Activities and results of business areas

Transcription

1 Activities and results of business areas The Danske Bank Group s activities are organised into six business areas, which are supported by a number of central head office and service functions. The combination of decentralised business management and centralised production enables the Group to focus sharply on sales and optimise the use of its resources, not least through economies of scale in IT operations and product development. In addition, responsibility for developing and managing individual products is always placed in a single business area, while responsibility for selling the products is often shared by several business Core earnings before provisions Retail Banking Mortgage Finance Wholesale Banking Danske Securities Investment Management Life and Pensions areas. It is a vital principle that the business areas settle transactions among each other at market-based prices. The costs of support functions are allocated to the individual business areas according to their actual use of resources. To optimise its return, the Group calculates and assesses the value created by individual business areas on a current basis. The return of the business areas is calculated as the ratio of profits to allocated capital, which amounts to 7% of each area s average risk-weighted assets. Due to the merger with RealDanmark, Mortgage Finance has been segregated from Retail Banking and is shown as a separate business area in the 2000 accounts. CORE EARNINGS BEFORE PROVISIONS (DKr m) Retail Banking 3,284 1,764 Mortgage Finance Wholesale Banking 2,580 2,178 Danske Securities Investment Management Life and Pensions The core earnings of the business areas, before provisions, appear from the table. Further details are provided on the following pages. 20 DANSKE BANK ANNUAL REPORT 2000

2 After the merger with RealDanmark, the Danske Bank Group is organised as follows: Audit Department Board of Directors Board of Directors Secretariat Executive Board Secretariat Credits Group Finance Executive Board Management support functions Group Treasury Human Resources Communications Business areas Retail Banking Mortgage Finance Wholesale Banking Danske Securities Inv. Management Life and Pensions Denmark BG Bank: 245 branches 1,100 post offices Danske Bank: 381 branches HandelsFinans Nordania Norway 67 branches Sweden 42 branches Denmark Realkredit Danmark: 4 regions 25 district offices home Norway Fokus Kreditt Sweden Bokredit Corporate & Institutional Banking BG Garanti Trading, Financial Markets Danske Research Denmark Finland Norway Poland Sweden Germany UK USA Corporate Finance Equity Sales & Trading Equity Research Denmark Finland Norway Sweden UK Asset Management Denmark Finland Norway Sweden Luxembourg Private Banking Luxembourg Private Banking Denmark Investment Services Denmark Norway Sweden Denmark 21 offices Sweden Danica Fondförsäkring Luxembourg Danica Life and Pension Shared Services Centre Development Operations Logistics & Premises As a supplement to the audited accounting data for 2000 and 1999, the table below shows the unaudited pro forma earnings of the business areas, which have been derived by combining Danske Bank s accounting figures with those of RealDanmark. The RealDanmark data have been adjusted on an estimated basis to the policies and segmentation applied by Danske Bank. Pro forma core earnings before provisions (DKr m) Retail Banking 3,545 1,864 Mortgage Finance 1,475 1,269 Wholesale Banking 2,962 2,275 Danske Securities Investment Management 1, Life and Pensions In the following sections, unaudited pro forma financial highlights are provided for the individual business areas of the combined Danske Bank and RealDanmark groups. DANSKE BANK ANNUAL REPORT

3 Retail Banking (DKr m) Change, % Core income 10,093 8, Operating expenses and depreciation 6,809 6,447 6 Core earnings before provisions 3,284 1, Total assets (avg.) 163, , Risk-weighted items (avg.) 146, , Allocated capital (avg.) 10,246 7, Core earnings before provisions as % of allocated capital Expenses as % of core income Share of Group core earnings before provisions Retail Banking 22 DANSKE BANK ANNUAL REPORT 2000

4 Management Sven Lystbæk Member of the Executive Board Norway Thomas Borgen Managing Director Sweden Horst Könenkamp Senior Executive Vice President Retail Banking raised core earnings before provisions by a very satisfactory 86% to DKr3,284m. Core income rose under the influence of increased activity and generally higher money market rates, which brought a better return on Retail Banking s liquidity surplus. Expense trends reflected the continuing enlargement of the Swedish branch network and the fact that the results of Fokus Bank in 2000 were reported for a full year for the first time. Not counting these factors, expenses were lower than the year before despite rising activity. In the Danish branch network, the ongoing centralisation of administrative routines enabled Retail Retail Banking provides services to personal customers and small and medium-sized business customers served by the Nordic branch network. The division offers a virtually complete range of the financial products sought by the retail banking segment. A number of the products channelled to the market through Retail Banking are developed and managed by other business areas. Retail Banking conducts business under a number of brand names, including Danske Bank and BG Bank in Denmark, Fokus Bank in Norway, and Östgöta Enskilda Bank and Provinsbankerne in Sweden. Banking to focus more on customer services and sales, while, at the same time, realising cost savings. The cost/core income ratio improved from 78.5% in 1999 to 67.5% in Retail Banking returned 32.1% on allocated capital, against 24.0% the year before. The slightly increased financial pressure on customers that could be observed in 1999 did not intensify noticeably in DANSKE BANK ANNUAL REPORT

5 Investment management services continued to account for an increasing share of overall business with retail customers. As in previous years, this was reflected in the activities and earnings of Retail Banking. In Denmark, the retail banking market was still fiercely competitive. Nonetheless, the Retail Banking division steadily widened its personal and business customer base over the year. Personal customers were not least attracted by Danske Bank s broad product range and advisory services, while business customers focused on the Bank s offering of products and systems that could help them to become more competitive and raise earnings. Hence, the increase in the customer base in 2000 was helped along by the substantial IT investments the Bank has made in recent years. It is an important competitive parameter that Danske Bank s customers can get personal service or access the Bank s electronic services 24 hours a day, seven days a week, 365 days a year. Customers increasingly took an active approach to managing their investments, and this prompted significant growth in securities trading volume. Equities recorded the strongest activity increase, with the number of transactions with retail banking customers up 82% on the year before. Not least turnover via the Internet banking facility, Danske Netbank, showed significant improvement in Almost one-fourth of all securities transactions were carried out on the Internet. Danske Netbank was enhanced during the year to give customers access to equity research and economic and financial news. 24 DANSKE BANK ANNUAL REPORT 2000

6 Retail Banking There was also a noticeable increase in customer demand for pension products, although the tax benefits associated with some of these products have been reduced. Retail Banking had a satisfactory trend in lending in spite of a general slowdown in private consumption. Car loans showed a fall, which could be attributed to a marked decline in new car sales. There was satisfactory demand for the various cards issued by the Bank, including the American Express card, which Danske Bank re-introduced on the Danish market in The cashing agreement Danske Bank offered to business customers for outstandings that arise when consumers make payment with the American Express card was the first to be launched by a Danish bank. Again in 2000, Danske Netbank gained a significant number of new users, which was due in large part to growing customer interest in the Internet and the many new opportunities offered by the e-banking facility. There was strong customer interest in buying and selling international stocks on the Internet. In the business banking segment, Retail Banking widened its interest margins without forgoing business volume. One of the reasons it could do so was that customers increasingly tend to focus not only on the prices of individual products, but also on other factors. The Bank s e-finance and cash management solutions gave the regional centres a strong hand against the local competition. DANSKE BANK ANNUAL REPORT

7 The Danske Bank Group provides leasing services to business customers under the Nordania brand. There was a healthy trend in leasing activity. In future, the Group will also market leasing services in Sweden under the Nordania brand. In Norway, increased competition on the banking market and narrower interest margins led to a disappointing trend in Fokus Bank s earnings in the retail banking market. The table shows Fokus Bank s core earnings and riskweighted assets in the retail banking segment the Group s principal activity in Norway. RETAIL BANKING, NORWAY (DKr m) *) Change, % Core income 1, Operating expenses and depreciation Core earnings before provisions Risk-weighted items (avg.) 31,710 26, Allocated capital (avg.) 2,208 1, *) June 1 - December 31 Core earnings before provisions as % of allocated capital Expenses as % of core income Credit expansion in Norway was generally strong in Fokus Bank maintained its market share. In the spring, Fokus Bank became the first bank to offer Norwegian businesses an integrated treasury management facility on the Internet. Fokus Bank was also the first to launch a web banking site that personal 26 DANSKE BANK ANNUAL REPORT 2000

8 Retail Banking customers could customise. The bank expects to fortify its competitiveness in the coming years by being a leading provider of new e-banking services to business and personal customers. This is possible because Fokus Bank is expected to have converted fully to the Danske Bank Group s central IT platform by the autumn of In Sweden, economic trends were generally favourable, with high economic growth and low inflation. The Swedish branches of Östgöta Enskilda Bank saw very strong growth in lending. Volume growth and higher commission earnings, inter alia from securities trading and sales of investment products and insurance policies, generated satisfactory growth in the earnings of the Swedish branches. Highlights can be seen from the table below. RETAIL BANKING, SWEDEN (DKr m) Change, % Core income 1, Operating expenses and depreciation Core earnings before provisions Risk-weighted items (avg.) 29,814 18, Allocated capital (avg.) 2,089 1, Core earnings before provisions as % of allocated capital Expenses as % of core income Östgöta Enskilda Bank continued to open new branches in major Swedish towns, with three branch openings in In the autumn, Östgöta Enskilda Bank converted to the Group s central IT platform. DANSKE BANK ANNUAL REPORT

9 After the merger with RealDanmark, the Retail Banking division has more than three million personal customers and some 150,000 business customers. 500,000 retail banking customers avail themselves of one or more of the Group s e-banking solutions. In Denmark, the Group has a retail banking market share of about 35%. In Norway, the corresponding market share is 4% and in Sweden just over 5%. The merged Danske Bank Group targets Danish retail banking customers under two brand names: Danske Bank and BG Bank. The Danish distribution network comprises Danske Bank s 381 branches, BG Bank s 245 branches, and about 1,100 associated post offices. Danske Bank will continue to cut back its branch network after the merger and therefore intends to amalgamate 150 of its Danish branches during the period from 2001 to Retail Banking has 67 branches in Norway operating under Fokus Bank and 42 branches in Sweden operating under Östgöta Enskilda Bank and the local banks branded Provinsbankerne. The branch networks in both countries will expand in major towns where the Group does not have a sufficient presence. A number of Norwegian branches that do not have the required business volume potential will be merged with other branches as Danske Bank continues to streamline its branch network. Danske Bank believes that there is still great potential for attracting new web banking customers in Denmark, Norway and Sweden for the benefit of both customers and the Bank. 28 DANSKE BANK ANNUAL REPORT 2000

10 Retail Banking The table below shows unaudited pro forma financial highlights for the combined Retail Banking activities of Danske Bank and RealDanmark for 1999 and Pro forma financial highlights (DKr m) Change, % Core income 14,583 12, Operating expenses and depreciation 11,038 10,561 5 Core earnings before provisions 3,545 1, Risk-weighted items (avg.) 202, , Allocated capital (avg.) 14,172 11, Core earnings before provisions as % of allocated capital Expenses as % of core income The Bank aims to raise Retail Banking s return on capital, initially to the level that Danske Bank had achieved before the merger. This aim is to be achieved by realising the expected merger synergies and by tight control of costs. Moreover, earnings can be enhanced by utilising the good potential for transferring successful customer concepts and best practices among the various parts of the Retail Banking division. DANSKE BANK ANNUAL REPORT

11 Mortgage Finance (DKr m) Change, % Core income Operating expenses and depreciation Core earnings before provisions Total assets (avg.) 81,867 76,630 7 Risk-weighted items (avg.) 38,744 33, Allocated capital (avg.) 2,712 2, Core earnings before provisions as % of allocated capital Expenses as % of core income Share of Group core earnings before provisions Mortgage Finance 30 DANSKE BANK ANNUAL REPORT 2000

12 Management Kjeld Jørgensen Member of the Executive Board Mortgage Finance, which in 2000 consisted of the business activities of Danske Bank s Danish mortgage finance subsidiary, Danske Kredit, recorded core earnings before provisions of DKr392m. Core earnings returned 14.5% on allocated capital, which was an increase Mortgage Finance is responsible for the Danske Bank Group s overall mortgage finance and real-estate agency business. In Denmark, Mortgage Finance markets its financing solutions through Realkredit Danmark. Real-estate agency business is carried on through the Home chain of real-estate agents and in collaboration with Real- Mæglerne. from the year before. Mortgage refinancing activity was lower than in previous years. This should be viewed against a backdrop of relatively stable interest rate trends in Denmark. Moreover, credit growth in Denmark generally levelled off compared with previous years. Housing prices continued to increase, but showed signs of ebbing late in the year. There was a sliding trend in house sales. Danske Bo captured new market share and hence recorded tidy growth in property sales. The activities of Danske Bo are being transferred from Retail Banking to Mortgage Finance from the beginning of In future, the results of the Group s residential mortgage finance activities at Bokredit (Sweden) and Fokus Kreditt (Norway) will be reported under Mortgage Finance. DANSKE BANK ANNUAL REPORT

13 As a result of the Danske Bank Group s merger with RealDanmark, Danske Kredit and BG Kredit will merge with Realkredit Danmark, which is the continuing company. The merger will take effect retroactively on January 1, The Group s activities in the real-estate agency market are organised on a franchise basis under Home, the real-estate agency chain, which will encompass Danske Bo offices as from January Moreover, the Group has entered into co-operation agreements with the RealMægler chain of realestate agents. The two chains have a total of 276 real-estate agency offices in Denmark. In addition, the Danske Bank Group works with a number of other real-estate agents. The merged Group has a market share of about 37% in the mortgage finance market and 26% in the real-estate agency market. After the merger with Danske Kredit and BG Kredit, Realkredit Danmark will be Denmark s largest mortgage finance institution, with total assets in the region of DKr500bn. The company offers customers a complete range of mortgage loans, including FlexLån, where the interest rate is adjusted to market rates at agreed intervals over the term of the mortgage. Co-operation with Danske Bank gives Realkredit Danmark a strong distribution capability. Mortgage loans are distributed through Realkredit Danmark s own offices, the Internet, Retail Banking s outlets, and through collaboration with real-estate agency chains. Realkredit Danmark s outstanding loans are broadly distributed across geographical regions and business sectors. Almost 63% of total gross loans of DKr420bn have been granted to private individuals. Just under 90% of the portfolio relates to mortgages with a remaining debt of less than DKr10m. The average ratio of loans to property value is just over 50%. The statutory maximum loan-to-value ratio is 80% for loans to homeowners and for residential rented property and 60% for industrial property and property occupied by tradesmen. 32 DANSKE BANK ANNUAL REPORT 2000

14 Mortgage Finance All Danske Bank Group mortgage loans will be issued through Realkredit Danmark from the autumn of This will provide a basis for largevolume bond series with high liquidity and hence the lowest possible interest rate costs for borrowers. Unaudited pro forma financial highlights for the combined Mortgage Finance activities of Danske Bank and RealDanmark are shown in the table below. Pro forma financial highlights (DKr m) Change, % Core income 2,817 2,644 7 Operating expenses and depreciation 1,342 1,375-2 Core earnings before provisions 1,475 1, Risk-weighted items (avg.) 214, ,429 9 Allocated capital (avg.) 14,997 13,820 9 Core earnings before provisions as % of allocated capital Expenses as % of core income The return on capital did not fully meet the target for the Group s business areas. However, the return should be viewed in the light of the generally limited risk associated with mortgage finance activity. As mentioned earlier, capital allocation to the business areas has been reduced to 6.5% of their risk-weighted assets as from This will, in itself, improve the return on capital. The Group expects Mortgage Finance profits and activities to show improvement in Earnings growth will be driven not least by cost synergies arising from the collaboration between Realkredit Danmark and the other parts of the Danske Bank Group and by stronger distribution capability. DANSKE BANK ANNUAL REPORT

15 Wholesale Banking (DKr m) Change, % Core income 4,308 3, Operating expenses and depreciation 1,728 1,608 7 Core earnings before provisions 2,580 2, Total assets (avg.) 414, , Risk-weighted items (avg.) 210, ,387-6 Allocated capital (avg.) 14,741 15,637-6 Core earnings before provisions as % of allocated capital Expenses as % of core income Share of Group core earnings before provisions Wholesale Banking 34 DANSKE BANK ANNUAL REPORT 2000

16 Wholesale Banking raised core income by 14% to DKr4,308m in 2000, while expenses were up by 7% to DKr1,728m. Core earnings before provisions increased by DKr402m to DKr2,580m. The return on allocated capital Management Hans Møller-Christensen Member of the Executive Board Wholesale Banking has global responsiblity for serving the Group s large corporate and institutional clients. Under the Danske Markets brand, the division conducts the Group s trading activities on the Nordic and international interest rate and foreign exchange markets. The Group s central economic and financial research unit has been placed in Wholesale Banking. was 17.5%, an increase of 3.6 percentage points on the year before. The return has not yet reached an entirely satisfactory level. The division reduced its capital requirement by tightly controlling its business activities with the object of curtailing loans and commitments that did not generate a sufficient return. Earnings benefited from a continued increase in interest margins on international loan markets in The rising trend of interest margins also became clearly reflected in the Nordic financial markets in The cost/core income ratio fell from 42.5% in 1999 to 40.1% in 2000, which is satisfactory in this market segment. The clients of Wholesale Banking increasingly seek banking solutions that cover their needs across borders. As a consequence, there was strong client demand for Danske Bank s cash management and office banking products. This type of product also helps the Bank to build closer relationships with its clients. In 2000, there was a good trend in earnings from advisory services to institutional and corporate clients involved in mergers or acquisitions. The Bank won sole mandates to structure the financing of a number of these transactions. DANSKE BANK ANNUAL REPORT

17 Danske Bank established a securitisation programme in the London market in This vehicle enables the Bank to tap the international capital markets to offer competitive financing to large corporate clients. Danske Bank was active in structured financing and had built up a balanced portfolio of business in this market by the year-end. Danske Markets, which is responsible for the Group s trading activities on fixed income and money and foreign exchange markets, had satisfactory earnings. Activities at Danske Markets are organised so that products are produced and managed at one locality, but are sold from trading desks across the Group. As the Danes rejected the euro in the September referendum, sales and trading of Danish krone products will remain an important element in Danske Markets activities in the coming years. The other Scandinavian currencies are also important for Danske Markets, which does more than half of its currency trading with customers outside Denmark. Danske Bank became the first Danish bank to launch a trading platform on the Internet, where wholesale clients can buy and sell foreign currencies and bonds directly on the basis of current market prices. The platform can be accessed by Danske Bank s corporate clients across Europe. In 2000, Danske Markets fortified its position as a leading trader on the Danish and Swedish bond markets. Danske Consensus, which handles these activities on the Swedish market, recorded particularly good growth in Swedish mortgage bond trading. At the threshold of 2001, the Wholesale Banking division has positioned itself as a strong partner for large business groups with an international focus and institutional clients in northern Europe. In Denmark, the division has a market share of more than 50%. 36 DANSKE BANK ANNUAL REPORT 2000

18 Wholesale Banking Wholesale Banking will focus its activities on northern Europe in Consequently, the Bank will reduce its loans and commitments outside this area. For that reason, the branches in Hong Kong and Singapore will be closed. Business activity at the New York Branch will henceforth focus on clients with obvious links to the Bank s northern European business and on selected global financial institutions. In 2001, Danske Markets will maintain a high activity level on interest rate and foreign exchange markets. The Group expects fixed income to have the largest growth potential after the merger, which has significantly strengthened its position as an issuer and trader of interest rate instruments in Scandinavia. Moreover, the Group believes that it has increased its scope for providing value-creating advice to clients by establishing a central research unit that will handle all economic and financial market research within the Group. The table below shows unaudited pro forma financial highlights for the combined Wholesale Banking activities of Danske Bank and RealDanmark for 1999 and Pro forma financial highligts (DKr m) Change, % Core income 4,962 4, Operating expenses and depreciation 2,000 1,946 3 Core earnings before provisions 2,962 2, Risk-weighted items (avg.) 241, ,425-3 Allocated capital (avg.) 17,039 17,390-3 Core earnings before provisions as % of allocated capital Expenses as % of core income In 2001, the Group expects the Wholesale Banking division to raise its return on capital further by maintaining a dedicated focus on business that creates value for both clients and the Bank. Earnings from the interest rate and foreign exchange markets will depend somewhat on the need of clients to hedge currency and interest rate risk and hence on general trends on the financial markets. DANSKE BANK ANNUAL REPORT

19 Danske Securities (DKr m) Change, % Core income Operating expenses and depreciation Core earnings before provisions Total assets (avg.) 1, Risk-weighted items (avg.) Allocated capital (avg.) Core earnings before provisions as % of allocated capital Expenses as % of core income Share of Group core earnings before provisions Danske Securities 38 DANSKE BANK ANNUAL REPORT 2000

20 Management Ulf Lundahl President & CEO of Danske Securities Danske Securities, Danske Bank s investment banking division, achieved a very satisfactory increase in core earnings, which rose to DKr267m from DKr122m the year before. Expenses were up by 29%, in part because spending on performance-related staff remuneration increased. Core Danske Securities is responsible for the Group s corporate finance activities and for wholesale sales and trading of equities and equity-related products. The division also encompasses equity research. In 2001, Danske Securities will be converted into a subsidiary of the parent bank. income rose even more, however, by 47%. Consequently, the cost/core income ratio showed a fall from 79.9% in 1999 to 70.1% in There was a good trend in corporate finance and advisory services. Danske Securities expanded its organisation in Stockholm and Oslo and recorded a significant increase in business volume on these markets. The investment banking division lead-managed and co-lead-managed a number of major equity capital market transactions for Nordic corporates. The division participated in equity issues raising a total of DKr35.6bn in Danske Securities strengthened its placing power for issues of Nordic stocks on the international markets, and this generated a sharp increase in business volume and earnings. Business volume was also stimulated by high private placement activity in the Nordic region. DANSKE BANK ANNUAL REPORT

21 As in previous years, there was considerable activity in the mergers and acquisitions market, and Danske Securities provided advice to both buyers and sellers. An increasing number of companies were the targets of takeover bids that required swift and competent advisory services. This helped Danske Securities win a number of important advisory mandates. Heavy fluctuations in equity prices in 2000 affected customer trading activity at times, but the year as a whole saw good activity and profit trends in equity sales and trading. Over the year, Danske Securities fortified its equity research activities and hence its advisory services, which are crucial for building customer relationships Nordic stock indices Helsinki (HEX) Stockholm (SFG) Oslo (OSE) Copenhagen (KFX) Jan 99 March May July Sept Nov Jan 00 March May July Sept Nov Jan DANSKE BANK ANNUAL REPORT 2000

22 Danske Securities The merger with RealDanmark will have no material impact on the business volume of Danske Securities. The table below provides unaudited pro forma financial highlights for the combined investment banking activities of Danske Bank and RealDanmark. Pro forma financial highlights (DKr m) Change, % Core income Operating expenses and depreciation Core earnings before provisions Risk-weighted items (avg.) 688 1, Allocated capital (avg.) Core earnings before provisions as % of allocated capital Expenses as % of core income Danske Securities expects activity to remain high in However, if stock markets continue to be uncertain, this may influence equity issue activity and perhaps equity trading volume. The segregation of Danske Securities into a subsidiary company is expected to enhance its independent market profile. DANSKE BANK ANNUAL REPORT

23 Investment Management (DKr m) Change, % Core income 1, Operating expenses and depreciation Core earnings before provisions Total assets (avg.) 9,172 7, Risk-weighted items (avg.) 5,805 4, Allocated capital (avg.) Core earnings before provisions as % of allocated capital Expenses as % of core income Share of Group core earnings before provisions Investment Management 42 DANSKE BANK ANNUAL REPORT 2000

24 Management Jeppe Christiansen Member of the Executive Board Investment Management made very satisfactory progress in Core earnings almost doubled to DKr987m from DKr506m in 1999 on the back of surging activity. The increase in activity prompted a rise in expenses but, because of the sharp expansion of business, the cost/core income ratio Investment Management provides portfolio management and investment advisory and private banking services. The division targets personal and institutional customers in the Nordic region as well as the international investor segment. Services to institutional and other major investors are marketed under the brand name of Danske Capital. The division also operates under the brands of Danske Bank in Denmark and Firstnordic outside Denmark. Moreover, Investment Management cooperates with the unit trust, Danske Invest. improved to 37.5% in 2000 from 47.2% in Portfolio management activities made a strong contribution to earnings growth. Commission income increased, driven in part by growth in client funds under management. Moreover, earnings benefited from stronger securities trading activity with Retail Banking customers, particularly in equities and unit trust investments. Client funds under management rose from DKr438bn at the end of 1999 to DKr470bn at the end of The increase of 17% was mainly generated by new client funds. About 40% of funds under management were invested in equities, while bonds accounted for 60%. Over the year, Investment Management launched a number of new products for both the retail and institutional customer segments. Danske Invest the largest unit trust in Denmark offers customers a broad range of unit trust investments through its 64 funds, 12 of which were launched in Funds under management by Danske Invest grew from DKr66bn at the beginning of the year to DKr85bn at the year-end. DANSKE BANK ANNUAL REPORT

25 The private banking unit at the Copenhagen head office provides tailored advisory services to wealthy clients domiciled in Denmark, with a special emphasis on asset management. Private banking advisory services help clients to achieve a coherent and transparent financial situation, which may be influenced, for instance, by a client s wish to dispose of a business enterprise or move to another country. In 2000, Danske Bank launched a new investment product in Norway, Sweden and Luxembourg branded Firstnordic, which offers customers a chance of investing in funds encompassing a broad selection of Nordic and international equities and bonds. To reinforce its position as a leading investment manager in the Nordic region, Danske Bank expanded its distribution capability on the Finnish market by acquiring a Finnish asset management company, which now operates under the name of Danske Capital Finland. Danske Bank also established the subsidiary company, Danske Private Equity, which provides unlisted equity investments. Danske Private Equity targets institutional clients in particular; by the end of its first year of operation, it had built up a client portfolio of DKr5.4bn. Pro forma breakdown of investments (DKr bn) Equities Private equity 5 - Bonds Cash The combined Investment Management areas of Danske Bank and RealDanmark managed funds worth DKr540bn at the threshold of DANSKE BANK ANNUAL REPORT 2000

26 Investment Management Pro forma funds under management by customer category (DKr bn) Life insurance Unit trusts and pooled schemes Private banking Investment advisory services Institutions As a consequence of the merger between Danske Bank and RealDanmark, the Group will seek to coordinate the activities of Danske Invest and BG Invest. Danske Bank International will carry on the Luxembourgbased activities, which are mainly directed at the private banking segment. Late in December 2000, the Group entered into a provisional agreement to sell BG Bank International to another financial services institution. The sale is expected to be finalised in the first quarter of The table below shows unaudited pro forma financial highlights for the combined Investment Management activities of Danske Bank and RealDanmark. Pro forma financial highlights (DKr m) Change, % Core income 1,984 1, Operating expenses and depreciation Core earnings before provisions 1, Risk-weighted items (avg.) 8,868 7, Allocated capital (avg.) Core earnings before provisions as % of allocated capital Expenses as % of core income Investment Management expects its business to continue expanding in 2001, although the growth rate is likely to be significantly lower than in The improvement is expected to come mainly from increased sales of investment products, particularly to retail customers. Greater customer demand after the launch of Firstnordic should also raise sales in Luxembourg and the Nordic region outside Denmark. DANSKE BANK ANNUAL REPORT

27 Life and Pensions (DKr m) Change, % Profit from life insurance Non-life technical result Net interest from investments, etc Core insurance income Funding cost, net Core earnings before provisions Allocated capital 5,483 5,411 1 Core earnings before provisions as % of allocated capital Share of Group core earnings before provisions Life and Pensions 46 DANSKE BANK ANNUAL REPORT 2000

28 Management Henrik Ramlau-Hansen CEO of Danica Life and Pensions generated core earnings of DKr778m in This was DKr54m less than the year before. Jesper Winkelmann Member of Danica s Executive Board Olav Wilhelm Ånerud Member of Danica s Executive Board Life and Pensions is responsible for all the Group s activities in the life insurance and pensions market. The Life and Pensions area is run by the Danica group. Life and Pensions targets both personal and business customers. Products are marketed through a range of distribution channels within the Group, primarily Retail Banking s outlets and Danica s team of insurance agents and pension advisers. There was an actual increase in core earnings of DKr80m, or 12%, as earnings for 1999 contained profit from non-life insurance, including gains on investments at the non-life business, which was sold off at the end of The improvement in the result arose mainly from a change in consolidation policy. In 2000, the return on equity from Life and Pensions equalled the rate of interest on policyholders savings plus three percentage points (1999: two percentage points). In addition, as from 2000 a variable amount is added to Danica s earnings contribution to reflect business developments at Life and Pensions. In 2000, Danica achieved a return on investments of 4.7%. Earnings were negatively affected by, not least, falls in foreign equity prices in the fourth quarter. Gross premiums advanced by 12% to DKr8,331m. On the Danish market, there was a healthy trend in company pension sales, with premiums up 13%, and this made a strong contribution to overall premium growth. In the personal life segment, on the other hand, premium trends were less satisfactory. This market was still somewhat affected by the Whitsun fiscal package of 1998 although premiums showed signs of picking up late in the year. DANSKE BANK ANNUAL REPORT

29 Danica s customers like the Danish people generally live longer than assumed until now. The increased life expectancy places greater demands on provisions. In response, the Danica group raised its life insurance provisions by a total of DKr1.3bn. In December 2000, the Insurance Council decided to fix the so-called computation rate of interest at a maximum of 4.25%, against 4% the year before. The computation rate is used for calculating the present value of Danica s minimum return commitments, and the change helped to reduce the additional provision made against these commitments to DKr1.4bn at the year-end from DKr5.5bn a year earlier. Amendments to the Danish Pension Return Tax, including lower taxation of interest income, and the change in the life industry computation rate of interest have further reduced the risk that Danica should have difficulties in meeting the minimum return criteria granted to a number of customers. In the non-life market, private health care and critical illness insurance showed satisfactory growth of just over 30%. Growth in this market is driven not least by the increased focus of business customers on employee satisfaction and social responsibility. The sales of non-life insurance products conducted in collaboration with Topdanmark developed as planned. On the Swedish market, Danica and the branches of Östgöta Enskilda Bank recorded very promising growth in sales of the unit-linked products that had been launched by Danica Fondförsäkring the year before. Premium income was DKr758m in 2000 and the Group raised its market share of Swedish unit-linked investments to 2%. Unit-linked products should do even better in 2001, when they will be distributed through brokers. 48 DANSKE BANK ANNUAL REPORT 2000

30 Life and Pensions In connection with the merger between Danske Bank and RealDanmark, Danica will buy Topdanmark s shareholding in BG Pension. The latter company will then be wholly owned and will be integrated with Danica. BG Pension has not been incorporated into the pro forma figures shown in this report as the business will not be acquired until Life and Pensions will then hold a market share of just over 28% in Danica s chosen market in Denmark. Danica s bonus reserves rose from just over DKr20bn at the end of 1999 to nearly DKr23bn at the 2000 year-end. Against this background, Danica decided to raise the rate of interest on policyholders savings to 8.5% for 2001 from 4.5% the year before. The increase should also be viewed in conjunction with the conditional bonus criteria Danica has introduced from 2001 for customers with policies based on a minimum return of 4.5%. Danica reserves the right to use returns above 4.5% to compensate for future periods of low market returns. So the increase in the rate of interest paid to policyholders does not mean Danica will compromise its objective to be a well-capitalised insurance business. Profits at Danica in 2001 are expected to improve noticeably on 2000 under the stimulus of the higher rate of interest on policyholders savings and rising business volume after the acquisition of BG Pension. In Denmark, Danica expects its unit-linked products, due to be launched in the first half of 2001, to be in good demand. Unit-linked investments like some of the Bank s pension savings products offer customers the option of structuring their own portfolios and hence monitoring developments in their return more closely. DANSKE BANK ANNUAL REPORT