Good morning to everyone, and thanks a lot for calling in. 2023 was a year with several important milestones for Jyske Bank. Firstly, we recorded the highest profit in the history of the group, with earnings per share of DKK 89 and a full 61% above the previous all-time high, which was the year before, 2022. Secondly, we acquired PFA Bank, and thirdly, and not least, we had a successful integration of Handelsbanken through a dedicated effort throughout the organization. This allows us to put an even greater focus on driving the operating performance in the coming years, and we expect to put further color on the future of Jyske Bank at the end of 2024.
The result of 2023 was driven by a higher level of interest rates, improving our net interest margin significantly, while maintaining a solid credit quality and strong cost control amid low activity levels. Additionally, we saw a healthy contribution from the acquisition of Handelsbanken. For 2024, which my colleague, Birger, will comment on in more detail, we expect a net profit of between DKK 4.3 billion and DKK 5.1 billion. This is below the DKK 5.9 billion of this report, reflecting a more normal level of value adjustments following an all-time high level in 2023. Looking ahead, we are well positioned for the outlook of lower policy rates, given a relatively low interest rate sensitivity.
Furthermore, we expect cost synergies to mitigate inflation, maintaining a flattish cost outlook and post-model adjustments equivalent to approximately three years of normalized loan losses that provides a good cushion for loan impairment charges. Lastly, I would like to highlight the second consecutive quarter with a DKK 500 million dividend. We've also introduced a new capital distribution policy, targeting an annual dividend, a payout ratio in the region of 30%, supplemented by share buyback based on the capital position obviously. Following a well-timed and executed new issuances of AT1 and Tier 2 capital in Q1, our capital position is fully rebuilt post the acquisition of Handelsbanken Denmark.
If we take a closer look at the integration of Handelsbanken, firstly, the timetable which you have on the left-hand side here, that timetable we announced in June 2022, and we've been able to keep to that timetable throughout. So during last year, we integrated and merged the organizations. We merged the branches that we anticipated that we would merge, and we had the IT migration done, actually according to the plan and budget, by November last year. So far, financially, the case has outperformed our expectations, and that is basically due to the fact that we've seen no major issues, and on top of that, the higher interest rates have obviously helped us.
We see a targeted cost synergies of DKK 0.4 billion, and we also still see that we'll be able to do the total integration below the anticipated half a billion. On the right-hand side here, you have the branches. We had 123 early in 2023, and that is now down to 89 branches. We've done it in a fashion where we have integrated the branches that was basically in the same cities, so that we've left no major geographies in Denmark behind, but have taken the synergies where it was possible to take the synergies. PFA Bank was acquired last year in June, and the acquisition was closed the first of October.
That's a no-lending bank, and it was established a little bit more than 10 years ago, has approximately 10,000 personal and private banking customers, and has DKK 16.1 billion of AUM. The rationale is that they have a very strong customer base. There's a big cross-selling potential as PFA Bank is a non-lending bank, and as we have more investment products than the PFA. It also supports the wealth management strategy and gives scale to that business. On the financial side, obviously, it's very important that there's negligible capital consumption. And obviously, it's also important that we will have cost synergies in this case. Birger?
Thank you, Lars. Looking at Q4, we had a strong end to the year, strong operating performance in Q4, with the highest ever earnings per share of DKK 27 . Looking at Q4 at a glance, at the left-hand side, you can see we brought down the cost-income ratio to 41%. Loan loss ratios were at a very low level of 1 basis point. We lifted earnings per share 16% year-over-year. We delivered return on equity, 16.70%, and the capital ratio, CET1 ratio, was at 16.9%, and the total ratio at 21%. Looking at the upper end, in the right-hand side, you can see volumes for Q3.... and the overall impression is that deposit, deposit base, both for private and corporate clients, has grown, and migration to saving products has also picked up a bit for private individuals.
We saw bank loans slightly lower, but that was due to public authorities. We have seen AUM growing, growing by, growing by 10% due to the inclusion of PFA Bank, but also due to performance and inflow of customers. And finally, we saw the mortgage portfolio slightly up 1% in the last quarter, driven by corporates. So all in all, if we take a Q4 year-over-year look, we lifted our core income by 33%. Expenses, including integration cost, was lifted 21%, and the net profit was up 15% year-over-year. If we then dig into earnings per share, you can see that from 2014 to 2021, in the period with negative interest rate, we had an average earnings per share of DKK 31 , and it's now more or less tripled to DKK 89 in 2023.
And as we write here, driven by, of course, the pricing and cost initiatives we've done, but also acquisitions, high interest rates and higher corporate exposures. The cost-income ratio is, of course, crucial in performing better, and from 2018, 2019 to 2021, 2022, it was the cost management gain, more or less. Then from 2021 onwards, we have been supported also by income growth, and now we've been able to deliver a drop in the cost-income ratio to 43%, 20 percentage points down from 2019.
Looking at the accretion on the book of book value, and I take a very long history here from 2000, we've seen a steady increase over many years, and it's natural that it's been accelerated in the latest years due to buybacks, due to acquisition, but also, of course, due to the stronger earnings capacity in the group. Looking at 2024, we estimate a net profit of DKK 4.3 billion-DKK 5.1 billion, and looking into a little bit more detail, we can say that it's expected that the core income line in total will show up lower in 2024 than in 2023, especially due to the very high level of value adjustments in 2023. Core expenses will be approximately unchanged. We have synergies to be reaped.
We have a lower one-off cost, but and it will probably counteract the impact, both from the inclusion of PFA Bank, but also the obvious inflation, which is still in the market. Loan impairment charges will expectedly be higher in 2024 after a very low level in 2023. We saw a very resilient customer base in 2023, and of course, at the beginning of 2024 is still the case, but there is also higher uncertainty in the market going into 2024. We have lifted our post-model adjustments to an all-time high level of DKK 1.9 billion. Net profit, as I said, and we as announced in January, DKK 4.3 billion-DKK 5.1 billion.
And capital levels in the two defined intervals, which are well known in the market, but new to the market, we have now targeted a 30% dividend payout ratio, and we supplement it by share buybacks, depending on the capital position. And maybe just a few words on a few important lines and topics before we open up for Q&A. One is the NII, and it's a busy slide, we admit that, but the point here is, number one, that we have a mortgage portfolio which is unaffected by changes in the interest rates. Number two, that we have partly hedged our deposit risk in the banking book. Number three, and we have a higher pass-through rate than our peers of the central bank interest rates, which came into place in 2022 and 2023.
Fourthly, that our mix with a higher corporate and lesser private individual share than our peers, we naturally will have a lower interest rate sensitivity. And that all sums to the point that we are talking about DKK 500 million per one percentage point down, year one, and it will gradually grow, as you can see on the left-hand side, as the hedging effects diminishes due to lower rates in the portfolio as time passes. Looking at 2024 in gross terms and in net terms also, we expect them to be largely stable.
We'll see a slight decrease quarter by quarter due to the rate changes and of course, also the deposit migration, as I alluded to before, but we have a significant positive overhang from 2023, which will of course support the total NII for 2024, despite the lower rates. And our assumptions is three quarters down in 2024 and 1 percentage point down in 2025. We had an uplift in our fee income in Q4, supported by the acquisitions by 12% year-over-year. And as we look into the numbers, we can see there was a tax incentive to close house transactions in Q4. That being said, activity was low, and as you can see on the slide. The level in 2023 of numbers of lending offers from Danish mortgage institutions was 37% lower than 10-year average.
So we expect a somewhat slow start to the year regarding transaction-related fee income. Costs expectedly unchanged, all in, inclusive of integration costs 2024 versus 2023. We have back-end loaded synergies, IT platform costs, and also a number of FTEs from the inclusion of Handelsbanken. We still expect to deliver total integration costs of around DKK 500 million plus up to DKK 50 million regarding integration of PFA Bank. So we are fully on track when it comes to those elements. Looking at the credit quality, it has been very stable and resilient during the course of the year, and we have an unchanged balance of impairment charges of DKK 5.1 billion from Q3 to Q4. You can see in total in 2023 that we saw write-offs at the lowest level in more than a decade.
And the post-model adjustments, as we mentioned, is at an all-time high of DKK 1.9 billion, lifted by, number one, a switch from model adjustment to post-model adjustments of some of Handelsbanken's customers, approximately DKK 300 million, and then a further cushion against macro risk in property markets, close to DKK 200 million. So in total, the DKK 1.9 billion sums up to 37 basis points of total loans and guarantees. Then my last topic will be on capital. If I look at Handelsbanken, we acquired on the first of December, we acquired that without raising equity, and then we have spent 2023 rebuilding capital. We saw in total a REA growth of 2%, in 2023, supported by higher interest rates and therefore lower fair value assessment of the mortgage book.
We retained earnings after tax of DKK 5.9 billion, and we have announced another DKK 500 million dividend payout here to be decided at the AGM in March, on top of the DKK 500 million December. And that, in total, sums to the development on the CET1 ratio from 15.2% to 16.9%. Then looking at the situation for the total capital ratio at 21% in the middle of the range by year-end, we issued AT1 and Tier 2 in the level of EUR 300 million and EUR 500 million in the start of 2024, lifting, as of now, the adjusted capital ratio to 22.4%. So as of now, we have a CET1 ratio and a capital ratio that is at or slightly above our targeted intervals.
From 2024 onwards, we have stated now that we want to, pay out a dividend in the, in the region of 30% and supplement with buybacks, depending on the capital position, given that we now here in Q1 is fully-- has fully rebuilt, our capital levels. And our aim and, and ambition is to stay in the upper part of that interval due to the CRE buffer and due to the Basel IV inclusion of input floors on the first of January 2025, and we are very comfortable with, with those levels, as we, as we speak. And secondly, when it comes to Basel in Q1 of 2025, the effect is up to 1.5 percentage points, and it's input floors that hit us on the Low Default Portfolio.
We expect the input floors to be the binding constraint for several years ahead, expectedly until 2032. Capital levels from 25 onwards will then naturally be in the lower part of the intended interval, given that we have a CRE buffer still in place. I think that concludes our initial comments.
Yeah. Thank you, Lars, and thank you, Birger. We will now open up for questions. If you would like to ask a question, please raise your hand or on your device. And just a moment. I think the first question in line comes from Asbjørn Mørk from Danske Bank. Please go ahead.
Yes. Hi. Thanks for taking my questions. If I may just start on the last slide you had on the capital, just to make sure I basically understand what your thinking is here. So basically, you're at the upper end of the 15-17 range. You're saying that there will be the impact from Basel IV and from CRE, but as I hear you, you don't want to sort of exceed the 15%-17%, even with those headwinds coming, you just want to be in the upper end. And now you're issuing AT1 capital. You did recently, AT1 capital and Tier 2 capital, you're above the 22% total capital target that you have.
So maybe if you can give a little bit of flavor on sort of what should we expect in terms of capital distribution buybacks for 2024? Is it so that you basically think that with Basel IV, with commercial real estate that you are basically where you want to be on sort of nominal capital, and then your CET1 ratio will obviously decline with Basel IV? But hence you don't need more capital, so we should expect you to basically buy back shares worth whatever you don't need for growth in 2024. Is that the right way to look at it? And is that the reason why you're front-loading capital to get that approval from the FSA? That'll be my first question. Thank you.
Yes, thank you, Asbjørn, and, you're quite right. Yes, our, our ambition is to stay around these levels, in the upper, at the upper end of, of, 15-17 and 2022. And as you say, we have, rebuilt both capital levels, here in Q1. And so as the nominal capital level, yes, it is in place, going into both, the, the CRE buffer from first of July and the Basel IV requirements first of January next year. Distribution from here onwards is, as we said, point number one, we aim for 30% dividend from fiscal year 2024 onwards, and we'll top it with the capital level that is excess, in excess of what we aim for, as we said here, and we'll pay it out in due time when we get approval from the FSA.
Basically, my question is also that since you have already deducted your dividend in the 16.9, your CET1 will obviously grow the next couple of quarters. So does that mean that you will adjust accordingly, so you will not be waiting until late 2024, but you will do buybacks as soon as possible, as you get the approval from the FSA? So we should expect something, for instance, in the first half of this year.
We will do buybacks as soon as possible, given approval from the FSA. You're quite right.
Okay, perfect. Then, on your slide 11, on your net interest income hedge and the deposit betas that you mentioned you've seen, I was just wondering if you sort of put that together with your view on or assumptions on rate cuts for 2024. I guess that still leaves you with a higher NII for 2024 versus 2023, full year 2024 versus 2023. Is that also what you have in your budget?
Yeah, well, as I alluded to before and mentioned, it is, well, largely stable. I think I put it that way. And it's just the fact that you're quite right, we will see an implication of the 0.75% downwards on interest rates naturally during the course of the year, but we have a significant overhang, and we also have to accept the full effects from Q1 onwards, from the rate changes we made on the 25th of November. And then finally, an important point to mention here, which we've been talking about on several occasions formally, that the migration, private division migration to savings accounts has slightly picked up in Q4. Of course, that is, so to speak, a risk for our net interest margin going forward, if private individuals become a little bit more aggressive in that field.
All right, that's clear. Final question from my side. I think, Lars, it was you that mentioned something about more—you would put more color on the future Jyske Bank at the end of 2024. Could you just enlighten me or us a bit on what, what does that actually mean?
Sure, sure, Asbjørn. Yeah, we have a strategy in Jyske Bank that runs until the end of 2025. We expect now that we'll be able to do this a little bit faster, and we expect that by the end of 2024, we'll renew the strategy, and we'll probably have a communication in one of the last two months of the year on this. This year will be very much about a good, solid run of the business after a year with a lot of integration work. So we want to optimize the organization here and optimize how we stand, get back to the clients, make sure that we have the house in order, and at the same time, we prepare the next round of strategy. So by the end of this year, Asbjørn, we'll be able to show you the details of this work.
That would also be sort of midterm financial targets, return on equity targets, stuff like that?
That we will have some financials included in our strategy.
All right. That's very helpful. Thanks a lot.
Thank you, Asbjørn, and next question in line come from Albert Möller from ABG. Please go ahead.
All right. Hi, Albert here. So I was just wondering, you will be hit twice, this year on your capital by the systemic risk buffer and the Basel IV input floors. So I was wondering if you have had any indications from the Danish FSA that you will be allowed to be a bit lower than your capital target range or even lowering the capital target range, if they would be okay with it, since last year you had some discussions with them regarding the stress test. So I was just wondering how the discussions are going, if they are sympathetic with your position here, that you will be hit twice, quite drastically. Thank you.
Yeah. Thank you, Albert. A good question. When looking at capital targets, it's decided by the board. And of course, we have an ongoing dialogue with the FSA regarding the prudence of our levels. But by the end of the day, that all that matters when it comes to buybacks and distributing capital is the stress test in a severe stress. And of course, that is the dialogue we have internally with the FSA, and that actually is the driving force behind our ability and capacity of distributing capital and buying back shares. But capital target range is, of course, up for debate in the board, simply because we have got a new CRE buffer. We have a Basel IV effect that will be seen now in a year's time, and then we can reassess, of course, the overall level that is needed going forward.
Yeah, sure. Makes sense. All right. Very good. Then I was just wondering about the new seasonality for refinancing mortgages that you wrote about. Could you just explain what the underlying effect is that is driving that, and if it would affect, like, the full year numbers or if it's just like seasonality? Thank you.
Yeah. So we have some yearly refinancing of, for example, adjustable rate mortgages with one year to maturity or interest rate fixing. So that's called F1 or F1 loans in Denmark. And we have, as you might be aware, we have quite a bit of those due for refinancing in Q3 normally. We have decided to sort of even out part of the seasonality in 2023 by some new loans being refinanced in Q4. So what you saw in 2023 should repeat more or less in 2024. That should be the normal refinancing seasonality going forward.
All right. Thank you. And final question now then. This might have been earlier in your communication, but headcount level going forward, have you extracted all the synergies from all your mergers, or should we expect it to be net stable? Or yeah, the financial crime prevention or any guidance there? Thank you.
Yeah. Thank you. We saw in 2023 a need for investing in further in financial crime prevention, around 60 FTEs, and we put on top of that 40 FTEs with inclusion of PFA Bank. And if you extract them from the numbers, you see still a small decrease in the overall FTE development in the group in 2023. We also said that we have a back-end loaded synergy case going into 2024 after the IT migration of Handelsbanken and eventually also the migration of PFA Bank here, expectedly in the second quarter of this year.
So yes, there is more to be reaped on that note. And but we haven't specifically named or mentioned the explicit number in the market, but there is more to be reaped. As you can see, we estimate DKK 400 million as a total run-off run rate effect of synergies, which is a combination of FTEs and especially IT platform cost, group services, cheaper group services, etc.
All right. Thank you very much. That was all for me.
Thank you, Albert. Next person in line come from Martin Birk from SEB. Please go ahead.
Thank you so much. Perhaps just coming back to, to the distribution and touching on the DKK 500 million, and still, reporting, 16.9%, why wasn't that a, a DKK 1 billion or a, a DKK 1.5 billion, given, that you are well in place on your, total capital ratio, by, yeah, mid-February? Hello?
Sorry. Sorry, Martin. Sorry, Martin, we were muted. I think we are on now. Thank you for the question, Martin. You're quite right, 16.9, 16.9% CET1 ratio at the end of the year was at the very high end of the interval, whereas the total capital ratio stood in the middle of the interval, and that was also the guiding, the guidance for our issuance of instruments here, starting early this year. That being said, we kept the DKK 500 million, which we found was an appropriate level, looking at 2023 and the total capital levels that we wanted to rebuild to these levels.
So, as we stated before, from Q1 onwards, we are fully rebuilt on all both capital levels and able to do what we find appropriate in of distributing excess capital going forward.
Okay. So, assuming your CET1 guidance of 15%-17%, and then, of course, the commercial real estate buffer, so let's call it 16%-17%. Given that we are probably likely to see very little risk-weighted asset growth over the year, how should we think about capital distributions from here on? Should they be—I guess they should be 100% from Q1 on, right?
Well, we haven't put out any specific numbers on the total payout ratio, but you're right in the assessment that we expect a relatively low growth in RIA. That being said, of course, if the interest rates drop significantly from here, as we saw the opposite in 2023, it will have an impact on the market value of our mortgage book, and therefore also on RIA. But looking at volumes, you are certainly right in your assessment. We also expect that we'll see slow growth in volumes, especially at the outset of the year, and market risk is a smaller part of the total equation, so it's fully manageable. We are not in a position to be more specific now, but as we said before, as soon as we get the approval from the FSA, we'll of course release it to the market and start a new program.
But on your CET1 target, are you willing to walk the talk? I mean, are you willing to bring that down to 16%?
The CET1 target of 15-17, as we said, now we want to stay in the upper end simply because of the CRE buffer and the Basel IV inclusion from next year.
Okay, but that's... Are you willing to go-- Are you also earning money in Q1, right? Is this gonna be... Are you targeting 17%? Are you targeting 16%, or how should we think about this?
Well, if you take the full effect from the CRE buffer and up to 1.5%, these points on the Basel IV, we talk about 2% plus in effect. So we want to stay around the 17% or the upper half of the 15%-17% interval as of now.
Okay. Gotcha. All right. And then, then just coming back to your PMAs, close to topping DKK 2 billion. Your guidance is still signaling a pretty positive outlook for 2024. How do you view that buffer? When is it gonna be turned into a, to a... Well, when is it gonna be used for actual losses, or when will it be turned into a actual positive P&L performance?
Yes, you're referring to the DKK 1.9 billion?
Yes.
Yeah, I explained that why it was lifted to DKK 1.9 billion here by year-end. There are uncertainties we need to attend to, and that's the reason why it's been lifted. Also, uncertainties in the property market. That being said, it's natural that there is, of course, a strong buildup of a buffer. It's 37 basis points relative to loans and guarantees, and we haven't seen it that high ever. So yes, you're right in our assessment that it's high. When we see development in 2024, and if it's of a temporary nature, we could bring it down. But of course, if a crisis or a scenario with more financial malaise will hit the market, we need to keep the management buffer high. That is to be seen in the course of 2024, but it's obvious that we have a strong cushion against uncertainty going into 2024.
Okay. And then perhaps just a quick final question, just moving off the P&L again, sorry. On your NII, you specified the one-year sensitivity of being DKK 500 million, but could you please also specify the two other boxes, or do I need to pull out my ruler for that?
Yeah, well, we haven't provided exact guidance, but I think you'll end up about DKK 0.7 billion in sort of a long-term year three effect from a percentage points, if you pull up.
Thank you.
Okay. Thank you, Martin. Next question in line comes from Namita Samtani from Barclays. Please go ahead.
Hi. Thanks for taking my questions. Can you just repeat your comments on the 2024 net interest income? Do you expect it to be largely stable from the fourth quarter of 2023 level, or stable from the full year 2023 level?
Yes, thank you very much, Namita. As I said, we expect them to be largely stable, plus and minus. The reason being that, of course, there will be a decrease due to the change on the interest rates, from the 25th of November last year, where we lifted both loans and deposit rates by a quarter. We put a quarter on the transaction deposit accounts. We also saw at the migration from private individuals slightly higher in Q4 than expected. So those elements, of course, is a headwind going into 2024. But on top of that, we have a very significant, a positive overhang from 2023 when you look at the quarterly NII development during the course of 2023, which fully supports our estimates of a largely stable NII for the full year.
Included in our estimates are expectations of three cuts of a quarter in this year and a further four cuts in 2025 on the central bank rates.
Okay, so it's stable versus 2023 level?
Yeah.
Okay, cool. And my second question is, I just noticed Nykredit taking, like, 60% of new mortgage flows. I was just wondering, you know, how you position yourself to that, and if that's impacting you at all?
Yeah. I think there are several ways to answer the question here. One of them is short-term. And short-term, we make sure that we have an offer that is attractive to the market. And we have that. Some of the products we are attractively priced on both the traditional Danish mortgage products but also on the banking based mortgage products. So we have good solutions for our clients today. Secondly, we expect the competition authorities to reach a conclusion this year on the Totalkredit cooperation.
And it is our belief that we will see a change to that agreement, and that will allow potentially new opportunities, and we'll communicate about how we'll handle that at that point in time. Lastly, it's probably worth noting that yes, it's 60%-70% now, but it's a small number of the mortgages that are being moved every quarter. So it doesn't have those very large short-term stock implications.
Thanks very much.
Thank you, Namita. Next question, our last question in line, I should say, is from Michael Macnaughton from UBS. Please go ahead.
Hi, good morning. Yeah, just the first question on the NII. As you mentioned a couple of times, you've started paying on transaction accounts in November. Can you give us an indication of the impact of that in Q4, or maybe the expected run rate into Q1?
Sorry, could you repeat the beginning of the question? I'm sorry.
Yeah, just on, on paying on transaction accounts in November.
Oh, okay.
Yeah, just the impact of that in Q4 and potentially the run rate for Q1 as well.
Yeah. So, a simple way of looking at the impact from the lower rates in the quarter would be looking at our deposit surplus. And that's a quite crude way of looking at it, but lending and deposit rates simply increased 25 basis points on the 27th of November, and we'll see a full quarter impact from that in Q1. And in banking activities, we in fact have a deposit surplus of DKK 73 billion, so you should expect an overall negative effect from the rate changes of up to DKK 0.2 billion annualized as a group measure.
Great. Thank you very much. And then secondly, just on capital distributions, for the 30% payout, is that... Should we think of that as on an annual basis, or is there potential that you would, you know, pay interim dividends at a 30% quarterly basis as well?
Our aim is to do it on a yearly basis. Of course, we could stand in a position where interim dividend could be relevant, but we aim for a yearly dividend.
Okay, great. Thank you very much.
Okay. Thank you, Michael. Are there any further questions?
Maybe just also add that share buybacks will simply be an important part of the strategy.
Mm-hmm. Okay, it seems as if there are no further questions in line. Thank you for participating in today's conference call. A recording of the call will be available on our IR website in the coming days. Please do not hesitate to contact us if you have further questions. We appreciate your interest in Jyske Bank and wish you a nice day.