. In addition, we saw a positive development for investment and capital market related activities, whereas remortgaging was significantly lower. Activity based fee income in general was lower due to the impact from the corona crisis. Fee income at Banking DK benefited from an uptick in activity in Q4, which contributed to stable fee income from lending and guarantees.
In 2019, remortgaging activity was historically high, which explains the decline year on year. In Banking Nordic, Fee income in Q4 amounted to almost the same level as last year, excluding the effects from negative value adjustments of SEK 200,000,000 related to a distribution agreement in Finland. The higher fee income generated by activities at C and I benefited from strong franchise value and came in and higher than last year due to stronger customer activity and our investments in capital market related products. Fee income in Q4 was strong and increased from a low level in the preceding quarter due to good activity in both debt and equity capital markets. At Wealth Management, fee income benefited from strong performance fees at Asset Management and higher risk allowance fees at Danica Pension.
As the majority of these fees are booked close to year end, This explains the strong increase in investment fees in Q4. Slide 10, please. Now let's turn to trading income. In the Q4, despite being a period with usually low trading activity, We continue to see relatively strong customer activity. Income in Q4 was almost at the same level as in the preceding quarter when adjusted for one offs and lower value adjustments.
Trading income year on year came in 7% higher when adjusted for extraordinary items in 2019 20 significantly higher income at C and I compensated for lower income in the other business units due to the The higher income at corporate institutions was based on strong franchise value and solid activity among our FI and See customers from improved market conditions as well as positive value adjustments. At both Banking DK and Banking Nordic, trading income came in lower due to lower investment activity among customers And in Banking DK, remortgaging activity was much lower compared to the very high activity from last year. At Wealth Management, the underlying result in Q4 benefited from a stronger investment result in the Health and Excellence business in Danica. However, trading income year on year as well as quarter on quarter was lower due to the effects from one offs in Danica Pension. Slide 11, please.
Our operating expenses for 2020 came in at 28 point €1,000,000,000 This is on the lower end of almost recent guidance, excluding the provisions we have booked for further transformative initiatives in 2021. This should be seen as part of additional measures we take in order to ensure good tractions into 20 21. The cost saving initiatives we have launched during the year have shown tangible results, in particular in the second half of the year, Wealth where we saw lower underlying staff costs and lower costs as a result of the overall strong cost discipline. Effects from the pandemic had an impact in the form of lower traveling activity among other things. Higher contribution to the Danish Resolution Fund, however, had an adverse effect.
Reported costs came in higher than in 2019 as a result of the planned costs for the Better Bank transformation, compliance and the Estonia case. The cost for the transformation amounts to more than SEK 1,700,000,000 as it includes the before mentioned provision for further initiatives in 2021. Costs for the compliance remediation and the Estonia case came in €900,000,000 higher than in 2019, totaling €4,100,000,000 for the full year, which is in line with our expectations. All business units were impacted by cost Related to the bank Better Bank transformation and continued work with the compliance remediation. In Wealth Management, however, costs were lower as 2019 included integration costs as 2019 included integration costs and compensation related to the Flex Invest Free case.
Expenses in Q4 reflects a significant amount booked for transformation, including €600,000,000 for severance and seasonality due to year end booking for certain cost items. In order to continue execution on our 2020 plan and to maintain strong progress towards a lower cost base, which is essential for our ability to remain competitive, We will during 2021 announce further cost saving initiatives. Including initiatives announced by the end of January, tangible process has been made as we now have discontinued approximately 700 positions out of the up to 1600 mainly Nordic positions we announced in October 2020. As we still have a lot of execution in front of us, this work will proceed at the same time as we continue to focus on further cost saving initiatives, including efficiency measures and non personnel expenses. Slide 12, please.
Total impairment charges for 2020, which amounted to SEK 7,000,000,000 are in line with our guidance. The charges for Q4 reflect a further reversal of €500,000,000 as our update of model driven assumptions in Q4 reflects a more benign economic recovery in 2021. However, given the limited visibility regarding economic developments, We have increased post model adjustments by €700,000,000 in Q4 to €200,000,000 for the full year. As changes in the macroeconomic assumption have led to a reversal of €300,000,000 impairments recognized for anticipated credit The oil related exposure, the offshore service and drilling segment in particular continues to be challenged and led to additional but declining impairments of €500,000,000 in Q4. This exposure and we see pressure on collateral values affecting impairments.
During 2020, our impairments against the oil related have been affected by extraordinary charges in order to derisk the portfolio. Thus, we expect lower impairment charges in 2021 against Credit deterioration has been recognized in Q4 against other types of exposures. The impairment charges recognized in Q4 are equivalent to a reported loan loss ratio of 13 basis points, however, with Significant fluctuations between business units. As a result, the allowance account stands at SEK 22,600,000,000 in total. The decline in the allowance account was mostly due to write offs of already impaired oil related exposure, sorry.
Slide 13, please. Our capital position remains strong with a reported Core Tier 1 capital ratio of 18.3 percent at the end of the 3rd of Q4. CET1 capital ratio was up 0.2 percentage driven mainly by earnings, lower deduction at Danica Pension and intangibles. The fully loaded CET1 capital ratio was 18%. The total rea came in €18,000,000,000 higher than at the end of last quarter due to an increase in credit risk.
This is as expected due to the implementation of EBA guidelines. In the first half of this year, we expect an impact on credit from model updated updates related to further implementation of EVA guidelines of EUR 25,000,000,000 to EUR 35,000,000,000 all else being equal. The leverage ratio was unchanged at 4.4% according to transitional rules and 4.5% fully phased On the basis of the results for 2020 and our continued strong Core Tier 1 capital ratio of 18.4%, The Board of Directors is proposing a dividend of DKK 2 per share, representing a payout ratio of 38%. Slide 14, please. And then the financial outlook for 2021.
Please note that the outlook has been aligned with Changes is presented in our annual report and is also available on Page 38 in the conference call presentation. The new presentation of Dyna Kaprizet pension is a result of the redesign of our organization whereby our asset management activities are now part of large corporates and In order to present our financial performance as transparent as possible, we will now disclose our insurance business performance on a separate basis. The outlook. We expect total income to be slightly higher than the level in 2020, subject obviously to commercial momentum and broader economic developments. Our expectation for slightly higher total income will be driven by slightly higher NII and fee income, whereas less benign market conditions will affect trading income.
Expenses are expected to be not more than €24,500,000,000 driven by ongoing cost initiatives and lower cost for transformation and remediation. Please be aware that the outlook for expenses is net of the €1,500,000,000 costs related to Danica Pension due to the reorganization. Loan impairments are expected to be no more than SEK 3,500,000,000 subject to a modest economic recovery based on a positive impact from COVID-nineteen vaccines. We expect net profit to be in the range of €9,000,000,000 to €11,000,000,000 Slide 15 please and over to
Karl. Thank you, Stefan. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to 2 questions.
If you are listening to the conference call from our website, you are welcome to ask questions by e mail. A transcript of this conference call will be added to our website and the IR app within the next few days. Operator, we are ready for the Q and A session.
Thank Our first question comes from the line of Adrian Cighi from Credit Suisse. Please go ahead.
Hi, there. This is Adrian from Credit Suisse. Thank you for taking my questions. I have one on capital and one on market share. On capital, I'm trying to understand your outlook for this.
You flagged the EBA guidelines as a headwind in H1. Are there any other developments that you might flag in terms of either And then on market share, I noticed that you continue to lose market share in your home market in Denmark and in your growth market I've seen. Do you believe that the current restructuring efforts are impacting your customer satisfaction and could be therefore a driver behind these developments? Or is that due to other factors? Thank you.
This is Chris. Let me first take the market share. I mean, let's distinguish the different segments. We are actually doing Well in business customers and we're doing well in corporate customers. And indeed, our retail franchise in Denmark is and has been under pressure for a while.
If you look at the customer satisfaction figures, You see that the bank the customers of the bank actually value the advisers. They value our products, But they still have an issue with our general image, which is very much derived from Estonia and A few cases which were extremely large in the Danish press this year. And I feel pretty confident that given the underlying Quality of the satisfaction with regards to specifics in the total offering, This we should be able to turn it around. But this just takes a long time. I mean, we now see that the outflow and I mean still outflow is bad, but the outflow has reduced by 30%.
So there is maybe some initial signs, but I think the most important thing is to get The Estonia case out of the way and more specifically, get some of the legacy cases, some of them coming back from The early like early 2000s get them out of the way. With regards to the restructurings, We've actually as part of the restructuring, we believe that we did some things which should accelerate our commercial momentum in Denmark. We changed management quite significantly and have a new generation managers there. And we are also have introduced a commercial leadership team, which is also going to be focusing much more on the Danish franchise and the retail franchise. So in that sense, I It has our attention.
We are not happy enough with it, but the retail franchise is still an issue in that market. Stefan, on the other topic?
Yes. As basically in 2020, we will keep On implementing EBA guidelines on our call it trajectory to an increased RIA density in general, You know that there are also certain additions to our capital requirements reflecting these things. I don't think they will go completely in sync between these two requirements. But again, the €25,000,000,000 to €35,000,000,000 range is our best The indication for the first half of twenty twenty one and obviously also in that sense caters for the expected real growth from business growth.
Thank you very much. Very helpful.
And the next question comes from the line of Sofia Peterson from JPMorgan. Please go ahead.
Yes. Hi. Yuri Sofie from JPMorgan. I had my first question would be on your performance fees. They were very strong, around EUR 550,000,000 In the Q4, some of your peers are saying that we should expect that the performance fees, the return to fully disappear.
What's your view on charging in asset management performance fees? Do you think there is a risk That we could see performance fees disappearing over time. And then my second question would be on kind of how should we think about dividends Buybacks going forward, do you have that? Or if you could share with us your thoughts on buybacks and kind of How you think about this? Thank you.
Sorry, can I clarify the question? Are you talking about performance fees changing from a legal perspective? Or are you talking about former fees disappearing because of a performance perspective?
Well, I was more thinking that other banks are charging less and less performance fees. So it's more from a competitive But standpoint that given competition on asset management side, you have more new entrants.
No, I understand. I understand.
But more from that side.
I am at the moment in a Danish environment not very worried about that. There's still a very, Very standard way of doing things. I mean, I agree with you that if you look at asset management in general, The business model or the profit pools change from fees to fees, Portfolio management fees, etcetera, etcetera. So you actually do see quite a lot of changes happening in the world in Denmark that is Very, very limited, if anything. So for the moment, that is not high on our concerns.
Yes. And I think it also needs to be seen in really outstanding performance, which we have seen by our asset management teams partly beating the indices by up to 74%. So in a sense, I think That is also reflecting this. On dividends and share buybacks, the dividends, we have a Standing capital distribution policy, which calls for dividends between a payout ratio between 40% 60%, And I see no reason so far to change it. The discussion of share buybacks, I guess, is a bit premature.
I think we all would want to see the Estonia case finally closed before we start discussing That again, in that sense, we'll probably need to wait a while.
And in terms of the Estonia case, is there any update On when we would have a little bit more clarity?
No. I mean, there's nothing to report. I mean and We truly don't know. I mean, we have done our work. There's always some outstandings, but that's back and forth In discussions, of course.
But essentially, we have done our work and we now we're waiting for the authorities to come back to us.
Okay. That's very clear. Thank you.
And the next question comes from the line of Matt Tingle from ABG. Please go ahead.
Yes. Hi, Matt Thanks for taking my question. I guess the first one I have here is for you, Stefan, and it's a bit about the NII outlook you were So kind to give us before slightly higher NII in 2021. And I was Thinking here a bit, I mean, with quite strong Nordic growth here in Q4, deposit initiatives and also zero Effect from or neutral effect from funding costs, what kind of competitive margin pressure do you factor into that outlook? And what are the key sources for that margin pressure?
That would be the first question. And then the second question is a bit on the cost side. If you I think we kind of got the impression On Q3, also when you lowered the cost guidance that you were a bit ahead on cutting underlying costs. And I also noted that I think not more than €24,500,000,000 in 2021. Are you still a bit ahead on the cost cutting According to your plan and do you still see compliance costs down to €1,500,000,000 To €1,700,000,000 in 2023 as you have guided for before?
Thanks.
Yes. On the NII, I think there's many moving parts. First of all, the market with a low interest rate environment so far It has been under pressure, so margins have been shrinking in general. Then keep in mind that the mortgage customers Still clearly prefer long term fixed rate mortgages over the variable mortgages that they had before. That as such Has lower margins and as time goes on there is a front book, Back book effect out of that, obviously, as well as more customers move on to the, As I said, slower there to the lower margin fixed rate models.
On cost, first, maybe on compliance, that's clearly still the goal and the indication That the business as usual number for the compliance cost should be somewhere between €1,500,000,000 €1,700,000,000 at least Today's perspective, so that's unchanged. Cost in general, I think what you see in Q4 Yes. And I do agree that there is a little bit of movement including Severance pays. We have also catered for a number of restructuring initiatives that we will take in 2021. I think the $28,100,000 also reflects a very prudent view of What the year end view on certain things should be.
So I don't want to say I'm ahead, but I We are going into the quarter 1 of this year with a strong momentum and a good understanding of That 24,500,000 should be achievable.
Okay. Thanks a lot. And just a small follow-up. I think you have guided for a €1,000,000,000 drop from external compliance costs in 2021 before. Is that still the case?
Yes. I wouldn't necessarily call it directly compliance cost because that gives the impression as if we are scaling back on the compliance, which we are effectively not. We still invest into a third line So that's compliance and risk. But what we will see go away is a lot of the Remediation efforts, the forensic efforts also in relation to the Before mentioned reporting to the authorities, which drives obviously also a lot of our external supplier cost. And if you look closely at Q4, you'll find out that external supplies are starting to go down at least slightly.
Okay. Thanks.
And the next question comes from the line of Peer Kondevo from SEB. Please go ahead.
Yes, thank you. Two questions from my side as well. Deposits, we have discussed a number of times. You stated that you have adapted to the current market standard. What would the upside be if you took the remaining step lowering the deposit threshold to $100,000 and chasing the chart or Starting to charge market rates on pension accounts instead of awarding cash part by 1 basis point positive return.
That was the first question.
Yes, Peer, thanks. I think that's a little bit of speculation land. And Secondly, looking at only the isolation of doing one of these things without considering on what it does, for example, on customer Satisfaction customer migration or some other movements, I think that's not the prudent way to look at this, to be honest. It's also pretty clear that we have chosen a very, call it, considered approach in lowering the thresholds. I think now the market in Denmark has stabilized, and we feel well positioned with where we are, which again is obviously subject to whatever happens
What has the client reaction been on what you are doing now 1st January?
So far, what you can see a little bit and Then you can debate whether you want to attribute that to the measures taken. You can see that deposit growth has a bit Slowed in banking decay in Q4. Whether that is due to this or something else is hard to tell as always. Secondly, I think we need to wait at least until the end of Q1 to really see what the customer base will start doing because we only start really charging as of Q1. And for many people, it makes a difference whether They read about it or whether they find a real charge on the account statement.
So I think it's a bit early to tell. But in general, I think the market on the deposit side is still more driven by people Saving money rather than spending it. And in that sense, let's see what the Q1 has to say.
Okay. My second question is related to your cost. Of course, looking for the cost which you presented 1.5 year ago and an update on that one. The what you call transformation cost, EUR 1,700,000, which in the last quarter you talked about EUR 500,000,000 being postponed into next year. Is that number now down to slightly so only approximately €300,000,000?
No. We still expect that to be €500,000,000 to be honest. And in that sense, again, I think the overshoot on transformation cost In 2020 is also reflecting to a good bit the €600,000,000 of a severance pay provision that we took at the end of the year.
Yes, of course. When we look at the compliance costs, they were SEK 3,100,000,000 last year. You're adding SEK 900,000,000. So compliance is underlying running at SEK 4,000,000,000 in 2020, is that reasonable?
Yes. 12.1, yes.
Okay, perfect. Thank you.
And the next question comes from the line of Nick Davy from Exane BNP Paribas. Please go ahead.
Yes, good afternoon, everyone. A couple of questions. On the internal investigation that you've now finalized, I just wanted to hear whether you had any intention to publish that report and or if we would have heard an update if it had Found anything new relative to the last external publication of the facts, please? And then the second question It relates to Basel III. I was just looking at an EBA impact study from December, which estimated 15% to 20% RWA inflation For the Danish banking system as a whole, I know it's early.
I know things are changing, but they did look at various changes being considered and that was still the RWA inflation range. I wondered if you had any comments on that.
This is Chris. I will take the first one. The answer on The first part of your question is no. We will not publish the details of The investigation within ourselves. 2, the answer is yes.
If we would have found anything Material where we had according to disclosure rules had to disclose
it to
the market, we would of course have done it and that's not the case. So in that sense, there is nothing new versus the last quarters. And it's for us now, We are in a waiting mode.
Lars, do you want to take it?
Yes. I can take the second question. Hi, Nick. I'm not especially aware of the report that you are mentioning here, but it seems to be very well in line with What we have communicated recently that we will gradually implement EBA guidelines and other regulatory stuff in order to avoid a cliff effect on our capital. We added DKK 19,000,000,000 Our EBITDA effect in 2020 and we expect that there would be a further €25,000,000,000 to €35,000,000,000 impact in 2021.
And then let us come back on what we see once we are beyond that point. And the effect we expect here in 2021 will be in the first half of the year.
Very clear. Thank you.
The next question comes from the line of Maria Samikitova from Citibank. Please go ahead.
Yes, hello. Thank you for the presentation. A couple of follow-up questions. Just on your cost So, outlook, if we adjust for Danica Pension presentation, so you're effectively looking for a reduction in costs of around DKK 2,100,000,000 Danish kroner for 2021. And you mentioned that around DKK1 1,000,000,000 that would be coming from lower compliance and remediation expenses.
And then we will have €1,200,000,000 reduction in transformation costs. So that effectively implies that underlying costs are staying Flat year over year. Just wanted to confirm that this understanding is correct. And you think that cost savings for the underlying portion will And then on IML and compliance charges, can you provide the updated number of FTEs that are currently employed in compliance? Think the last time you disclosed this number was in the second quarter.
And just how the automation of compliance functions is proceeding?
Thank you.
Yes. Let me start with the first one. On the surface of it, your triangulation reflects Pretty much the numbers. I would nevertheless make 2, 3 remarks. One is, The underlying cost will also in 2021 include additional functions that we will take over by the first line out of the compliance part.
So they will need to compensate for that, which then, if you want so, is a bit is the first challenge that they have. The second is, We are foreseeing for 2021, at least from now, that marketing and travel activity, which has been exceptionally low in 2020, We'll pick up again. So that's the second effect. And the third is obviously the usual cost risk from inflation, wage increases and other stuff, which they also or which we also will fully compensate in the underlying. So that is, I think, The broad bridge I would give from today's point of view.
I have to look at Claus for the FTE number at compliance, and I'm He's shaking his head as well. So
we will come
back to you on that one. And the third one was?
Just in terms of optimization or automation of this compliance function?
Yes. We are We are consecutively introducing new programs and new IT, And we are seeing an increasing number of not only automation, but also of quality and results Being better manageable in the sense of false negatives false positives, negatives and all the other No, but I mean to add on that,
I think for about 2,500,000 clients, we have done ODDs automatically. So given the specific circumstances in this market, we can't go fully automatic yet Given that we need to check, double check first time we have done it, etcetera, but I'm confident that once we actually got this thing going on well that The compliance costs will actually go down as we discussed earlier. And we benchmarked it all the time.
I understand. Thank you. Just maybe a minor follow-up on that. Since you mentioned the underlying cost wage inflation, Can you disclose what your assumption for this year?
I add traditionally the wage inflation is around 2% in Denmark.
Okay. Thank you.
And maybe somewhat higher in some of the other countries that we're operating in.
Yes. In Lithuania and India, it's over 5 And sometimes
we offer 10. Okay. Next question?
Next question comes from the line of Riccardo Robodev from Mediobanca. Please go ahead.
Good afternoon to everybody and
thanks for taking my question. Just a couple of Follow ups, if I may. The first one, when you mentioned the €25,000,000,000 to €35,000,000,000 RWA inflation related to the EBA guidelines. So this inflation only relates to the EBA guidelines. It does not include anything With regard to positive and negative risk migration or any tariff by debt, did I get it right?
That is correct, yes.
Yes, that's right.
Okay. And it does not and the 25% to 35% does not include the 2019% that we are already visible in this year, right, 2020, sorry?
No, it's on top. Okay. But just to give you a little bit of a hint, the range also reflects Obviously, our overall rear density movement, so in a sense, The movements on some of the other parts also do have a certain effect on where we end in the range.
Okay. All right. Okay. Thanks. And the second question I have, if I may, is on the impaired guidance or impairments you have provided and thanks for that.
Is it possible for you to give us an idea what are the macro assumptions, at least the most important numbers behind The impairments that you're providing us.
I would think the simple version and Claus will Give you a more detailed breakdown, but the simple assumption is that we see positive economic growth across the Nordics, Again, probably a bit more elevated in the second half of the year than in the first half. Secondly, I think we need to understand and that is I think the more relevant part For the impairments is what exactly will happen if some of the Government support programs start to run out and how long will the second wave really go. And in a sense, I think we all Soberly need to expect that some of the industries that we find most affected by corona will probably see a pickup In solvency's and related in 2021.
Claus, do
you want to add something?
No. I just have if you are interested, we have the specific changes to the GDP and the property prices, which are those that we have been most focused on. And besides that we have changed The composition of the base case up, the up case and the down case, there then we have a more
positive outlook now for 2021
when it comes to outlook now for 2021 when it comes to GDP in all scenarios and the same goes for property prices, which also has been adjusted upwards to reflect a more benign
environment in 2021.
Okay. So Claus, just to be sure I understand you correctly, when I look at your Nordic outlook and macro assumptions for the various countries, that is more or less the number underpinning The impairment. Okay. Fine. Got it.
Yes. That is correct. And that is very much in line with the scenario we have received from the Danish Central Bank, maybe a little bit more on the conservative side on our part.
Okay, okay. Just like that clear. Thanks. Thank you.
And the next question comes from the line of Namita Samtani from Barclays. Please go ahead.
Hi, and thanks for the questions. Just a question on one more of a clarification on the revenue guidance where 2021 is going to be slightly higher than 2020. What's the right 2020 comparison base? Is it excluding the one off items?
That's a tricky one. It depends a little bit. If you I think what you need to do is 2 things. 1 is you also need to take the Danica part out, Yes. And then I think we are roughly at EUR 41,000,000,000.
EUR
41,000,000,000. EUR 41,000,000,000.
Exactly. And then some of the one offs do also relate to Danica. So it's probably a little bit more than the 41, call it 41.2 or 41.3 would be my guess, but we can follow-up later on. And I would think that is a good starting point. Yes.
That's right.
Cool. Thanks very much.
And we have one more question from the line of Jacob Rouss from Autonomous. Please go ahead.
Hi. Thank you very much. So just two quick questions. The first one is the one offs that you booked in Q4, the various accounting adjustments and corrections. Are they one offs on a 2020 full year basis as well?
Or does some of this relate to overbooking of revenues earlier in the year? And then my second question was just on the I think you talked about this gradual EBA implementation or gradual Risk weight density increase. How should I think about your kind of endpoint here? How much more gradual
Or put it
more simply, the SEK 25,000,000,000 to SEK 35,000,000,000 is that most of that gradual increase? Or are we sort of halfway through to where you think you want to get to? Or you give some kind of idea what you're thinking?
Well, I think that we will take it Step by step, we had previously guided for that there will be a gradual implementation of different regulatory issues including the EVA guidelines And that would take place also in 2022. But I think it's a little bit premature for us to make a specific guidance on the impact for next year. What we have said is that we expect that to be reflected in some of our Pillar 2 requirements. So that should also be taken into consideration. And we have also stated that adjustment of risk weight floors is not a part of this exercise.
So and on the Q4 one offs, I would phrase it the following way, given that this was my 1st full year annual accounts as the new CFO, I think we took in general a Obviously, within management judgment boundaries as set by IFRS, we took a sober view on all the things That you look at the end of the year and probably We're a bit more cautious also reflecting COVID-nineteen and uncertainties. None of that was a correction in the sense of overstated Income or revenues during 2020, there are quite some items also reflecting All the stuff like distribution agreements or residuals from acquisitions in the past. So I think that is as much color I would give. Again, I wouldn't expect that to happen on a regular basis.
Okay. But a clean full year 2020 run rate should add back the entirety of the one offs taken in Q4.
Yes, I would be probably now again, I would be probably a A bit careful in giving credit to all of it. And again, I need to speak mentally with my external ulcer sitting on my left shoulder. So I wouldn't give credit for all of it, definitely not. But as I said, within management judgment, we have tried to be cautious. Okay.
Thank you.
Operator, can we have the last question, please?
And the last question comes from the line of Martin Gregor Spiek from Carnegie. Please go ahead.
Thank you so much. I have two questions. The first one goes on dividends. Let's say the regulator gives you the green light By September, would you be willing to consider any sort of mid Q4 dividends? Or how should we think about sort of the bridge from the 38% to mid range in your dividend guidance?
That will be my first question.
Naim, maybe also to put the 38% EBITDA Perspective. That is basically the lower end of our guidance. And 40% would have been SEK 2 1 or SEK 2, which is why we ended up at the 38. So this is a very practical issue rather than trying to be too difficult on that one. 2nd one, I think that is a very good question, which we a question which we probably really answer somewhere in September.
Okay. All right. Thank you. My second and last question is on your 9% to 10% 2023 ROE guidance, I guess you provided a bridge a year and a half ago, a lot has happened since. So the path to 9% to 10% becomes more and more blurred.
Do you
have any plans of updating your bridge on how to bridge the 9% to 10% ROE?
I would tend at least to disagree a little bit. I think the 2 last consecutive quarters at least show a clear direction. And in that sense, I think the trajectory is less blurred than it might have been at the beginning of the corona crisis. Secondly, there is still a corona crisis, which specifically clouds a little bit the visibility on Income outlook and in that sense, I would still clearly state That 9% to 10% is the goal for 2023. And again, I think we have now 2 consecutive quarters where we can show that we are Turning the corner and on the right trajectory.
Okay. Thank you so much.
Thank you.
Okay. Thank you all for your thank you, Stefan, and thank you all for your interest in Danske Bank and for your questions. As always, you are welcome to contact our IR department if you have more questions after you have time to look at the financial results in detail. I wish you a very nice remainder of the afternoon, and I hope to see you face to face in a future quarter. Thank you very much.
Thank you.