RNS No 9031q
DEN DANSKE BANK
20th August 1998
PART I Den Danske Bank
reports half-year profit of
DKr3,884m
Group profit up by 27%
Den Danske Bank Group recorded a profit of DKr,3884m for the first six months of
1998, up by DKr826m, or 27%, on last year's interim profit. The improvement was
mainly generated by higher core earnings, which rose by DKr493m to DKr2,331m.
Interest income grew by DKr260m, or just under 8%. Interest margins narrowed.
The growth in interest income was the result of an expansion in the Group's
business volume, including the acquisition of the Swedish banking group, Ostgota
Enskilda Bank.
Den Danske Bank Group raised fee and commission income by DKr371m, or 32%, to
DKr1,519m, as actively remained strong in securities markets and mortgage
refinancing.
The charge for bad and doubtful debts, at DKr183m, was maintained at a low
level.
Valuation gains on securities - excluding maturity-related market value
adjustments - were DKr1,413m, against DKr1,175m a year ago. Market value
adjustments of shares at June 30, 1998, accounted for most of the improvement.
Earnings from insurance operations were up by DKr108m to DKr463m - an increase
of 30%.
As had been expected, expenses and depreciation increased, mainly reflecting
higher spending on information technology and the expansion of the Group's
activities in the international financial markets. The increase amounted to
DKr340m, or 10%, bringing expenses and depreciation to DKr3,629m. DKr130m of
the increase can be attributed to the Ostgota Enskilda Bank group. Excluding
this factor, the Group's expenses rose by 6%.
For further details, phone Peter Straarup - Chief Executive - Thursday, August
20, after 2pm on +45 33 44 01 07
Deposits grew by DKr4bn on a year earlier to DKr221bn, while loans and advances
rose by DK52bn, or 19%, to DKr320bn. Mortgage lending accounted for DKr15bn of
the increase in the loan portfolio, and lending to non-residents accounted for
DKr22bn.
The portfolio of bonds and shares, etc., rose by nearly DKr16bn, or just under
13%, to DKr142bn.
The Group's interest rate risk increased. At June 30, 1998, a one percentage
point rise in interest rates would have caused a valuation loss of DKr9l9m,
against DKr733m a year earlier.
According to its Interim Report, Den Danske Bank expects the high level of
activity to decline in the second half of 1998, with core earnings likely to
retreat from their first- half level. Nonetheless, core earnings for the whole
of 1998 are expected to be higher than in 1997. Stock market movements since
the closing of the half-year accounts have made significant inroads into the
capital gains of the Group. The tax charge of Den Danske Bank Group will
increase as a result of changes in Danish tax rules.
In the second half of 1998, Den Danske Bank will expand into the residential
real estate agency business. These new activities are expected to have no
significant effect on the results of the Group in the short term.
DEN DANSKE BANK
Carsten Winkler
For further details, phone Peter Straarup - Chief Executive - Thursday,
August 20, after 2pm on +45 33 44 01 07
INTERIM REPORT
First Half of 1998
for
Den Danske Bank Group
* Pre-tax profit was DKr3,884m for the first six months of 1998, against
DKr3,058 for the same period of 1997.
* Core earnings 1) rose by DKr493m from DKr1,838m to DKr2,331 m.
* Net interest income 1) amounted to DKr3,665m, compared with DKr3,405m last
year.
* Fee and commission income increased from DKr1,148m to DKrl,519m. The
increase was mainly the result of strong activity in securities markets and
mortgage refinancing.
* Earnings from insurance operations grew from DKr355m to DKr463m.
* Operating expenses and depreciation were up from DKr3,289m to DKr3,629m.
* The charge for bad and doubtful debts amounted to DKr183m, against DKr213m
for the first half of 1997.
* Market value adjustments of securities and derivative financial instruments
generated a gain of DKr853m for the first half of 1998, against DKr875m a
year ago. Market value adjustments include the so-called maturity-related
value adjustments, which were a negative DKr560m this year and a negative
DKr300m last year.
* Total assets were DKr586bn at June 30, 1998, against DKr504bn a year
earlier.
* The Group expects the high level of activity to decline in the second half
of 1998, with core earnings likely to retreat from their first-half level.
Nonetheless, core earnings for the whole of 1998 will probably be higher
than in 1997.
The information in this Interim Report covers Den Danske Bank Group, i.e Den
Danske Bank (the Parent Bank) and all its subsidiaries within banking, mortgage
finance, leasing and other specialised finance, as well as life and non-life
insurance.
Under Danish banking law, insurance subsidiaries are not consolidated in the
Group Accounts. The value of the Parent Bank's holdings in insurance
subsidiaries is included in the Group's Balance Sheet under the item "Holdings
in subsidiary undertakings". Profits generated by the insurance companies are
included in the Group's Profit and Loss Account under the item "Value
adjustments of holdings in associated and subsidiary undertakings, etc".
1) After allowing for maturity-related market value adjustments
Den Danske Bank Group Highlights
Summary Profit and Loss Account (DKr million) 1st half 1st half Full year
1998 1997 1997
Net interest income 4,225 3,705 7,849
Dividends from shares, etc. 137 109 151
Fees amd commission income (net) 1,519 1,148 2,434
Net interest and fee income 1) 5,881 4,962 10,434
Market value adjustinents of securities 2) 1,082 1,262 1,287
Foreign exchange income 3) 226 174 419
Market value adjustment of derivative
financial instruments 2) -229 -387 -887
Total market value adjustments and foreign
exchange income 1,079 1,049 819
Other operating income 133 149 287
Profit on financial operations 7,093 6,160 11,540
Operating expenses and depreciation 3,629 3,289 6,906
Provisions for bad and doubtful debts (net) 183 213 614
Value adjustments of holdings in associated
and subsidiary undertakings, etc. 619 447 806
Profit on ordinary operations 3,900 3,105 4,826
Extraordinary items (net) -16 -47 -192
Profit before taxation 3,884 3,058 4,634
End June End June End
Summary Balance Sheet (DKr billion) 1998 1997 1997
Assets
Cash in hand and due from credit
institutions, etc. 78.8 72.1 58.6
Loans and advances 320.1 268.6 290.7
Bonds and shares, etc. 141.9 126.0 136.2
Holdings in associated and subsidiary
undertakings, etc. 9.8 9.2 9.3
Other assets 35.5 28.5 32.0
Total assets 586.0 504.4 526.8
Liabilities
Due to credit institutions 163.9 121.0 138.5
Deposits 221.3 217.2 225.2
Issued bonds, etc. 98.9 76.9 78.6
Other liabilities 50.3 43.9 38.6
Subordinated debt 20.2 18.0 18.4
Profit for the year to date 3.9 3.1 -
Shareholders'equity- 27.5 24.3 27.5
Total liabilities 586.0 504.4 526.8
Off-balance-sheet items
Guarantees, etc. 51.9 45.8 51.0
Other Commitments 2,006.3 2,031.5 2,159.7
Total off-balance-sheet items 2,058.2 2,077.3 2,210.7
1st half 1st half Full year
Ratios and Key Figures 1998 1997 1997
Profit before taxation as % p.a. of
shareholders' equity at January 1 28.2 23.6 17.9
Solvency ratio, % 9.8 9.3 10.2
Share price, end of period, DKr 831 644 914
Book value per share (excl. first
half profits), DKr 520 459 520
Number of full-time employees in:
Den Danske Bank and consolidated
subsidiaries 11,479 11,489 11,365
Non-consolidated subsidiaries
(insurance companies) 1,359 1,579 1,442
1) Not adjusted for maturity-related market value adjustments
2) After adjustment for pooled pension fund deposits
Report for the Six Months to June 30,1998
Den Danske Bank Group recorded a pre-tax profit of DKr3,884m for the first six
months of 1998, against DKr3,058m for the same period of last year.
Business volume rose in the first half-year. Interest margins narrowed.
Activity remained high in securities markets and mortgage refinancing. As
had been expected, the expenses of the Group increased, mainly reflecting higher
spending on information technology and the expansion of the Group's activities
in the international financial markets. Provisions for bad and doubtful debts
remained at a very modest level.
Developments in the first half of 1998 have proved more favourable than was
anticipated at the time of the publication of the 1997 Annual Accounts.
Core earnings
Core earnings - after allowing for maturity-related market value adjustments of
securities - amounted to DKr2,331m for the first half of 1998, against DKrl,838m
for the same period of 1997.
Core earnings(adjusted) and profit
before taxation 1st half lst half Full year
(DKr million) 1998 1997 1997
Net interest income 4,225 3,705 7,849
Maturity-related market value adjustments 1) -560 -300 -950
Net interest income, including maturity-
related market value adjustments 3,665 3,405 6,899
Fees and commissions, foreign exchange
income,share dividends and other
operating income 2,015 1,580 3,291
Earnings from insurance operations 463 355 686
Total core income 6,143 5,340 10,876
Operating expenses and depreciation
of tangible assets 3,629 3,289 6,906
Core earnings (adjusted) before provisions 2,514 2,051 3,970
Provisions for bad and doubtful debts 183 213 614
Core earnings (adjusted) 2,331 1,838 3,356
Other market value adjustments of securities 1,413 1,175 1,350
Other value adjustments of holdings in
associated and subsidiary undertakings,etc. 156 92 120
Extraordinary items -16 -47 -192
Profit before taxation 3,884 3,058 4,634
1)Valuation losses which arise as bonds, etc., with coupons above their market
yields approach maturity or are drawn for redemption.
The overall trend in core earnings in the first half of 1998 was satisfactory.
The Group generated good growth in fees and commissions, and earnings from
international business increased. On the other hand, the relatively modest
improvement in net interest income was less satisfactory, considering the
expansion in business volume.
The results of the Group
Net interest income 1) rose from DKr3,405m a year ago to DKr3,665m for the
first half of 1998. The trend in net interest income should be viewed in the
light of continued pressure on interest margins and the expansion in business
volume, including the acquisition of the Swedish banking group, Ostgota
Enskilda Bank2).
Fee and commission income grew from DKrl,148m to DKr1,519m. The increase was
mainly the result of strong activity in securities markets and mortgage
refinancing.
Operating expenses and depreciation were up by 10% to DKr3,629m. The increase
had been anticipated as the Group has continued to introduce new information
technology and has further expanded its activities in the Nordic financial
markets. DKr130m of the increase can be attributed to the Ostgota Enskilda
Bank group 2). Excluding this factor, the Group's expenses rose by 6%.
The charge for bad and doubtful debts fell by DKr30m to DKr183m. Provisions
remained at a very low level. At June 30, 1998, the accumulated provisions
against lendings, credit institutions and guarantees amounted to DKr10,783m.
Non-accrual debt was DKr2,739m at June 30,1998.
Market value adjustments of securities and foreign exchange income totalled
DKr1,079m for the first half of 1998, against DKrl,049m for the year-earlier
period. Total securities and foreign exchange income comprised a valuation gain
on shares of DKrl,064m, foreign exchange income of DKr226m and a valuation loss
on bonds, mortgages, etc., and financial derivatives of DKr21lm. The valuation
loss on bonds, mortgages and financial derivatives included negative value
adjustments of DKr560m relating to the shortening of maturities. Moreover,
market value adjustments were affected by the Group's conservative valuation of
bonds issued by Asian borrowers.
The Group's interest rate risk increased in the fist half-year. This caused a
rise in interest rate sensitivity, which represents the estimated change that
would occur in the value of the Group's portfolio of bonds, etc., in the event
of a one percentage point change in interest rates. At June 30, 1998, a one
percentage point rise in interest rates would have caused a valuation loss of
DKr 919m, against DKr733m a year earlier.
Value adjustments of holdings in associated and subsidiary undertakings, etc.,
produced a gain of DKr619m for the first half of 1998, against DKr447m last
year. The main item was earnings from insurance operations of DKr463m this
year, against DKr355m last year.
Group assets and liabilities, solvency, etc.
Loans and advances grew by 19% to DKr320bn at June 30, 1998, while deposits, at
DKr221bn, were virtually unchanged from a year earlier. Mortgage lending
accounted for DKr15bn of the increase in loans and advances, while lending
to non-residents accounted for DKr22bn. Higher lending was mainly funded by
the issuance of bonds and by an increase in balances due to foreign credit
institutions. New bonds for an amount of DKr22bn were issued.
The total assets of the consolidated Group were DKr586bn at June 30, 1998,
against DKr504bn a year earlier. The assets of the insurance companies, which
are not consolidated in Group accounts, amounted to an additional DKr153bn.
1)After allowing for maturity-related market valuc adjustments
2)Ostgota Enskilda Bank was acquired on April 1, 1997, and only the
results for one quarter were included in the 1997 Interim Accounts
Off-balance-sheet items were DKr2,058bn at June 30, 1998, against DKr2,077 bn a
year earlier. Foreign exchange forwards accounted for by far the major part of
these items.
The shareholders' equity of Den Danske Bank Group (excluding the half-year
results) amounted to DKr27.5bn at June 30, 1998, against DKr24.3bn a year
earlier. The write-off of goodwill on the acquisition of shares in the
Norwegian brokerage company Saga Securities reduced shareholder's equity by
DKr51m.
The Group's solvency ratio (the half-year results not incorporated) stood at
9.8% of risk-weighted items at June 30, 1998, of which 6.6 percentage points
came from core capital. At June 30, 1997, the solvency ratio was 9.3%.
On June 17, 1998, Den Danske Bank raised US$300m of subordinated debt in the
form of supplementary capital by an issue of 10-year notes. The Bank will
repay #100m of supplementary capital in September, which will reduce the
solvency ratio by just under 0.3 percentage points.
Half-year results and activities of subsidiaries
In February 1998, the Bank acquired a 51% interest in the Norwegian brokerage
company Saga Securities.
The subsidiaries Ostgota Enskilda Bank, Consensus Fondkommission and Nordania
Leasing were converted into branches of Den Danske Bank in the first half of
1998. The conversions have not affected the Group Accounts, and comparative
figures for the Parent Bank have not been restated.
Both Ostgota Enskilda Bank and Nordania made satisfactory progress. In the
first half-year, two new banking branches were opened in Sweden.
Danske Kredit, the Group's mortgage finance arm, recorded a pre-tax profit of
DKr189m. Shareholders' equity was DKr3,019m, after a capital increase of
DKr250m in June 1998, and total assets amounted to DKr70bn at June 30, 1998.
Mortgage lendings totalled DKr56bn at the end of the first half-year.
Den Danske Bank International, Luxembourg, generated a pre-tax profit of
DKrl29m. Shareholders' equity was DKr939m. and total assets were DKr40bn at June
30, 1998.
Danske Capital Management turned in a pre-tax profit of DKr36m. Shareholders'
equity amounted to DKr126m and total assets were DKr178m at June 30, 1998.
The other subsidiaries owned by Den Danske Bank also made satisfactory progress.
Insurance operations - non-consolidated subsidiaries
The insurance subsidiaries recorded satisfactory growth in premium income,
with gross premiums up from DKr4,063m for the first half of 1997 to DKr6,879m.
for the first half of 1998. Profits in the first half of this year were also
satisfactory.
Danica Forsikring recorded a pro-tax profit of DKr535m, for the first half of
1998, against DKr362m a year ago, and had assets worth DKr153bn at June 30,
1998, against DKrl35bn a year earlier. Non-life insurance business produced a
profit of DKr182m for the first half-year. Profits included DKr72m in securities
valuation gains and extraordinary income. Life business generated a first-half
profit of DKr353m, representing a return on shareholders' equity equal to the
return on policyholders' savings after real interest rate tax plus two
percentage points.
Non-life gross premiums rose by 8% to DKr946m. Sales of commercial policies
were satisfactory, whereas business with personal customers did not meet
expectations.
The life business recorded very strong premium growth, which was driven mainly
by a large volume of single premiums, but there was also good growth in company
pension schemes. Regular premiums rose by 13% to DKr2,241m and single premiums
from DKr1,210m a year ago to DKr3,692m for the first six months of 1998.
The fiscal measures recently introduced by the Danish parliament will influence
the taxation of pension savings. Danica has not yet completed its assessment of
the effect, but the measures will reduce the return on policyholders's savings.
Moreover, legislation has been introduced to curb the use of tax losses in
insurance companies. This legislation, the effect of which cannot be accurately
estimated as yet, will increase the tax burden of some life insurers, including
the Danica group.
Faroese banking affair
The commission set up to investigate the "Faroese banking affair" published its
report in mid-January 1998. The publication and the following debate in the
Danish parliament gave rise to criticism of, inter alia, Den Danske Bank.
In May 1998, the Faroese regional government instituted legal proceedings
against the Danish government and Den Danske Bank claiming compensation of
approximately DKrl.5bn. In June 1998, the Faroese regional government and the
Danish government settled out of court. As part of the settlement, the regional
government will waive any claims for further compensation and discontinue
proceedings against the Danish government but it will continue proceedings
against the Bank, the costs now being borne by the Danish government.
Finansieringsfonden af 1992 has also instituted proceedings against the Bank,
claiming compensation in the same matter.
In the opinion of the Bank, there are no just grounds for criticism and,
consequently, no legal grounds for claims against Den Danske Bank.
Outlook for the second half of 1998
The Bank has decided to expand into the residential real estate agency
business. A wholly-owned subsidiary of Den Danske Bank will develop this
business during the second half of 1998. The company is scheduled to open its
first sales offices early in 1999. The establishment of the new company will
have no significant effect on the results of the Group in the short term.
To strengthen its existing securities trading and corporate finance activities
in Finland, Den Danske Bank acquired a 49% stake in the Finnish stockbroking
company AG Bankirfirma on August 14, 1998. At the same time, it was agreed that
Den Danske Bank would take over the remaining 51% of the shares by the end of
1998.
Net interest and fee income is expected to be lower in the second half of 1998
than in the first six months since the high level of activity in securities
markets and mortgage refinancing is likely to decline. Earnings from insurance
operations will probably not reach their first-half level. Expenses and
depreciation are expected to increase in the second half from the first half, as
the Group continues to introduce new information technology and further expands
its international banking activities. The Group expects to slightly reduce
the charge for bad and doubtful debts for the whole of 1998 compared to 1997.
Core earnings for the whole of 1998 are expected to be higher than in 1997,
even though core earnings in the second half of 1998 do not seem likely to reach
the level generated in the first six months.
Group net results for 1998 will moreover depend on year-end bond and share
prices. Stock market movements so far in the second half of 1998 have made
significant inroads into the capital gains of the Group. Furthermore, the tax
charge of Den Danske Bank Group will be higher than in 1997 because of the
changes in the group taxation rules for insurance companies.
In addition to the direct impact on the Group's tax charge of the changes in
tax rules, lower returns on Danica policyholders' pension savings in the coming
years are expected to reduce earnings from life insurance operations.
Copenhaged, August 20, 1998
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