Den Danske Bank A/S - Final Results - Full Details

RNS No 1770n
DEN DANSKE BANK A/S
25th February 1999


DEN DANSKE BANK GROUP HIGHLIGHTS

Summary Profit and Loss Account (Dkr million)          1998         1997

Net interest income                                   8,512        7,849
Dividends from shares, etc.                             175          151
Fee and commission income (net)                       2,972        2,434

Net interest and fee income                          11,659       10,434

Market value adjustments of securities and
 foreign exchange income                                294          819
Other operating income                                  392          313
Staff costs and administrative expenses               7,167        6,515
Depreciation and amortisation                           535          592
Other operating expenses                                  2           17
Provisions for bad and doubtful debts                   511          614
Income from associated and subsidiary undertakings    1,112          806

Profit on ordinary operations before taxation         5,242        4,634
Taxation                                              1,292          429
Net profit for the year                               3,950        4,205


Summary Balance Sheet 
at December 31 (DKr billion)                           1998         1997

Assets
Cash in hand and due from credit institutions, etc.    67.5         58.6
Loans and advances                                    303.1        290.7
Bonds and shares, etc.                                140.0        136.2
Holdings in associated and subsidiary undertakings     10.2          9.3
Other assets                                           72.0         60.0

Total assets                                          592.8        554.8

Liabilities                                           
Due to credit institutions and central banks          140.4        138.5
Deposits                                              213.5        225.2
Issued bonds                                          107.5         78.6
Other liabilites                                       84.4         66.6
Subordinated debt                                      16.6         18.4
Shareholders' equity                                   30.4         27.5
Total liabilities                                     592.8        554.8

Off-balance-sheet items
Guarantees, etc.                                       58.2         51.0
Other commitments                                      94.0         89.3

Total off-balance-sheet items                         152.2        140.3

Ratios and key figures
Net profit for the year per share, Dkr                 74.6         79.5
Net profit for the year as % of shareholders'
 equity at January 1                                   14.3         16.3
Cost/income ratio (adjusted), %                        63.5         65.3
Solvency ratio, %                                      10.4         10.2
Dividend per share, Dkr                                  18           18
Share price at December 31, Dkr                         857          914
Book value per share, Dkr                               574          520
Number of full-time employees at December 31:
Den Danske Bank and consolidated subsidiaries         11,691       11,365
Non-consolidated subsidiaries (insurance companies)    1,381        1,442

The Danish Financial Supervisory Authority changed its regulations on the
presentation of accounts in 1998. Comparative Profit and Loss Accounts figures
have been restated for the five years, while comparative Balance Sheet figures
have been restated for 1997 only.


GROUP FINANCIAL REVIEW

Den Danske Bank Group recorded a pre-tax profit of DKr5,242m for 1998, against
DKr4,634m the year before.  After-tax profit was down by DKr255m to DKr3,950m.
Core earnings showed improvement.

Table 1
Den Danske Bank Group highlights          1998        1997

Net profit for the year, DKr million     3,950       4,205
Total assets, DKr billion                592.8       554.8
Loans and advances, Dkr billion          303.1       290.7
Deposits, DKr billion                    213.5       225.2
Shareholders' equity, DKr billion         30.4        27.5
Dividend per share, DKr                     18          18
Solvency ratio, %                         10.4        10.2
Share price at December 31, DKr            857         914


The Board of Directors is proposing a dividend of DKr18 per share.  Subject to
the approval of the Annual General Meeting, DKr2,998m will be allocated to
shareholders' equity, bringing equity capital to DKr30.4bn.

Business volume expanded in 1998.  Total assets grew by DKr38bn to DKr593bn.
Interest margins narrowed during the year.  Fee and commission income increased.

Expenses rose by 8.1%.  A main reason was the expansion of the Group's
activities.

The charge for bad and doubtful debts remained at a relatively low level.

Income from securities was lower than the year before.

As forecast in the 1998 Interim Report, the Group generated higher core earnings
in 1998 than estimated at the release of the 1997 Financial Results.  The
improvement was mainly attributable to generally higher activity and an increase
in core insurance income.

Core earnings

Core earnings were DKr3,910m in 1998, against DKr3,164m the year before.

Fee and commission income showed particularly good growth.  Owing to thinner
interest margins, net interest income grew relatively less than business volume.

Other operating income included one-off income of DKr121m relating to prior
years.

Core earnings as a percentage of shareholders' equity at the beginning of the
year were 14.2% in 1998, against 12.2% in 1997.

All business areas contributed positively to the advance in core earnings.

Table 2

Core earnings (1) and net profit (DKr million)          1998       1997

Net interest income                                    8,512      7,849
Maturity-related market value adjustments of 
 securities                                           -1,200       -950

Net interest income, including maturity-related
 market value adjustments of securities                7,312      6,899
Fees and commissions, foreign exchange income,
 share dividends, and other operating income           3,933      3,317
Core insurance income                                    880        686

Total core income                                     12,125     10,902
Staff and adminstrative expenses, depreciation,
 amortisation, and other operating expenses            7,704      7,124

Core earnings (1) before provisions                    4,421      3,778

Provisions for bad and doubtful debts                    511        614

Core earnings (1)                                      3,910      3,164

Other market value adjustments of securities           1,100      1,350
Other income from associated and subsidiary
 undertakings                                            232        120

Profit on ordinary operations before taxation          5,242      4,634
Taxation                                               1,292        429

Net profit for the year                                3,950      4,205

(1)  Core earnings have been adjusted for maturity-related market value
adjustments of securities, i.e. valuation losses that arise as bonds, etc., with
coupons above their market yields approach maturity or are drawn for redemption.

Net interest and fee income

The Group's net interest and fee income rose from DKr10,434m in 1997 to
DKr11,659m in 1998 (table 3).  As in 1997, net interest income was favourably
affected by income from high-coupon bonds and financial derivatives, which
should be viewed in conjunction with negative maturity-related market value
adjustments.  In 1998, maturity-related value adjustments were a negative
DKr1,200m, against a negative DKr950m in 1997.

Interest margins on domestic deposits and loans remained under pressure.  In the
international financial markets, margins on new lending trended slightly
upwards.

Table 3

Summary Profit and Loss Account
(DKr million)                             1998                1997

Net interest and fee income             11,659              10,434

Market value adjustments of securities     294                 819
and foreign exchange income

Other operating income                     392                 313

Staff costs and administrtive expenses   7,167               6,515

Depreciation and amortisation              535                 592

Other operating expenses                     2                  17

Provisions for bad and doubtful debts      511                 614

Income from associated and subsidiary
 undertakings                            1,112                 806

Profit on ordinary operations
 before taxation                         5,242               4,634

Taxation                                 1,292                 429

Net profit for the year                  3,950               4,205

Fee and commission income rose from DKr2,434m in 1997 to DKr2,972m in 1998.  The
increase was primarily the result of strong activity in securities markets and
mortgage refinancing, particularly in the first half of 1998.

Market value adjustments of securities and foreign exchange income

Securities revaluation and foreign exchange income totalled DKr294m in 1998,
against DKr819m the year before.  Shares contributed a gain of DKr196m and
foreign exchange income amounted to DKr394m, while value adjustments of bonds,
mortgages, etc., and financial derivatives resulted in a loss of DKr296m.  This
loss included the negative maturity-related market value adjustments of
DKr1,200m.

The Group increased its interst rate risk during the year.  A rise in interest
rate sensitivity, which estimates potential changes in the value of the
portfolio of bonds, etc., meant that a one percentage point rise in interest
rates would have caused a valuation loss of DKr941m at the 1998 year-end,
against DKr791m a year earlier.

Other operating income

The rise in other operating income stemmed primarily from one-off income in
connection with the refund of value-added tax of DKr121m relating to activities
outside the EU and payments made by the Group to computer centres.

Staff costs and administrative expenses, etc.

Staff costs and administrative expenses, together with depreciation and
amortisation, rose by 8.1% to DKr7,704m in 1998.  The increase had been
anticipated because of the ongoing expansion of the Group's Nordic and
investment banking activities and continued intensive development of IT systems.

Group staff numbers - in full-time staff terms - were 13,072 at the end of 1998,
against 12,807 a year earlier, including staff in the insurance companies.

Provisions for bad and doubtful debts

The charge for bad an doubtful debts declined by DKr103m to DKr511m in 1998.

The Group sustained total loan losses of DKr1,074m, the major part of which had
been provided for in previous years.  In 1997, loan losses were DKr834m.
Corporate customers of domestic branches accounted for DKr439m of the total loan
losses in 1998, while personal customers accounted for DKr198m.  Losses
sustained on exposure in foreign units and exposure to credit institutions were
DKr437m.

At the 1998 year-end, the accumulated provisions - after write-offs on loans,
credit institutions and guarantees - amounted to DKr10,513m.

Non-accrual loans - i.e. loans on which interest accrual has been suspended
because interest is deemed irrecoverable or the debtors have suspended payments
or gone bankrupt - totalled DKr1,899m, down by DKr1,403m from the 1997 year-end.
The fall was partly attributable to the completion of bankruptcy proceedings and
other problem-loan cases.


Income from associated and subsidiary undertakings
Income from associated and subsidiary undertakings amounted to DKr1,112m,
compared with DKr806m the year before.  This item mainly comprised core
insurance income of DKr880m for 1998, against DKr686m for 1997.  Securities
valuation adjustments and extraordinary items in non-life companies amounted to
DKr114m in 1998, against DKr97m in 1997.

Taxation
The Group's tax charge totalled DKr1,292m in 1998.  The year before, taxes
amounted to DKr429m.

The reason for the significantly higher tax charge for 1998 compared to 1997 is
that taxation rules for insurance companies have been changed.  In the spring of
1998, legislation was introduced to limit tax deductions for insurance
companies' appropriation to technical reserves, etc., and to restrict the use of
tax losses carried forward from previous years.

Net profit
As mentioned earlier, Den Danske Bank Group recorded a net profit of DKr3,950m
for 1998.

Assets and liabilities, solvency and shareholders' equity
The total assets of the consolidated Group rose by DKr38bn to DKr593bn at the
end of 1998.  The assets of the insurance group, which are not consolidated in
the Group accounts, grew to DKr153bn from DKr141bn a year earlier.

The Group maintained its market share of loans, while that of deposits fell
slightly.

Outstanding loans and advances grew from DKr291bn at the 1997 year-end to
DKr303bn at the 1998 year-end.  Lending by Danske Kredit was up by DKr14bn.
Lending by the Group's foreign units increased from DKr125bn to DKr137bn.
Domestic traditiional bank lending grew by DKr8bn, whereas repo-based lending
was down by DKr22bn.

Deposits fell to DKr214bn from DKr225bn a year earlier.  The fall was mainly
attributable to repo transactions and lower deposits at the foreign units.
Bonds issued to cover mortgage loans amounted to DKr65bn at the end of 1998,
against DKr51bn a year earlier.

The Group's portfolios of bonds and shares totalled DKr140bn at the end of 1998,
of which assets attributable to pooled pension fund schemes accounted for
DKr14bn.

Shareholders' equity grew from DKr27,539m to DKr30,366m.  Goodwill of DKr210m on
the acquisition of Saga Securities, AG Bankirfirma and Myrberg Fondkommission
was written off against equity capital.

Subordinarted debt declined from DKr18,390m to DKr16,654m.  On June 17, Den
Danske Bank raised US$300m nominal value of supplementary capital by an issue of
10-year notes.  The Bank repaid #100m of supplementary capital in September.
Moreover, three loans of DM150m, DKr200m and US$100m were repaid.

The Group's solvency ratio, which is required by law to be at least 8%, amounted
to 10.4% at the end of 1998, against 10.2% a year earlier.  Core (tier 1)
capital accounted for 7.7 percentage points.

The insurance subsidiaries are not consolidated in the Group accounts.
Therefore, the solvency margin of these subsidiaries is deducted from the Parent
Bank's capital base for the purpose of calculating the Group's solvency ratio.

The Board of Directors is proposing a dividend of DKr18 per share for the 1998
accounting year, against DKr18 in 1997.

Results and activities of subsidiaries
Danica, the insurance group, had a profit of DKr994m in 1998, against DKr783m in
1997, and total assets of DKr153bn at the year-end, against Dkr141bn a year
earlier.  There was good growth in premium income, with gross premiums up from
Dkr9,679m in 1997 to Dkr11,911m in 1998.

Non-life business produced a profit of DKr173m for 1998.  Non-life gross
premiums rose by 8% to DKr1,297m.  Sales of commercial policies showed
improvement, while premiums from other non-life business did not meet
expectations.

Life business generated a profit of DKr707m in 1998, representing a return on
equity equal to that on policyholders' savings after real interest rate tax plus
two percentage points.  Life business attracted a fair number of new company
pension clients and recorded a strong advance in single premiums.

A significant share of Danica's life insurance portfolio has been written on
the basis of a guaranteed return of 4.5%.  The fiscal measures introduced by the
Danish parliament in June 1998 included a flat 26% tax on bond returns and a 5%
tax on equity returns in pension schemes.  In the introductory notes on the tax
bill, there was a qualification to the effect that adjustments to the rules
could be made if they prevented pension savers from achieving the guaranteed
return.

The Ministry of Economic Affairs is preparing a report on the issue.  The
report is to provide a point of reference for establishing the tax structure so
that it will be possible for life insurance companies to maintain the guaranteed
return on life policies in accordance with the intentions expressed in the
introductory notes.

If the current tax rates are maintained and interest rates fall below their
levels at the end of 1998, the Group's life insurance companies may have to
abandon their profit policy.

Danske Kredit recorded significant growth in mortgage lending from DKr48bn to
DKr62bn.  Profits rose from DKr201m to DKr417m.

Den Danske Bank International, Luxembourg, made a profit of DKr 149m in 1998,
against DKr 138m the year before.  The bank's business volume also expanded
well, inter alia, within investment services.

The other subsidiaries of Den Danske Bank also produced satisfatory results in
1998.

Change in Group structure and expansion of business

In 1998, to strengthen its existing securities trading and corporate finance
activities, the Bank acquired a 51% stake in Saga Securities, Norway, a 100%
stake in AG Bankirfirma, Finland, and a 100% stake in Myrberg Fondkommission,
Sweden.  Goodwill on the acquisitions, which totalled DKr210m, was written off
against equity capital.

The subsidiaries Ostgota Enskilda Bank, Consensus Fondkommission and Nordania
Leasing were converted into branches of Den Danske Bank in 1998.  The
conversions have had no effect on Group accounts, and comparative figures for
the Parent Bank have not been restated.

In 1998, it was decided to convert the Bank's subsidiary, Danske Capital
Management, into a division.  The conversion will take place in 1999.

Moreover, the Bank decided to expand into the residential real estate agency
business.  Its subsidiary, Danske Bo, will start operations in the spring of
1999.

Changes in accounting regulations

The executive Order on Bank Accounts was amended with effect from the 1998
accounting year.  A number of accounting items have been combined, and some
Profit and Loss Account and Balance Sheet items have been re-classified.  The
re-classification has had no effect on profits or total assets.  Morover,
financial derivatives are now shown at their gross market value. This has
increased total assets by DKr28bn.  Comparative figures for 1997 have been
restated.

Core earnings have also been re-classified and adjusted to include extraordinary
items.

Valuation policies are unchanged from previous years.

Litigation

The commission set us 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 April 1998, the Faroese regional government instituted legal proceedings
against the Danish government and Den Danske Bank, claiming compensation of
approximately DKr1.5bn.  The Faroese regional government and the Danish
government settled out of court in June 1998.  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 the
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.

It is still Den Danske Bank's opinion that there are no just grounds for
criticism and, consequently, no legal grounds for claims against it.

A number of investors who bought shares in Hafnia Holding in the summer of 1992
have brought actions for damages against Hafnia, its management, its auditors
and the Bank. The first judgement is expected to be passed in the second half of
1999.

Den Danske Bank expects that neither these nor other cases will have a material
impact on the financial position of the Group.

Outlook for 1999

Economic growth in Denmark, the Group's principal market, is expected to slow
down in 1999. Private consumption is likely to lose some momentum and recent
years' strong job growth should grind to a near halt. Business investment may
show an outright fall.

The other Nordic and European countries are also on course for slower economic
growth, and the UK economy may move into a recession.

Consequently, Den Danske Bank Group expects net interest income, after allowing
for maturity-related market value adjustments of securities, to rise only
moderately from 1998.

Fee and commission income is expected to advance, mostly because the Group is
stepping up its activities in the Nordic financial markets.

Other operating income seems likely to decline because it included one-off
income of DKr 121m in 1998.

Core insurance income is expected to be significantly lower than in 1998 since
the return pension savers can obtain on policies with the Group's life insurance
companies will be reduced by low interest rate levels and the changes in
taxation of pension savings returns introduced in 1998. This will moreover have
a negative effect on the Group's long-term profits from insurance operations.

The Group again expects staff costs and administrative expenses to rise in 1999,
as it continues to introduce new information technology, expands its investment
banking operations, and steps up its activities in Sweden.

Given the anticipated slowdown in economic growth, the provisioning need does
not seem likely to remain as low as in recent years. The Group expects the
charge for bad and doubtful debts to rise in 1999.

In November 1998, Den Danske Bank made a bid for the shares of the Norwegian
Bank, Fokus Bank offering NKr80 per share, or NK5.8bn for the entire bank, on
certain conditions. By December 31, 1998, shareholders representing 88% of the
share capital had accepted the offer, which left Den Danske Bank in control of
98% of the shares. Late in December, 1998, Den Danske Bank sought the approval
of the Norwegian authorities to take over Fokus Bank. The acquisition will be
made through a wholly-owned Norwegian subsidiary. If it is approved by the
authorities, the 1999 results of Fokus Bank will be partly included in Den
Danske Bank Group's financial results for 1999. This is not expected to change
Group profits significantly in 1999.

Given the anticipated trends in the principal factors set out above, the Group
estimates that core earnings before provisions in 1999 will be more or less at a
similar level to 1998. Consequently, since the Group is expecting an increase in
the charge for bad and doubtful debts, core earnings may decline compared to
1998.

Pre-tax profit on ordinary operations will moreover be influenced by movements
in bond and share prices during 1999.

The tax charge for 1999 is expected to come close to the Danish corporation tax
rate of 32%.

Den Danske Bank's profit expectations for 1999 reflect the subdued economic
outlook, the large costs associated with the expansion of business volume, and
an anticipated decline in profits from insurance operations. The Group expects
its increased activities in the Nordic region and substantial investment in
cost-saving IT systems to lay the foundation for long-term growth in earnings.

Annual General Meeting

The Bank's Annual General Meeting will be held at 4.00pm on Tuesday, March 23,
1999, at the Bella Center, 5 Center Boulevard, Copenhagen.

As usual, shareholder meetings will be held in a number of locations ahead of
the Annual General Meeting.  This year, shareholder meetings will also be
arranged in Copenhagen.  The time of the Annual General Meeting has been changed
from 5pm to 4pm, and no buffet will be served afterwards.  

The Board of Directors proposes the election to the Board of Alf Duch-Pedersen
and re-election of Bent M. Hansen and Henning Christophersen, who are retiring
by rotation and offer themselves for re-election. Jess Soderberg has decided to
leave the Board after serving on it for ten years; he will be joining the
Advisory Board instead.


END

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