Danske Bank A/S

Thomas Borgen - Chief Executive Officer Henrik Ramlau-Hansen - Chief Financial Officer Claus Ingar Jensen - Head, Investor Relations

Omar Keenan - Deutsche Bank Asbjørn Nicholas - Carnegie Andreas Hakansson - Exane Anton Kryachoc - UBS Christian Hede - Nordea Jakob Brink - ABG Johan Ekblom - Bank of America Jan Wolter - Credit Suisse Mads Thinggaard - Handelsbanken Daniel Do-Thoi - JPMorgan Ronit Ghose - Citi Alison Timperley - Morgan Stanley

Thank you, operator and thank you all for taking time to listen into this call today. Together with me in today’s call, I have the CFO, Henrik Ramlau-Hansen and the Head of Investor Relations, Claus Ingar Jensen.

Slide 2 please. The main purpose of today’s call is to present Danske Bank’s financial results for the first nine months of 2014.

We will also give you some insight into the AQR results for Danske Bank and our ongoing business review. We will then wrap up with an outlook for the full year 2014.

I aim to keep this presentation to around 20 minutes, and after presentation, we will open up for Q&A session as usual. Slide 3 please.

I am pleased to note that we have gradually improved our financial performance in the first nine months of the year. Our results give good evidence that when continuing to execute on our strategy and strengthen our position as a Nordic universal bank.

For the first three quarters, our return on equity came in at an annualized rate of 8.9%. This is a notable improvement from the ROE of 4.9% in the same period last year.

If we exclude the income from the sale of Nets, their return on equity was 8%. Net profit came to DKK10.1 billion.

This is almost double the level from last year and it was driven by improvements in all key areas. We lifted total income to DKK32.6 billion with good progress in all income lines, except from other income, which was more or less stable.

Expenses amounted to DKK16.6 billion as we continue to see positive effects from our cost savings initiatives. Impairments came in at DKK1.9 billion for the period, which is a decline of 39% as we have seen a general improvement in credit quality since last year.

The result of our non-core activities was a loss before tax of DKK1 billion, with Irish property divestments progressing well and according to plan. Our capital base remained very strong, with a common equity Tier 1 ratio of 50% and a total ratio of 19.3% at the end of September.

And finally, on the basis of the satisfactory results for the first nine months, we are increasing our guidance for the profit for the full year from DKK10 billion to DKK13 billion to DKK11.5 billion to DKK13.5 billion. Slide 4 please.

Now, let me take you through our income statements item by item. Net interest income came in at DKK17.2 billion.

This was 5% above the level last year due to re-pricing of deposits, lower funding cost and additional income from the investment of our liquidity bond portfolio. Fee income rose 12% and was split almost evenly between activity fees and portfolio fees.

Net trading income was up 29%. Part of the improvement came from the gain of Nets of around DKK1 billion in the second quarter.

Excluding this one-off item, trading income improved by around DKK250 million primarily because of higher client-driven income from capital markets and transaction banking business. The result from Danica’s insurance business amounted to DKK1.3 billion, up from the poor 2013 results of DKK0.5 billion, which reflected the adverse developments in the financial markets at that time.

The result for the first nine months of 2014 made it possible to book the risk allowance to income for all four interest rate groups. Total income rose 13% from the level of the same period last year.

If we look expenses, they fell 4% as a result of our focus on costs and efficiency measures and the cost income ratio dropped 8.7 percentage points now standing at 50.7%. Slide 5 please.

All the banking units saw improvements in the first nine months of the year, particular personal banking and C&I. At personal banking, pre-tax ROE rose 5.7% to 15.3% with improvements in four areas.

Fee income was up 10% primarily from increased customer activity. Trading income benefited from high refinancing fees at Realkredit Danmark.

Costs were reduced 11% as a result of tight cost control and we saw declining impairments due to improved credit quality in Denmark in particular. At business banking, pre-tax ROE improved 2.5 percentage points to 13.3%.

Total income was up slightly as increased business and high volumes compensated for lower trading income. Expenses were slightly lower as a result of cost control.

Impairments were down at full 36%. Finally, at C&I, profits before tax increased 40%, while ROE improved modest 1.8 percentage points to 12% and this is due to a 20% increase in allocated capital.

Total income grew 50% on improvements in all major income lines. Client-driven income from general banking, capital markets and sales was up more than DKK900 million and this was the reason for the positive development in net interest income, fee income and trading income.

Income from market making was almost unchanged in an environment of very low rates, low volatility and no clear trends. Slide 6 please.

Let’s have a look on our activities within asset management and insurance. Both business units continued to perform satisfactorily.

Danske Capital posted a profit before tax that was 22% higher than in the same period last year. The gain came from an increase in assets under management and higher margins.

Part of the rise in assets under management was the effect of positive financial markets, while the margin improvement came from better product mix with higher proportion of equities and alternative investments. Assets under management rose 11% to DKK791 billion.

Danica, our insurance subsidiary saw net income of more than DKK1.3 billion as a result of high premiums and improved market conditions. The same period last year was affected by adverse developments in the financial markets.

We continue to see growing synergies between Danica and the banking units. In the first nine months, our cross-selling efforts produced a 25% increase in sale of pension products to personal customers through their business units.

Because of the positive investment result, we were able to book the risk allowance to income in full for all four interest rate groups. Slide 7 please.

Let’s have a look at expenses. The positive trends we have seen in the preceding quarters continued.

In the first nine months, total expenses amounted to DKK16.6 billion, a reduction of 4% from the earlier year level. And we continue to execute on our cost saving initiatives.

Expenses were down in almost all underlying cost lines. Expenses for staff, consultants and our contribution to the bank packages, especially were lower than the first nine months of 2013.

In the third quarter of 2014, however, expenses were affected by a write-down on property, whereas restructuring costs were in line with the level in the preceding quarter. As we have explained previously, certain cost items are back-end loaded and we therefore expect that expenses to be higher in the fourth quarter than in the first three.

We expect total expenses for the full year to be below DKK23 billion and we will keep focusing on initiatives that ensure a good basis for further reductions in 2015. Slide 8 please.

As a result of slightly improved macroeconomic conditions, particular in Denmark impairment charges in our core activities declined 39% in the first nine months. Impairments were slightly higher in the third quarter with varied development in the three bank units.

At personal banking impairments rose in the quarter mainly due to collective charges we took against weak customers in Denmark. At business banking impairments rose mainly due to collective charges against our exposure to agriculture because of pressure on earnings for pig and dairy producers.

At C&I where impairments usually fluctuate between quarters, we were able to make a small reversal of previous charges. The loan loss ratio for core activities was almost unchanged from the second quarter to the third quarter and for the first nine months it was down 8 basis points from the level last year.

Slide 9, please. And now turning to the result of AQR and the stress tests, in the interest of time I will only comment on the major takeaways in the result.

Danske Bank passed the stress test with a solid capital buffer. In adverse scenario we have a common equity Tier 1 capital ratio of 11.7% at the end of 2016.

This gives us a substantial buffer of DKK57 billion or 6.2%. The AQR adjustment to our common equity Tier 1 at the end of 2013 was determined by the Danish FSA and it amounted to DKK2.2 billion.

This represents a 20 basis points reduction of the capital ratio which was in the lower half compared to Nordic peers AQR assessments. The treatment of the AQR adjustment in Denmark differs from the treatment of other banks however.

We were little surprised that the Danish FSA has assessed that Danish banks must implement the AQR adjustment by the recognition of additional impairments. Of the DKK1.6 billion we were asked to book we have already recognized DKK0.9 billion in the first nine months of the year.

This leaves DKK0.7 billion to be taken into account in Q4. Slide 10 please.

As said our capital position is very solid. At the end of September we had a common equity Tier 1 capital ratio of 15% and a total capital ratio of 19.3%.

In the third quarter our common equity Tier 1 ratio was positively affected by the removal of a temporarily add-on of 3 percentage points to our corporate portfolio risk rate. The effect on the core equity Tier 1 ratio was an increase of 0.4% and as expected.

Our leverage ratio was unchanged in the third quarter at 4% according to transitional rules and at 3.5% when fully phased in. Slide 11 please, turning now to our non-core activities.

The winding up of our loan portfolio and other activities in Ireland continues and we are pleased with our progress in the first nine months of 2014. We have completed the winding up of our retail operations and all personal and business accounts have been closed.

We have outsourced the management of the performing personal mortgage portfolio to a loan service provider in Ireland. Property sales also continue, in the second quarter we made an agreement on a portfolio sale of almost 700 residential investment properties and we booked it in the third quarter.

This led to a reduction in total lending of DKK1.2 billion including other asset sales. At the end of the quarter the remaining stock compromises approximately 2,100 properties, of which 938 properties are on the market and 954 properties are under offer or contract.

In the third quarter, impairments rose to DKK137 million, which includes charges against a non-core conduit portfolio of DKK77 million. We have reduced our guidance for impairments at non-core Ireland to around DKK1 billion, because conditions for disposing our remaining assets in Ireland have improved.

Slide 12 please. This year, we have been very determined to launch a number of initiatives across our business units with the aim of strengthening customer relations as well as our general market position.

These initiatives have generally been well received. We do not have time for a detailed follow-up, but let me update you on a couple of the recently launched initiatives.

The MobilePay initiative is well-known by you now, with more than 1.6 million active users in Denmark, it has been a tremendous success and is the most widely used payment solution for smartphones. The rollout of MobilePay business has also been very successful, with more than 2,500 businesses already using or about to start using the solution.

The MobilePay universe is constantly changing and we are committed to further develop as it holds great potential for extending our relationship with our customers. In May, we launched a new service model for small business customers, Danske Business One, Plus and Pro.

And it got off to a successful start. The new advisory organization and customer packages are tailored to the various needs of small businesses.

Since the launch, customer inflow has increased 23% in Business Banking, Denmark and we have seen 20% more traffic on the website. Finally, Danske OneTrader, our FX trading and market information platform has been well received by C&I clients.

More than 300 businesses have used the platform since the launch in May, and we continue to see higher activity. Danske OneTrader is an integral part of our business online platform and is thus accessible from a single log-on, which enhances customers’ easy banking experience.

We are encouraged that our efforts to meet customer demand for digital banking solutions and flexible product offerings have led to increasing customer activity and business volumes in the recent months. Slide 13 please.

About our ongoing business review, I have said previously that we will inform you of our preclusions as we complete the process for the various business units and when we find it prudent from a business perspective. We have now completed the review of corporates and institutions.

With 26% of the group’s profit before tax, corporates and institutions is a very important part of the group and plays a vital role in our positioning as a Nordic universal bank. Our project to set a new agenda for C&I is not new.

The business model has been challenged and in the past couple of quarters, we have begun to focus on four key areas as to cornerstone for our efforts. One, customer attention as we have designed an organizational framework to support a more strategic mindset towards the customers.

Two, a better balance in income streams by further diversification of our income base. Three, a sustainable FICC business, which will remain an important part of our offering, but which needs to adapt to new market conditions.

And finally, a strong focus on cost efficiency and capital consumption. On this basis, it is our ambition to target our return on allocated capital of 50% in the years ahead and the years ahead starts already in 2015.

Slide 14 please. Let me give you some background on how we see the underlying conditions for our C&I business.

First of all we have a solid starting point that to some extent differentiates us from other European banks. For example, our core Nordic markets include two countries with floating currency, two of the world’s largest bond markets and a large institutional sector.

We have been very successful in exploiting our competitive advantage. For a number of years service of the Nordic markets has shown high customer satisfaction with our C&I services, which reflects our strong market position.

Slide 15, please. We have faced a number of challenges over the past couple of years, however.

These challenges are coming from a change in the both underlying structural conditions and cyclical conditions. We are operating in an environment of persistently low interest rates, low volatility and new regulatory requirements.

New regulation entails increased capital consumption. The implementation of CRD IV in particular has increased allocated capital at C&I about 20% in 2014.

The combination of challenging market conditions and new capital requirements has put pressure on our profitability. And from 2012 to 2013 it costs a return on allocated capital almost in half.

Our FIG business in particular has been challenged by new market and regulatory conditions. But our focus on client driven income has paid off as we have seen increasing income from capital markets and transaction banking business.

The return on allocated capital at C&I rose to 15.1% in the latest quarter. Slide 16, please.

As I mentioned previously we are already in the process of adapting our business, but we still have work to do. Our overriding ambition is to maintain and developed a new C&I as a large wholesale bank with strong competences and a unique offering that benefits our customers.

We will continue to diversify our business mix in order to take advantages of the different return dynamics of FIG and capital markets business. A more diversified business mix will not only create more balanced income streams, it will also lower income volatility, put greater focus on capital like income with areas, where we see good growth potential.

Our FIG business will remain a vital part of our business model, but we will adjust both our cost base and risk profile in order to create a sustainable business model that also will meet our customers’ expectations. In addition, we will enhance customer attention by linking C&I’s product offering together.

This entails a significant change in our mindset, a shift from an individual product approach to strategic dialogue. Taking holistic view of our customer’s financial situation is a prerequisite for increasing client driven income.

Cost efficiency is just as important as C&I for achieving our profitability target as it is at our other business units. We expect C&I’s cost base for 2015 to be as much as 10% below the level in 2013.

Capital consumption is another key element in our effort to increase profitability, besides reducing limits we will increase business in capital light areas and by other means. On the slide, we have highlighted the lightly ranges for the relevant profitability drivers.

Please note this should not be seen as a specific guidance. We are convinced that a new C&I adapted to new regulatory conditions and continuing the focus on client-driven income will have the right strategy to achieve our target for return on allocated capital of 50% from already 2015.

Slide 17, please. Finally, before taking your questions, let me turn to our guidance for the full year.

We announced through most of 2014, we are pleased that we have been able to get – improve our results. We recognize however, that in order to meet our targets, we must continue our efforts.

We expect economic growth to remain slow and fragile in a low interest rate environment. We are continuing to expect total income to be above the 2013 level, with improvements in most income lines.

Lending volume is expected to be marginally higher, as we continue to see low demand for loans. We expect expenses to be below DKK23 billion.

We expect expenses in the fourth quarter to be higher than in the first three quarters however. On the basis of improved through slow macroeconomic conditions, we are revising our guidance for impairments.

For core activities we now expect impairment to be around DKK3 billion. For non-core Ireland, we expect impairments to be around DKK1 billion against our earlier guidance of up to DKK1.5 billion.

All together, we expect net profit for the full year to be in the range of DKK11.5 billion to DKK13.5 billion, an increase from our previous guidance of DKK10 billion to DKK13 billion. Slide 18, please.

Those were my initial comments and messages. We are now ready for your questions.

Please limit yourself to two questions. If you are listening to the conference call from our website, you are more than welcome to ask questions by email.

Operator we are now ready for the Q&A session.

Good afternoon. Thanks very much for the questions.

Firstly, thanks for the helpful slides for the corporate, institution division. If we assume that the capital drops to the midpoint of the range that you have given of about DDK34.5 billion from the current level.

Then is that kind of fairly equivalent with the risk weighted asset reduction of DKK20 billion, have we thought about that the right way. And I was just wondering if you could perhaps make some comments around what the mix between efficiency measures will be and what will be real asset reduction.

And what kind of timeline you are thinking about in terms of delivering the 15% targets is it something like kind of two year time horizon, what you have in mind. And I just have a second question on group ROE?

Thanks.

I can take overall and then Henrik will go into the detail on capital allocation. It is our ambition and it’s highly likely that C&I already in 2015 will achieve a return of 50% on allocated capital with the measures already been taken and the ones possibly taken in this quarter.

And as you can see, Henrik Ramlau speaking here, as you can seen the report, C&I is already in Q3 as a capital level of 36.6 and we think that we can go a couple of billions lower. And some of the means to that will be the type of the business we do with the customer that will be the limits.

We imposed on our FIG business as an example, it will the type and duration of derivatives the way we treat counterparty risk etcetera. So it will be a number of measures taken all together we believe that we can bring the allocated capital slightly below the current level.

And in addition it’s a detailed question, but I know some of you are interested. We will also exit certain European business, which is not natural part for us to be part a part of so it’s cost cutting around primarily the Nordic business.

Okay, that’s great. And then my second question, just on the, I guess you have given now helpful color on the CIB division, the personal banking division, can we expect with the full year results, we will kind of get sort of new picture as to how everything fits together and helps you to get to the long-term talks on ROE ambition or is it going to take a bit longer in some other measures?

Okay.

No, I think it’s fair for you to assume, that we will try to describe the bridge from 9 to 12 in connection with the full year results. So we said, we will not be finish with all the various business units reviews, that is an ongoing business for us.

So that will continue, as we move along. But yes from 9 to 12 you should expect us to be clear on that.

Okay. That’s very clear.

Thank you.

One more question, please.

Yes, First of all on your C&I on the slides you provide, you see that costs should come down 10% in ‘15 over ’13, as I see that would basically bring you to DKK4 billion already from next year and then your range from DKK4 billion to DKK4.5 billion, does that mean that this is sort of the maximum you can take out of costs in C&I and that you are able to sort of reinvests going forward in this business unit or how should we see that, the range. And then second of all if you can just guide a bit on your risk weighted assets, obviously they drop this quarter, but the two FSA orders you have the Foundation IRB in Finland mitigation impact there and then of course the sale of your Irish portfolio, how should that move your risk weighted assets in Q4 and Q1 and Q2 next year?

Thank you.

I will take your first question then Henrik Ramlau will take your second question. Yes, you are fairly on the ball when it comes to the cost all things being equal that we should get close to the DKK4 billion, based on the mathematics you just laid out.

I think and second part of the question, can we adjust the costs further, of course we can and we will do that if something happens to the market beyond what we are predicting now. This is not a static thing, but I think with and I tried to describe a very strong position in the FIG market in the Nordics, with that adjusted business model and taking down risk and capital tremendously and costs we think we have the right mix.

But if for the reason that it becomes not satisfactory, we will adjust this going forward. But for the time being, we feel, we are very comfortable with it.

And then you had a pricing regarding our development, our risk weighted assets. And you are correct we have a number of diluted costs.

We have not finished the implementation of the orders from the Danish FSA. We are in the current dialogue with them especially regarding our quarter two and three about counterparty risk.

And our banking model, we also have work ongoing in Finland, with our foundation model work. And we have also other discussions going on in other areas also we have an application for specific market risk etcetera.

I think taking into all together, it would be fair to say that we expect in the coming quarters roughly flat risk weighted assets, as we see no significant growth in denting due to the weak macroeconomic situation.

Okay. If I can just follow-up on that, does it mean that the Foundation IRB should mitigate the full impact from the two FSA orders and if you can just also on the Irish division, what kind of RWA do you see that releasing in the next couple of quarters?

Yes. Roughly speaking, yes they would to sort of say offset each, but it’s too early to come with a final conclusion – final conclusion on that.

Okay. Thank you.

Yes, I have two questions, please. First one, I was going through or skimming through I should rather say the financial crisis committee report from (indiscernible) that came out today.

And that report talked about less focus on risk weightings and it’s saying that safer banks probably needed more capital. And then I am looking at your core Tier 1 ratio fully loaded with 13.8 and your leverage of 3.5, which is then the lowest among the larger Nordic banks.

So first question is do you believe that increase in your payout today is a prudent thing to do. And next question, just quickly on – of your major changes in the C&I division, what do you consider to be a normalized trading and the one that used to be DKK8 billion?

Thanks.

First of all, when it comes to your first question, we haven’t seen the report you have skimmed through, I think that came out around 12 noon today. We are a very well capitalized bank, we have core Tier 1 at 50%.

We have a minimum target of 13%, but we have said in numerous occasions that we think it should be prudent to be around 14% due to finding a balance between where our peers are and where we should be with the (indiscernible) to rating agencies. Any excess capital, we will distribute as far as possible to our shareholders.

We have no intention to accumulate surplus capital. When it comes to the leverage, we are well-positioned, leverage has not been imposed, which is a restriction to us today.

We can adjust our leverage ratio quite substantially, quite fast, as we have a substantially repo, which is very short maturity, which we can adjust within a quarter. So leverage for us is not a major concern.

And we are just a part as other institutions, which need to take that into account if or when it became or becomes an issue for us to run our bank. Henrik would like to comment on the other question…

Sorry. Just on the first one, so given that we still don’t have clarity on new regulations either on leverage or on the more risk-weighted ratios, do you think it’s prudent to payout more already today?

I don’t understand what you think about paying out more. What I am telling clearly to investors that we have a target to be today at the core Tier 1 around 14%.

Okay.

Excess capital, we will distribute back to the shareholders.

And I think also the AQR stress test, where we were subject to a stress test similar to what we have been through in the financial crisis with impairment losses up to almost DKK50 billion illustrates that we are really strongly capitalized.

Then you have a question...

On normalized trading.

Trading. Yes, it is fair to assume that we will not guide forward on trading as an absolute number, as this is not how we measure shareholder value creation.

So trading will not be guided fixed at DKK8 billion and it will be an integral part of C&I and therefore that will not go on going forward.

Okay. Thank you.

Thank you very much and congratulations on good set of numbers. I have two questions please, one on Ireland and one on lending growth.

Starting with Ireland, can you please help us a little bit to understand your thinking on the provisioning line in the non-core Ireland, I remember at Q2 you were guiding quite cautiously on pickup in provisions in the second half of this year. But this quarter you felt enough confidence to actually improve the guidance on provisions, despite the fact that you have additional DKK400 million of provisions coming from the AQR.

So my question is, whether this additional DKK400 million of provisions was already in a way reflected in your thinking or whether you have seen macroeconomic picture which is much better than you thought is going to be the case a quarter ago. And then the second question please on lending growth, I remember again at the start of the year your rhetoric on lending growth was quite cautious, but actually in most of the business divisions this quarter we have seen growth, which perhaps was better than expected, can you please quantify what’s your outlook on lending volumes going forward?

Thank you.

Yes. Two good questions, when it comes to Ireland, we have to say first of all the market has stabilized or even picked up and we can see that the investor appetite is slightly better than we expected in the beginning of the year.

And as we have been more and more confident when we see the change taking place, we have been able to adjust the impairments forecast for the year. And with regards to AQR, yes, I can say it’s partly – it’s a part of that possibly comes in by insulation, but we can clearly absorb it in the guidance, and part of that impairments we will have identified regardless in our Q4 guidance.

So that’s – so it’s a combination of several things, but if you are going to have one simple answer, it is that the Irish property market and our portfolio seems to being accepted at the better level than we could have hoped for. Lending growth, I am still very cautious, I am happy to see small growth, but remember it’s a small growth.

I think we will be cautious as there is subdued demand to grow any fast, it will pressure pricing and we have no interest in pressure margin and have a margin compression. So we were cautious, except in Norway and Sweden, where we see a great potential as a challenger to grow slightly faster.

And we will not stress the bank’s credit book, so we will also grow with a very strong credit book. So that’s why I think you should continue to assume in such environment that we will grow, but grow slowly.

Very clear. Thank you.

Yes, good afternoon, it’s Christian from Nordea, Copenhagen. I have a couple of questions on mortgage lending, one on Sweden.

Can you give us a bit of an update on your ambitions in volume-wise in the Swedish mortgage market. And the second one, in the Danish mortgage system or the Danish mortgage market, where we see that the FSA is coming up with a supervisory diamond, possibly later this year.

Do you think that this supervisory diamond will force you to increase prices on certain products to move clients? Yes, I guess those were sort of my two questions.

Thank you.

Yes, why don’t Claus take the last question first.

Yes, in respect to the new regulatory diamond for specialized mortgage banks in Denmark, to our knowledge it hasn’t been approved, it’s still a proposal, when we are looking into the different components, there is one component which relates to the share of interest-only loan in a certain LCD bucket that could be a issue for some of the banks by the end of the implementation period in 2020. But when we are looking into the behavior among our customers for the time being, we can see that almost 60% is starting to amortize when the loan is coming up for renegotiation.

And if we model that into our portfolio, we will not have an issue around the 55% limit in 2020. You can also get additional information on Page 36 in the presentation.

33.

33.

Thank you. But then I could – maybe I could follow-up with just noting that Nykredit and BIF has hiked margins here in the Q4 with effect from the 1 of January, and you haven't followed.

So could you give an indication to how you see that? Do you think you can gain market share by not increasing your margins or would it be a free lunch to basically just take up a bit more margin and then get more income?

We have for the time – or for a while we have been so to say, if you look at the pure margins in the most expensive of the mortgage banks in Denmark, and they are coming up to our level now. So it doesn’t give us any good ideas on the pricing side for the time being.

To further differentiate it Christian, we will always try to be very competitive in the market to protect our position both from a customer and shareholder perspective and we will always need to optimize the pricing. And some pricing may go up, some may come down, but it’s nothing called a free lunch as you used to.

But I think the market conditions are good for us to continue to take a good position of the new mortgage processes, which will take place. Then to your first question, mortgage lending in Sweden, we will slowly but surely in 2015 look into how we will grow that market.

I think we are very well placed. We are looking into several investments both in management, in technology and in customer packages.

And we can expect – you can expect something to happen early 2015.

Okay, thank you very much.

Thank you. Sorry to go back to C&I, but I was just wondering – I mean you want to increase revenues around 7% from the annualized level of nine months of this year.

At the same time, we need to take down costs, but focus more on high cost income ratio business, i.e., client-driven. I was just thinking how – if you could maybe give us some details on how that should be done?

Also, in connection with that, I'm seeing that your allocated capital to C&I have gone up a whole 37% since Q1, 2012, where in Nordea is has been sort of similar businesses that actually managed to reduce the allocated capital. I'm thinking is that more on the capital side you should be working instead of the sort of profit?

And the second question, if you are actually reducing capital you spent in C&I, this quarter you are also reducing it in personal and business banking. But it just ends up in the sort of unallocated capital.

I was thinking – I mean it's a record high sort of number of unallocated capital in this quarter. What should we expect with this going forward?

Is it just going to be stuck there or what exactly will happen? Thank you.

Okay. I appreciate all recommendations and you were right, of course we will work on capital, and we are as Henrik alluded to early in the conference, working with a lot of initiatives to reduce the capital and the capital usage, everything from risk reduction to mitigating factors and even stopping certain business lines.

The costs will also be prudent, and we can reallocate resources within the framework we just discussed. It’s not either or, it’s both, so you’re right in that sense that we will also will work on capital of course.

When it comes to the top line, if you look at underlying development from 2012 into 2013 into 2014, it’s pretty impressive what C&I has been able to do on inflated capital markets products. And we see no reason with a build of capacity, build up of products and the build up of expertise that it should not continue at the rate as we have alluded to in this presentation.

So C&I and I are comfortable both on a cost side, on the top line for 2015. But of course if something dramatic happens in the market, it will be challenging and if it’s more structurally, we will also need to look structurally into the business if more needs to be done.

But I’d like to remind you and your colleagues that we have a very strong business model, which has shown very resilient historically, but that has changed and we are adapting to the new rule. And that’s basically I think is a prudent management we need to do.

When it comes to allocating capital, I think Henrik has a couple of comments.

I can just mention that we have a capital allocation model and we are continuously looking into how to do that. But for the time being we are satisfied with the model we have.

We might at a future point in time when we have more clarity on the various orders, the capital allocation models and so on, looking to it once more. But for the time being we are satisfied with the way we allocate capital to the various business units, including C&I.

But I think the key issue for you and investors are that any excess capital, which will be consequence of unused capital, will be distributed back to the shareholders. I think that’s the key message we’d like to give you.

Can I just follow-up on that last specific point because in – you have a slide yourself showing the rating agencies on Page 37 and as far as I understand from S&P they are looking into potentially removing the support, the government support as of next year due to bailing and in the case I guess you will have to build your capital direct ratio above 10% which is somewhat above 14% core Tier 1 ratio, how are you looking at that potential risk?

We will make sure that we are a strong bank with rating agencies, but the way you build capital we can use various instruments. And as you may recall we have a very successful 81 during the year that’s also something we can look into going forward.

So there is various means which we will do. And if you want to go in more detail Henrik Ramlau can take that with you bilaterally but I think we are well positioned.

We are well aware how to balance let’s call it rating agencies or particularly S&P needs for capital.

Okay. Thank you.

Thank you. So two questions if I may, firstly on fee income we have seen a very strong performance and I guess this is a continuation of a trend we have seen for quite some time now.

In particular I guess looking at C&I strong fee income, is there anything of a one-off nature or is this the realignment of the business and a trend we should expect to continue also in quarters to come? And then if I may just a clarification on the cost and the cost guidance you have been crystal clear that C&I costs should be down up to 10% from the DKK4.5 billion level we saw in ’13, but you also have the group cost guidance for next which is below this year.

We now have one part of that puzzle but should we expect costs ex-C&I to be down ‘15 on ‘14 as well please?

I would say I would be cautious now to guide business lines by business lines because then we are fragmenting the overall picture. But it’s no doubt in our mind and we will tell the market that the costs will come down year-on-year and you can assume that we will be very focused on costs.

We have a target cost income below 50. We have a target to be below 23.

We will be below 23 in ’14 and when I say we will continue to be focused on costs, costs will come down any further. I don’t want to give anymore firm guidance on it but we will do that in connection with Q4 results.

And then you had a question about our fee income that is developing fine and that is broadly across basically all the business units Danske Capital is doing fine. There is also additional fee income in C&I.

Corporate finance and other activities also in the other business units contribute to additional fee income.

Your question one more then, could we expect the same growth rate. And I think we are trying to be cautious to extrapolate all of it.

But I think we have a good underlying run rate with investments we will be doing continuously.

Thank you. And maybe just to follow-up on the previous question so I didn’t quite understand your answer on the allocated capital and of course you are saying that unallocated capital should be returned to shareholders so this sort of DKK15 billion or whatever it is if we now have in the other results are you seeing that capital that freed to be distributed or how should we think about that and the payout going forward?

It’s actually, it was a slightly not an answer directly to the question. I think we are always trying to optimize internally how we allocate capital and I think that was what time we responded to.

Regardless of how we allocate capital internally it’s no issue for us to sit with excess capital regardless of where we put the allocated capital that was my response back to Jakob’s question or challenge kind of two different perspectives on it. So another – finally to try to answer it different way, it’s no point to put unallocated capital to an unallocated bucket, we try to put it to the business units.

But as we get wiser in the modeling that’s what we are trying to do, constantly improve it.

Thank you.

Yes, hi, Jan Wolter here, Credit Suisse. Two questions from my side.

When we look at the loan loss level so far this year including non-core, it seems to be around DKK2.5 billion in loan losses, the first nine months. And I think you seem to suggest that DKK900 million or so is AQR driven.

So is this the way we should see the numbers? And if so, the underlying loan loss level going into next year should be meaningfully lower than, all else equal naturally?

So that's the first question. And then the second one is, if you see it as likely that the Danish Pillar 2 buffers will require core Tier 1 financing, which we have seen in the Swedish market, please?

Yes, Henrik will take the second question. I think you should be cautious to assume that AQR is just something which comes on top of it, because we have big movements in allowance account, which now stands at approximately DKK45 billion.

So we have let’s call it, large gross movements. We are at low levels impairments wise.

How the impairments will move into 2015 will depend on the economic conditions. If we assume economic conditions around today’s level, you should not expect any major deviations of today’s impairments levels.

I think that’s how far we can guide at the present stage, but as we get wiser and in connection with Q4 numbers, we will see if we can guide you any closer to that number.

Maybe I should add Jan to some of your numbers you alluded to in the beginning, you put the DKK2 billion impairments this year over to the DKK900 million, and please be aware that the DKK900 million we have recognized so far is actually a major part of that is non-core, so I think the numbers are getting mixed up a little bit here. So the non-core part of the DKK900 million is by far the biggest chunk of the DKK900 million, so you should actually put approximately to DKK300 million over the impairments you are alluding to so far.

And regarding your question on the Pillar 2 add-ons, we have no indication that the Danish FSA have any thoughts about change in the current setup, where that can be covered by either core Tier 1 or subordinated debt with high trigger levels. So we are quite comfortable still with our capital position.

Thank you. Just a quick follow-up then on the way you said that in Q4 there will be a DKK700 million impairment again for the AQR adjustment.

I believe there was DKK100 million or so impairment this quarter for the AQR, so does that mean that we will see rather DKK600 million in the fourth at least?

No. No.

We haven’t said exactly what it is quarter-by-quarter. I don’t think we should complicate it too much.

I think we have given you a guidance for the impairments for core this year around DKK3 billion, we have taken DKK1.9 billion so far and including in the guidance is the full effect of the AQR adjustments. And then, I think I was pretty firm on what we were expecting for 2015.

Okay. Many thanks for that.

Hi, this is Mads Thinggaard from Handelsbanken. I’m sorry, but I have to go back to Slide 16 of your presentation regarding C&I and return on allocated capital and I was kind of wondering if you could help me explain the delta on income versus the delta on capital.

If we look – I realize it’s probably not the way you are meaning to – meant the slide to be read, but it look like at delta on allocated capital of DKK5 billion is associated with a loss of income of DKK2 billion that is a high return, that’s probably not how you mean it, but how much income should be expected to be lost on cutting the capital consumption, that was the first question. And the second question is I was bit surprised to see reversal in Finland, where we have an economy in a severe depression.

I don’t know if you could elaborate a little on where these reversals are coming from?

First of all, no, we apologize if that slide is not good, but of course it’s not to be meant to be either or is just gives you the range of the various levers which could go in various directions. So we will, it doesn’t mean that if you go down from DKK37 billion to DKK32 billion that you will go from income down from DKK11 billion to DKK9 billion, that’s not at all what is meant to be.

It just tried to give you indication of how we work with capital in a range and how we work on the top line and the cost side. So, our apologies for not being clear on that one.

Yes, but no problem with that, but how much do you think it would cost to, if let’s say if you will take it down DKK5 billion, how much income would you lose on that?

Yes, marginally. And the reason is it’s – it’s the areas where we can see the return on capital is low were other business areas.

And it’s not marginal which is worthwhile discussing through the conference. If you want to more detail you can call Claus and we go into certain business lines, but I think that’s in the details.

And the reversal in Finland it is a collective impairment, we’ve had it for a while, which were basically reversed. And we are aware of very much the macroeconomic situation in Finland.

It has not been strengthened due to the Russian, Ukraine situation. But we actually have a very good position in Finland, where we have a strong portfolio.

One should be cautious quarter-on-quarter, but we couldn’t justify to have that collective charge any longer, because we didn’t see a come through on the individual clients. And that’s why we had to reverse it actually.

Okay. Thank you.

Hi, good afternoon just one question that I have remaining. And it’s regarding Norway and Sweden.

Well, I know it’s only been a quarter but maybe perhaps you could share with us some of your initial experiences post strategic review and also the outlook here for loan growth going forward. And then related to that you mentioned this new agreement with Academica in Norway, could you just give us few more details on that nature of that deal and perhaps how we should think of this from a financial point of view?

Thank you.

As you alluded to in your question I think it’s too early as to a quarter in personal banking to having major change in Norway, Sweden. But so said, I think it’s a very positive movement going on particularly in Norway.

We have recruited a whole new management team starting actually on Monday and we have been able to land some very strategic what I will call strategic alliances would Academica and as you alluded to, which gives us access to 80,000 highly paid individuals in Norway. How successful it will be and how fast it would go, it’s too early to say, but I can say so much that the interests from these potential clients are very high.

And we actually have to recruit people to take care of this customer inflow. But personal banking is business which is slow, but it’s good.

And don’t expect an explosion, but slowly, but slowly we will grow that business quarter-by-quarter. Sweden, we are more or less stabilized the situation.

And I have kind of alluded to it, we haven’t really started any big, let’s call it offensive actions yet, but I think you should expect something to happen in the beginning of 2015.

Okay, great. Thank you.

Great, thank you. I have two questions; one is on severance cost and one is on the balance sheet.

You booked just under about DKK400 million of cost so far year-to-date and I was wondering if your previous guidance or suggestion of around DKK700 million ballpark, i.e., similar to 2013 with some impact for 2014? The second question is a small one on the balance sheet.

The line borrowings from credit institutions has been going up quite substantially quarter-on-quarter for the last two quarters from DKK137 million in Q1 to DKK325 million in the third quarter. Just wondering what's driving that and what the outlook for that line is?

Thank you.

Henrik will answer the first question.

Regarding severance costs, you’re right, we previously guided up to around I think DKK700 million or something like that. And that will probably end somewhat lower now.

But as you know it’s an ongoing process optimizing the bank, bringing cost down and so on. So there will also be severance cost in Q4.

But finally the end figure will probably be lower than previously communicated.

Henrik, should I assume DKK100 million, since that kind of run rate continues or is there a kind of a seasonal pickup in Q4?

I think it would be roughly at the same run rate as we have currently. But it may a little bit up or down.

But it’s an ongoing process…

Sure.

But it will be probably lower than previously communicated as you alluded to.

Okay. Okay.

Ronit, can you read – sorry, I don’t think I caught your question. Which line did you ask about?

So borrowings from credit institutions, so on the liability side its gone DKK137 billion and then its gone up to DKK300 million and – that was in Q1, and it has gone up roughly DKK100 billion per quarter. It’s at DKK325 billion now in Q3.

And I was wondering why that’s growing so fast?

Which line is this? Sorry, I can’t really even find it in my own figures.

So why don’t we go offline with it, because for me it’s not any strategic, it may be some technical explanation. So my apologize Ronit, I can’t answer it, we will take it offline.

No. No.

No problem. I will follow-up with IR.

Thank you.

Yes. Okay, can we do the final questions if any?

Hi there. Thanks very much for taking our questions today.

Just one question from us, and it's on NII in the regions. Obviously, you have had good development in Norway and Finland, but could you perhaps just expand on the competitive pressures that you are seeing there, particularly in Norway, and whether these competitive pressures could dampen the growth outlook going forward?

And in Finland, could you perhaps just expand on what the differential is between the front book and the back book margins, please? Thank you.

I think maybe Claus will try to answer your last question about the front book and back book in Finland.

Yes, it’s you know, Alice as we have alluded to, this is an ongoing process, because we are not able to reprice the back book in Finland, so only to the extent that we see expiring loans on our front book, then we are able to reprice. That’s a process which will take some years, I think we previously have stated five, six, seven years, and we are probably in to year three of that process right now.

And then it comes to your question about NII in a wider sense in the regions that we moved to Norway in particular. I think in most markets there is keen competition, and I would be cautious to expect any margin expansion.

So said, the margins in most markets are holding well up actually. But we are very cautious about on that and that’s why we continuously need to be very efficient.

So, so far holding up, but we are cautious on this line going forward.

Thank you very much. Very clear.

Okay. Thank you very much for your keen interest in Danske.

And if and as always you are welcome to contact our investor relationship department if you have anymore questions after you had time to look at accounts in more detail. A transcript of this conference call will be added to our website within the next few days.

Thank you very much.