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Ind.com.ch 23 | LSE:96GO | London | Medium Term Loan |
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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 MORE TO FOLLOW IR SELFLSUAUFLA
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