Bjørn Erik Næss, chief financial officer SEB Enskilda Nordic Banks Seminar, May 26 2010 DnB NOR Group
Bjørn Erik Næss, chief financial officer
SEB Enskilda Nordic Banks Seminar, May 26 2010
DnB NOR Group
2
Agenda
Actions ahead of Basel III
DnB NOR in 2010 - status
Growth opportunities & ambitions
Basel III – new regulations
3
1st quarter 2010
Continued positive cost trendContinued positive cost trend
Profit to DnB NOR's shareholders: NOK 3.1 billion (3.1)
Profit to DnB NOR's shareholders: NOK 3.1 billion (3.1)
Sound pre-tax operating profit before write-downs: NOK 4.9 billion (6.1)
Sound pre-tax operating profit before write-downs: NOK 4.9 billion (6.1)
Lower than expected write-downs on loans: NOK 0.9 billion (1.6)
Lower than expected write-downs on loans: NOK 0.9 billion (1.6)
Return on equity: 12.5 per cent (15.8)Return on equity:
12.5 per cent (15.8)
4
Strong growth trend has continued in 2010
6 109
3 457
5 043
4 109
4 940
1Q09 2Q09 3Q09 4Q09 1Q10
NOK million
2 934
643
1 7601 689
2 917
1Q09 2Q09 3Q09 4Q09 1Q10
NOK million
3 095
1 200
2 167 2 122
3 117
1Q09 2Q09 3Q09 4Q09 1Q10
NOK million
Pre-tax operating profitbefore write-downs
Profit for the period Profit for the period afterminority interests
5
Positive development in volume growth 1)
1) Figures at end of period
1 1261 115
1 1741 192
1 016971
1 093
950
1 0471 085 1 062
1 022
1 1091 1281 121 1 117
910
1 043 1 0531 0461 037
957
31 Dec.
31March
30June
30Sept.
31Dec.
31March
30June
30Sept.
31Dec.
31March
2007 2008 2009 2010
DnB NOR GroupDnB NOR Group excluding DnB NORDDnB NOR Group adjusted for exchange rate movements
DnB NOR Group excluding DnB NORD, adjusted for exchange rate movements
NOK billion
6
Stable development in average interest rate spreads 1)
0.810.88 0.97
1.341.58 1.611.60 1.63 1.58
1.24 1.301.16
0.68
0.33 0.30 0.29 0.23 0.29
1.01 0.98 1.041.12 1.16 1.16 1.16 1.13 1.12
5.966.40 6.60
5.91
3.45
2.461.89 2.05 2.27
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10
3-month NIBOR
Lending spread
Combined spread- weighted average
Deposit spread
1) Excluding lending to and deposits from credit institutions and impaired loans
Quarterly development in interest rate spread (per cent)
7
400-600
Continuous focus on cost reductions and efficiency improvements
Process efficiency and general streamlining
Procurement
Retail Banking: •Restructuring of Norwegian banking operations
Staff/support functions:•Centralisation and streamlining
One IT:•Coordination and consolidation
850-950
300-400
100-150
150-200
Savings NOK million
Realised and targeted cost savings
8
Still room for lowering our cost/income ratio
9
Basel III – new regulations
10
Several analysis conclude that the proposed Basel III will be too tough on traditional banking models
* Source: JP Morgan analysis: ”Global Banks - Too big to fail? – Running the numbers”
Equity capital requirements for
global banks $221bn*
RoE forglobal banks down
from 13.3% to 5.4%*
Increased funding needs
Reduced lending growth Increase in prices
Customers and economies will be negatively affected
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DnB NOR will be among the least affected of the European banks
Capital level- Already compliant- High-quality composition
Counterparty risk
- Minimal exposure to derivative markets
Capital deductions- Deductions for insurance subsidiaries already accounted for- Deferred tax assets and goodwill fully deducted
12
Only proposed changes in net stable funding ratio will create a shortfall
Leverage ratio- Strong capitalisation and business model
Deposit guarantee scheme- Already above EUR 100 000 and well funded
Net stable funding ratio
- Shortfall, deposit haircuts are unreasonably high?
Liquidity coverage ratio
- Compliant as of today
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A very robust and high-quality capital structure
* Full implementation of IRB**Full IRB and Swedish model for calibrating insurance exposure
14.2 % 14.6 %13.9 % 13.5 %
9.4 %
12.0 %
13.7 %
11.2 %
Tier 1 capital ratio Nordic peers 1Q2010, Basel II
14
The strongest leverage ratio among Nordic peers
* Tier 1/total assets
Leverage ratio* Nordic peers 1Q2010
15
13 per cent return on equity in 2012 (and beyond) just as ambitious as the 16 per cent target set in 2007
Interest on equity
Contribution from leverage
Interest on equity
Contribution from leverage
16 %
13 %
Lower interest rates
Increased capitalisation
Simplified illustration of effects of changes on RoE targets set in 2007 and in 2010
2007 2010
16
Several variables will help DnB NOR achieve its 13 per cent RoE target in 2012
Normalised tax level of 24 per cent
Reduced costs
Volume growth
Lower write-downs
Increased interest rates
17
Actions ahead of Basel III
18
Strengthened capitalisation levels through retainedearnings and NOK 14 bln share issue in 2009
1) Including 50 per cent of profit for the period
5.8 6.1
8.5 8.6
6.7 7.0
9.3 9.4 9.3 9.4
11.7 12.0
Equity Tier 1 capital ratioTier 1 capital ratioTier 1 capital ratio subject to full IRB implementation
31 December 31 March 31 December 31 March 2008 2009 1) 2009 2010 1)
Per cent
19
Raised level of long-term funding, tightened internal limits for short-term funding
Share of stable long-term funding*Internal target**
Average residual maturity, long-term senior debt and covered bonds (years)
* Deposits from customers, subordinated debt, covered bonds and senior debt > 12 months residual maturity
** Internal target for stable long-term funding increased from 88% to 90% in 2009
**
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Stable access to long-term funding – longer maturities at competitive prices
NOK billion MaturitySpread
(3-month Euribor)
Covered bonds 41.1 6.7
Senior bonds 12.1 5.7
Total 53.2 6.5 49bp
NOK billion Maturity Spread
Covered bonds 10.7 12.1
Covered bonds, Norges Bank (central bank) 90.3 4.2
Senior bonds 39.0 4.6
Total 139.1 4.9 50bp
NOK billion Maturity Spread
Covered bonds 57.5 5.9
Covered bonds, Norges Bank (central bank) 29.1 2.8
Senior bonds 100.5 3.7
Total 187.2 4.3 48bp
2010
2009
2008
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Further issues
Provide for more selective deposit gathering strategies
Continued focus on long term funding- Increased emphasis on funding diversification by geography and
by intruments (e.g. DnB NOR Naeringskreditt)
High attention on Basel III signals- uncertainties on final definitions and calibrations
Controlled balance sheet growth
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Growth opportunities & ambitions
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Macroeconomic outlook 2010
Developments in the Norwegian labour and housing markets may indicategrowth - credit demand lagging behind
Developments in the Norwegian labour and housing markets may indicategrowth - credit demand lagging behind
The Norwegian economy is far more robust than most other European economies
The Norwegian economy is far more robust than most other European economies
High debt and high unemployment in some EU countries may delay an economic recovery
High debt and high unemployment in some EU countries may delay an economic recovery
Geographical variations in rate of recovery- EU countries lagging behind
Geographical variations in rate of recovery- EU countries lagging behind
Growth in world economy stronger than expected,but still subject to considerable uncertainty
Growth in world economy stronger than expected,but still subject to considerable uncertainty
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Still an untapped potential in Norway
Total market share DnB NOR- private and corporate
25
Significant growth ambitions based on Norwegiantraditional industries
Growth opportunities within industries where we already have a strongposition
Energy will be the most important growth area over the next 2-3 years
Continue to create value through a stronger emphasis on non lendingincome
Solid position in our home market and within selected industriesinternationally
A high-quality customer portfolio
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Ambitions 2012Ambitions 2012 Long-term ambitionsLong-term ambitions
Financial ambitions
Be among the best capitalised banks in the NordicsNOK 2 billion in cost reductions
NOK 22-25 billion in pre-tax operating profits before write-downs
Cost/income ratio below 46 per cent
Return on equity above 13 per cent
Approx 50 per cent dividend
Long-term AA rating
Thank you