Hi, everyone. Thank you for joining us on Jyske Bank's conference call for the financial results for the first quarter of 2024. This is Simon Hagbart from Investor Relations speaking. With me, I have Jyske Bank's CEO, Lars Mørch, and CFO, Birger Nielsen. Lars and Birger will walk you through our prepared remarks. Afterwards, we will open up for Q&A. I will now hand over to Lars.
Thank you, Simon, and thank you all for joining here. We've had a solid start to the year. The net profit of approximately DKK 1.3 billion in the first quarter of 2024 is on par with our highest Q1 net profit so far, and is a full 51% above the level seen just two years ago. This is, of course, underpinned by higher level of interest rates and the integration of Handelsbanken, and the Handelsbanken Danish activities. However, the strong result still underlines the resilience of Jyske Bank's business model, as activity levels has been remarkably low in the Danish housing market in Q1, with sector lending and remortgaging offers at an all-time low for this time of the year.
At the same time, we managed to keep the underlying cost inflation under control, despite a period of high inflation. We believe there are further synergy, synergies to be reaped in the coming years following the acquisition of Handelsbanken in Denmark and PFA Bank, as we continue to implement efficiency measures. Our customers continue to navigate well in a somewhat subdued economic environment with high ongoing uncertainty. This has helped in keeping a low level of loan losses. The one basis point booked in Q1 can be attributed to a DKK 100 million post-model adjustment for potential CO2 tax on the Danish agriculture. Our post-model adjustments, though, are then approximately DKK 2 billion, equivalent to more than 4x the total amount of loan impairment charges booked since 2015.
Lastly, having rebuilt our capital position following the acquisition of Handelsbanken Denmark, we are very pleased to announce that we are resuming share buybacks with a new program of up to DKK 1.5 billion. If we move forward and take a look at some of the figures, we are keen at looking our, at our results in terms of earnings per share, and earnings per share in the first quarter was 19, 19.5 the same quarter last year, which is also a flattish development. It's approximately one fourth of the highest level in our projections for this year, and obviously, you cannot take Q1 and times four and get the result, but it's certainly within our expectations.
On the right-hand side, you see the volumes, and generally, a strong development in the AUM, due to a combination of the development of current AUM and new inflow, partly due to PFA Bank. If you then look at the deposits, our deposits volumes are flat when it comes to retail deposits, and they show strong stickiness due to seasonality and due to some larger deposits from large deposit holders. There's a decline during the quarter, but the key deposits from retail customers are has again proven to be very sticky. In the left-hand side of this one, if you look at the bridge on return on equity, year-on-year, there are two major pluses.
That is the net interest income is up compared to last year, and there's a plus, maybe not a major plus, but a plus also on the loan losses. On the negative side, predominantly related to tax and the AT1 issuance, and also lower net fee income, we take it from 13.2% to 11.4% this year. Turning to our expectations, we've communicated that we are targeting a net profit of between DKK 4.3 billion and DKK 5.1 billion this year for the entire year. That is lower in 2024 than in 2023, and that also goes for the core income, where we expect that will be lower, mainly due to value adjustments.
The core expenses will be largely unchanged, which is still our expectation. Loan and impairment charges can be a bit higher in 2024, but as you've seen, from the report today, asset quality is still under good control. There's a post-model adjustment related to the CO2 tax on agriculture, and with that one, we stand with the buffer of DKK 2 billion. The earnings per share is expected to be in between DKK 64 and DKK 76. And as you've seen, the first quarter was DKK 19, so we are well within that range. Capital 15%-17% CET1 ratio, and 20%-22% capital ratio.
As we communicated earlier this year, we expect to be moving into a situation where we on an annual basis pay out 30% of the previous year's results in cash dividend, and use share buyback as the tool on top of this, within, obviously, still securing a safe and good capital base. Birger Krøgh Nielsen?
Yes, thank you very much, Lars, and I'll just give a few insights into some of the relevant and interesting topics in the first quarter. Looking at NII and the bridge from Q4 to Q1, volumes were in Q1, as Lars said, stable. In a market with stable volumes, i.e., stable market shares, and the 4% drop we see in NII is driven by a few dominant factors. One is the change in pricing. We changed transaction accounts and savings accounts pricing on the 27th of November, and we have seen an ongoing, as expected, clear and visible migration into the savings products during the last few quarters, and it's also evident here in the first quarter of this year.
And secondly, we have lifted our interest expenses due to two issuances, one in November, an NPS, and one on the first of February, a Tier 2 instrument of EUR 500 million each. And on top of that, looking at the right end of the slide, you can see that there is a green box showing the higher income from our bond portfolio as a mitigating factor against the development in interest rates. Moving on to the next slide, we have given you a split in deposits, which is more or less even between corporate and private clients' deposits, 50, more or less each.
And if you look at the left-hand side, you can see that approximately two-thirds of the corporate deposits relates to money market reference rate deposits or time deposits, and is up significantly from two years ago. It's a relatively steady, situation as of now, when it comes to corporates. Moving to the right-hand side, you see private clients deposits, and if you take the deposits with, with savings and time deposits and transaction accounts, it is, sorry, savings and time deposits, it's now consuming around 60%, of, of the bucket, coming from around one-third, two years ago. So you see this gradual shift into savings and time deposits, which is expected, and which we, to some extent, also expect will continue in the, in the coming, quarters.
The fee income is at the same level as it was around in Q3 of last year, around DKK 600 million, but slightly down from Q1 of last year, 8%, and it's driven mainly by two factors. One is the very low activity in the sector for mortgage lending, all-time low level here in Q1. And the second is one-off fee expenses related to a covered bonds issuance in Jyske Realkredit. And please be aware that PFA Bank and the fee income is included in this fee income development in Q1. But also be aware that the administration and management of PFA Invest funds will be transferred to BankInvest here in the second quarter of this year.
So going forward, the return from this activity will be income from our banking, BankInvest shares and not fee income, going forward. Yes. Looking at the cost management of the group, it's still under control. We've said all in, we expect relatively stable development in 2024 versus 2023, and that still applies. If you see the development in retrospect versus Q1 last year, we are up 3%, exclusive of one-offs, and this lift in 3% relates to the inclusion of PFA Bank, salary increases of 4.5%, and the removal of Great Prayer Day, which cost us close to half a percentage point. Looking at the one-offs, Handelsbanken and PFA Bank covers DKK 22 million in Q1, and there are other elements to it as well.
One is a VAT adjustment due to the different development in income between Jyske Finans, where there is an income of VAT, and Jyske Bank, where there is an expense of VAT, and that leads to a lift in cost of a little bit more than DKK 30 million this quarter. The credit quality is still very high. We see small portfolio movements in Q1, a few single name changes, which is natural. But average-wise, since 2014, where we merged with BRFkredit, now Jyske Realkredit, we have seen an average impairment charge of only eight basis points, and in the same period, we have built up DKK 2 billion in post-model adjustments, which is around 40% of the total balance.
In Q1-. We took and booked a cushion against the proposed carbon tax on agriculture of DKK 100 million, and it actually more than explains the net expense of DKK 82 million in the quarter. So a very stable credit quality is still here in Q1. And then finally, looking at the capital, we will initiate a buyback program of DKK 1.5 billion, starting here in Q2, and we will keep the capital levels still in the upper half of 15-17, as we announced by year-end.
As you can see here in Q1, the CET1 rate we dropped a bit from 16.9% to 16.6%, and the explanation is on top of the profit, a reservation of capital for both expected dividend as well as expected share buybacks, the latter part being a consequence of an EBA answering guidance, which was given in January of this year. Looking at the risk exposure, the total risk is lifted by 2.5% in the quarter, driven by three factors. The main one is that operational risk, due to higher income in the group, is listed DKK 3.5 billion. That's a yearly change. Market risk and credit risk adds another DKK 1 billion each, summing that to DKK 5.5 billion, or 2.5%.
If you exclude the reservation of capital for buybacks, we are almost even at 16.8%. Then, going forward, we will of course manage the buyback program properly. We will build or stabilize the capital levels after the inclusion of the full DKK 1.5 billion in the capital reservation in Q2, when we start the program about buying back shares. And of course, we will try to manage the CRE buffer and the inclusion of Basel IV also properly. The effect will show up in Q2 of this year, respectively, Q1 of next year. The expectations are unchanged, approximately 2 percentage points, and we hope for no double counting of buffers from the regulators. There is some hope in the market that this will happen, and it will also, of course, be a positive for us looking into 2025.
Thank you, Lars. Thank you, Birger. We'll now open up the questions. If you would like to ask a question, please raise your hand and unmute your device. I believe the first question in line comes from Asbjørn Mørk, from Danske Bank. Please go ahead.
Yes. Hi, good afternoon. I have two questions, basically. One, we could look at your top line to begin with. And the bridge you gave on slide number 6. Maybe you can elaborate a little bit on the actual development in NII in the different months in Q1, because there seems to be quite a lot of impact from your funding side, and I guess some of the deposit headwind was basically spillover from the changes you did in late or in Q4. So how did you actually see the NII develop throughout Q1? Was it relatively stable, or did it continue on a gradual sort of decline from January to March?
Yeah. So, of course, looking at the development throughout the quarter, we are impacted by the number of interest days of interest, of course, as you know. But, I mean, March and January had the same number of days of interest, and they were approximately at the same level, albeit with some movements between what comes from lending and other NII, and expense for deposits.
Okay. So March versus January was basically flat on NII. That's what you're saying?
Approximately. If anything, very, very slightly down.
Okay. That's helpful. Thanks. And then on your buyback, just looking at the timing, you're gonna initiate the buyback in June. I guess with the limitations from the FSA, you're not gonna be allowed to add to the buyback as long as the current buyback runs. So I guess, question one, this is what we should expect for the full year of 2024. Secondly, how should we look at this buyback in terms of does it relate to the 2023 profits, does it relate to the 2024 profits? Should we expect... Because it's basically, you know, one third of your guided profits for 2024, if we adjust for H1 costs. Is that the way to look at it?
Hence, we should add 30% dividend in addition to that, and that's your new payout ratio, or should we rather see as 24, that you'll pay 30% in dividends, and then you'll do a somewhat larger buyback next year?
Yes, thank you, Asbjørn, for the question. The buyback will start on the third of June for practical reasons. We have historically made some uplifts in existing programs, so we see that as a possibility if we look at it in historic context, not mentioning anything related to this one, but that has been the case historically for Jyske Bank. The board will view this on a quarter-by-quarter basis. As I said, we will stabilize and, if needed, rebuild the capital levels in the coming few quarters. And of course, the board has a close attention to the level and the possibilities for further distribution. And talking about the how you relate this buyback to a certain year, well, this is a 2024- activity, and as well as we reserve dividend capital for dividend payout, will also be related to the 2024 earnings.
So, basically, if you don't add to the buyback program, let's say this is one third of your 2024 profits, and you pay 30% dividend, so then 63% payout is what we should expect for the full year 2024. Is that how we should look at it?
Yeah. Yeah, the DKK 1.5 billion is related to the 2024 earnings and the dividend as well.
Yeah, so it's basically 30% dividend payout, and then on top of that, 26% payout for buybacks, and that's based on the DKK 1.5 billion that we've just announced, comparing that with the level of earnings last year.
But when you talk about relevance for the earnings that we can use for buybacks, it's related to the actual year.
But you seem to be referring both to 2024 and 2023. That creates a lot of confusion in some-
Yeah, no. Let me, let me just clarify, Simon, and we are both right, because the, the calculation, 26%, is actually DKK 1.5 billion versus the DKK 5.9 billion of shareholders', earnings in, in 2023. But going into 2024, we will, the DKK 1.5 billion relates to this year's earnings.
Okay, so basically-
In your discussions with the FSA and looking at their 100% roof, this has been treated as a 2024 distribution and will be basically compared to your 2024 profits.
Yeah, that's correct. But yeah.
Okay.
The percentage is basically just set in dialogue with the Danish FSA, and that's based on some historical data, and as you have mentioned, 20-24 is what's sort of foundation for the buyback. So you're right.
Okay, okay. One of your peers was out the other day saying that they cannot lift or initiate a new buyback as long as the current buyback is still running. You seem to have a different view. So, you would still see the opportunity to add to the buyback later in the year?
No, we, we are not discussing that, but I just referred to what we've done historically, and, and of course, we will, we will make sure that what we do is fully within line of, of what is the regulators accept.
So, Espen, I think what you should view this as is that, as described earlier, we intend to, in the future, pay out a cash dividend of 30% of the previous year's result, and then on top of that, share buybacks to the extent possible within still a solid capital level. And this year is a little bit of a gap year, because that's the first year where we can implement this. And this is obviously based on a historical situation where we come out from a little bit lower capital levels after the acquisition of the Handelsbanken and Danish activities. So we're morphing into the structure that we informed about earlier this year.
Okay. That's, that's very helpful. Thank you.
Thank you, Espen. Next question in line come from Martin Gregers Birk from SEB. Please go ahead.
Yeah. Just, just following, following along the lines of NII. What kind of. We've talked about your hold-to-maturity portfolio before, and now that we are looking into a rate cut environment, what kind of sort of longer duration sensitivities do you have on NII?
Yeah. So we haven't provided exact guidance on. But we have provided quite clear NII sensitivities. So, I think I would refer to those, being DKK 500 million in the first year of the 1 percentage point change, and that rising to DKK 0.7 billion in year three. And that dynamic should also be expected on the way down.
Okay. All right. Okay, very clear. And then coming back to what one of your peers said the other day, that particular peer also talked a lot about pent-up demand in terms of loan growth. Is that anything you see materializing within the foreseeable future in your books?
I think very short term, we are looking into a stable environment with relatively stable volumes, as we saw in Q1, both for Jyske Bank and for the market as a whole. Of course, there is a hope that we can see a slight uplift, and some experts have been out in the markets stating that the economic environment as sentiment in general may be better than what is expected so far. But we are a little bit cautious here because we want to see that the credit quality in the book will perform well, and that's the best benchmark we can have looking into the performance of the general economy.
So you don't, basically, you don't sit with a pipeline that suggests that you should see any, any changes in the later part of 2024?
So it's always difficult in a bank like ours, with not that many very large new exposures, but a solid development on existing clients and a number of smaller clients that does not individually move the volumes to an extent that you would be able to see them. We think there's a little bit, having said that, I think we see a little bit of further activity now in our business banking segments. But let's see, because other clients are paying back their loans. So it's always difficult to see with any great detail what is happening here. But if anything, there's a little bit of a positive sentiment.
On the other hand, I think it's worth also listening to some of the people from the transportation business, and the CEO of Maersk was out just the other day saying he did not understand, at least that was how I understood him, that there's a lot of positive positivity in the market at the moment. Because in terms of transportation and shipping, there's not that many goods being shipped around, and we also see that from some of the other transportation companies. So, the gut feeling is, if anything, maybe the economy is moving a little bit up in terms of speed, but I think it's too early, too close a call to be very precise on this.
Okay. Okay, very clear. And then moving on, onto the share buyback. Now, we talked about whether it's technically possible to top up your existing share buyback program. But sort of from all practical purposes, given that you're looking to acquire roughly shares worth DKK 8 million per day, and I think that you have a constraint around 10, maybe 11 million per day, given that you probably only want to be 15% of the daily traded volume. Isn't that a fair calculation?
I think it's a fair calculation that we'll have a decent buffer against the maximum, of course. And when we do a third-party agreement, they also find it suitable that we manage the program the way that you just referred to.
What do you see as a maximum?
Well, of course, you have the maximum threshold of 25%, but 10%-15% is the normal guidance, I think, when you talk about vendors. We talk with vendors, sorry.
Okay. Very clear. And then final question from my side. I guess this one goes to you, Lars. You've been fairly fairly vocal in Danish media today in regards to the Totalk redit agreement. Could you please enlighten me, what kind of tools do you have left in your toolbox to change this into your favor?
I believe that no decisions has been made on that agreement from the competition authorities so far. They've been looking at this for a couple of years plus, and Nykredit has put forward their suggested solution. One has to remember that this discussion is not due to Jyske Bank. This is the competition authorities having concern, concerns about competition. We've had one theme that we brought up and asked about, and that theme is potentially part of what they're aiming at solving here. We don't know how this is gonna play out. There are different opportunities.
The model that is on the table now does not change a lot, and does not change at any meaningful level at all. Then there's a possibility of them competition authorities going a little bit further than what is on the table at the moment. Or, there's a possibility of the competition authorities taking what is on the table now, off the table. And our visibility in to see what they'll do is not better than yours, because we're not part of this. But our expectation is, and given also the view that I notice around from people who does know the industry, I think people would be surprised if it ends where it stands at the moment.
How big the changes will be to what is on the table? I don't know. But we will monitor this closely. We believe that we have opportunities, no matter how this piles out. And that is basically, that's basically what we are focused at. That is, to have the best possible outcome for Jyske, given the decision that the competition authorities will reach. And I believe there are potential attractive solutions, no matter which of these three models that we will end up with. And I guess that's, that's our job, to make sure that it ends the best possible way.
But, but, but assuming that, assuming that the competition authority is gonna stick with the hearing letter that they sent out in April, I mean, this is the second hearing letter they sent out. I guess sort of their suggestions must resonate in their ears, otherwise they wouldn't send it out. Are there any sort of higher instances of court that you can take this to? Or will that just be the verdict, and that's sort of it, and then you have basically no other tools in your toolbox?
Yeah, first of all, I'm uncertain if the assumption is right that they agreed to this one. There was an article during the weekend where they said, you know, this is basically what Nykredit has written, and this is now sent out in a hearing, and one could not take for granted that they agreed on this. I've not seen the article myself, but I was told that that was the case. Technically, it can be that they agree to this. It can also be that that is as far as they can come with a negotiation. Then they wanna put as far as they can come out in the market for comments. I believe that they are now reading through the comments from the individual banks. I think we will look at our possibilities when we know how they're gonna land this, this one.
Okay. Okay. But I still don't think you sort of completely answered my question. If it turns out to be... If it goes against you, what are the sort of - do you have any legal tools? Are there any tools in the EU?
Yeah, yeah, we might have that, but we expect this to come to an outcome that is better, or we hope that it will come to an outcome that is better than what has been described in the media so far. Then we have alternative tools, and we are aware of what we can do if it is a not very acceptable solution that will be put on the table.
Okay. Very clear. Thanks.
Thank you, Martin. At the moment, there are no further questions in line. If there are any further questions, please feel free to raise your hand.
Yeah, perhaps I can go again then.
Yeah. Of course, Martin.
Just a quick question on asset quality. I see your comments on asset quality, and I also see this extra PMA that you're taking in the quarter. But underlying, there's nothing really that is pointing to any sort of deterioration at all. And I guess my question goes on sort of these PMAs. If everything continues as it is right now, how do you view them? Has this been effectively turned into CET1 capital, or should we actually expect these PMAs to be deployed in some kind of way within a foreseeable future? Thanks.
Yeah, Martin, I think that the PMAs is - the PMA build up is a consequence of a cushion against uncertainty, dialogue with the FSA and the industry, et cetera, et cetera. The outbreak of the coronavirus back in 2020. That being said, I can't foresee that we'll come back to levels where we were pre-COVID, i.e., in our case, DKK 500 million-DKK 600 million from the DKK 2 billion, but I can see that we will use this tool more actively than what we have done over the last two-three years, because in the last three years, we built it up. But any deterioration in any sub-segment in the portfolio will be assessed against this PMA before we use them and book them as a.
And rebuild them as an extra expense. So expect us to be active in the next quarters using this tool, as long as it's not a systematic deterioration of trend, which is more all-encompassing than just a single name deterioration here and there.
Okay. But I completely agree with your view that it's not gonna go back to DKK 500 million-DKK 600 million. But do you think going back to DKK 1 billion or DKK 1.5 billion is realistic?
Well, that is a difficult question because it all boils down to the uncertainty that we foresee in the market in the next one, two, three years. And as of now, you can see the splits in the quarterly report. And that split will gradually shift from time to time, from quarter to quarter. Inflation has filled up and booked some DKK billions, and now we may shift away from inflationary risk to other sources of risk. So, quarter by quarter, this is a dynamic instrument, and expect us to use it, as I said, more actively, also when it comes to deteriorating single names, as opposed to what we saw in the last three years, where we built it up on uncertainty that hasn't yet spelled out in any expenses, real expenses and losses.
When do you think we reach the point where auditors, they start to complain about this?
Well, I think the FSA has over the last years shifted a bit in their attitude towards this, and they fully find it suitable that we have a large proportion of the balance in PMAs, as opposed to what we saw, if you go back five, six, seven, eight years. So there's been a shift in the attitude with the authorities, and I think the auditors need to rely on that and adhere to that view.
All right. Thanks.
Thanks again, Martin. There are no further questions in line. I assume there are no one else wanting to ask a question, so I'd like to thank you for participating in today's conference call. A recording of the call will be made available on our IR website in the coming days. Please do not hesitate to contact us if you have any further questions. We appreciate your interest in Jyske Bank and wish you a nice day.