Corporate Governance and the Compliance Challenges on the Global Marketplace Tonny Thierry Andersen, Danske Bank CFO and Executive Committee Member Reykjavik, April 5, 2006
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Agenda 1) Danske Banks corporate identity 2) Why good governance? 3) Danske Banks governance infrastructure 4) Relevant codes 5) Governance initiatives 3
Danske Banks corporate identity 4
Danske Banks corporate identity Vision One platform exceptional brands Mission To be the best local financial partner Core Values Integrity Accessibility Value creation Expertise Commitment One Group One System Effective Governance and Risk Management Corporate Citizenship 5
Financial targets and Group ratings Solvency ratio of 9.0%-10.0% Core (tier 1) capital ratio of 6.0%-6.5% Hybrid core capital of 0.5%-1.0% Payout ratio of 30%-50% Group ratings Short-term p-1 A-1+ F1+ Long-term Aa1 AA AA Mortgage bonds Aaa AAA - Life insurance - AA - 6
Financial highlights 2005 Record-high profit and substantial investments Strong fundamentals and net reversal of credit loss expenses EPS up 42% to DKr 20.4 (04: DKr 14.4) ROE up 33% to 18.5% (04: 13.9%) DKr m 2004 2005 Index Income 29,187 34,891 120 Expenses 15,393 18,198 118 Profit before credit expenses 13,794 16,693 121 Credit loss expenses 759-1,096 - Profit before tax 13,035 17,789 136 Tax 3,718 4,967 134 Net profit for the year 9,317 12,822 138 Dividend per share (DKr) 7.85 10.00 127 DKr bn (end-period) 2004 2005 Index - Corporate loans 294 380 129 - Retail loans 177 241 136 Bank loans ex repos 470 620 132 Repo loans 145 210 145 Mortgage loans 524 569 109 Trading portfolio 423 445 105 Deposits 488 631 129 Shareholders' equity 67 75 111 Total assets 2,053 2,432 118 Risk-weighted assets 808 944 117 7
Why good governance? 8
Financial symptoms have set the agenda However, NOT at Danish phenomenon! 9
The results of governance malpractice 10
The value of good corporate governance Value creating as it can reduce the cost of capital Institutional investors are willing to pay a premium for good governance practices An overwhelming majority of investors are prepared to pay a premium for companies exhibiting high governance standards Source: McKinsey & Co. Global Investor Opinion Survey Governance premium, % 30 25 20 15 12-14% 20-25% 10 North America and Western Europe Asia and Latin America 11
Improved governance at Danske Bank has reduced cost of capital significantly GMI rating history relative to industry peers Danske Bank share price volatility 10 9 8 7 6 5 4 3 2 1 Industry peers Danske Bank A/S 40% 30% 20% 10% Feb 2004 Feb 2006 2002 2003 2004 2005 12
Danske Banks governance infrastructure 13
Danish statutory provisions versus international ownership The Danske Bank Group is managed in accordance with Danish statutory provisions The Groups corporate governance must therefore be understood in the framework of that legislation Danish Companies Act Danish Financial Business Act Danish stock exchange rules The ownership structure of Danske Bank is global Thus, Danske Banks corporate governance must also be understood internationally 14
Two-tiered governance structure is in place Internal Audit Department Board of Directors 17 directors Board of Directors Secretariat Board committees Audit Credit Salary & Bonus Nomination Executive Board 2 members Executive Committee 14 members Banking Activities Mortgage Finance Danica Pension Danske Markets Other Business Areas Resource Areas 15
International ownership structure Danske Bank holds about 290,000 shareholders 1/3 of the shares are held outside of Denmark Governance framework: The Sarbanes-Oxley Act EU recommendations The Combined Code Copenhagen Stock Exchange Recommendations Governance Metrics International Other countries 1% Non-identified (incl. retail) 22% Euro-zone 12% USA 12% Denmark 54% Geographical shareholder breakdown 16
Effective governance at Danske Bank Proactive work within relevant committees Core values for ethical behaviour Clear, enforced policies and procedures Effective measurement and accountability Effective risk and capital management An effective, independent Board Good governance Rules of procedure for Executive management Transparent disclosure, effective communication A sound internal control framework An objective internal audit function Independent, external audit Incentive programmes 17
Ambition and disclosure extensive use of website The goal is Best in Class Annual report important, but An extensive website Planning cycle A designated team handles all day-to-day governance communications 18
The Worlds best financial IR website 19
Relevant codes 20
Relevant codes a comparative analysis Danish and Icelandic similarities are evident CSE Committee Iceland Sarbanes-Oxley Combined Code Board structure Two-tiered Two-tiered Board tasks and responsibilities Board committees Management remuneration Internal controls Risk management Disclosures Independence Formal evaluation procedure Charter specifications if applied Full disclosure on individual basis A supplement to current legislation Risk identification and risk planning Openness and transparency Independence Formal evaluation procedure Audit and remuneration Full disclosure on individual basis Audit Committee evaluates controls Audit Committee evaluates risk management Board evaluates financial reporting One-tiered Corporate responsibility for financial reports Audit committee appoints auditor Transaction disclosures Prohibition on loans Management assessment (COSO) Corporate and criminal fraud accountability Real time disclosure on material changes One-tiered Independence Formal evaluation and nomination procedures Smith Guidance on Audit Committees Full disclosure on individual basis Audit Committee evaluates controls Board evaluates risk management Focus on AGM and Investor Relations 21
Corporate governance in Denmark Copenhagen Stock Exchange Recommendations As of 2006 Copenhagen Stock Exchange requires complyor-explain With very few exceptions Danske Bank complies and have already issued a comply-or-explain-statement Shareholders and stakeholders role Openness and transparency Board tasks and responsibilities Management remuneration Risk management and audit 22
Codes and principles in Iceland Icelandic guidelines take among others Danish reports on corporate governance into consideration Board evaluation and assessment of independence Sub-committees of the Board Audit and remuneration Stock option plans ICEX-requirement as to comply-or-explain Additional recommendations Investor Relations focus Internet transmissions Dissemination of investor information Similar Danish initiatives 23
The Sarbanes-Oxley Act Sarbanes-Oxley codifies certain standards of good governance into specific requirements A number of the requirements in the Sarbanes-Oxley Act are covered by Danish statutory provisions The Banks website compares selected aspects of the legislation with Danish legislation and Danske Banks practice Auditors independence Managements assessment Internal controls Analysts conflicts of interest 24
The Combined Code By virtue of its compliance with Danish law, Danske Bank automatically fulfils a number of the recommendations in the Combined Code The Banks website compares selected aspects of the code with Danish legislation and Danske Banks practice Board responsibilities Board composition and independence Election Performance evaluation Board remuneration Responsibility and auditing 25
Governance initiatives 26
To comply or not to comply... International developments in corporate governance provide ideas and background information for the Danske Bank Group management Compliance is not a one-off proposition Compliance requires ongoing and constant enforcement 27
2005 governance initiatives by the Bank Publication of the rules of procedures New Board committee structure with expanded charters Publication of remuneration policy Expanded information on the remuneration and salaries of the individual directors and the members of the Executive Board, including individual shareholdings Launch of separate risk and capital management website More formal Board evaluation procedure Webcast of Chairmans report at AGM Amendment to the Articles of Association reducing the board members term of service to two years 28
Specific governance rating a way to increase external credibility? 29
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