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Article Excerpt
THOR TELLEFSEN, IR, DNB NOR ASA: Good afternoon, everybody. This is Thor Tellefsen from Investor Relations in DnB NOR. We are ready to start off this telephone conference. Rune and Per are already traveling.
So I will lead the way through Bjorn Erik Naess, who will give a brief run-through of the results, and then we will leave a rather larger portion of this conference for Q-and-A.
BJORN ERIK NAESS, CFO, DNB NOR ASA: Yes. Thank you, Thor. Good afternoon, everybody. DnB NOR announced their third quarter results this morning and we have, as usually, prepared a very comprehensive material. I will not go into details because I anticipate that you have all received this material or have access to it.
But I will just start to express that we are quite satisfied with our performance in the third quarter which definitely was a very challenging period of time with regards to the development in the market.
We did see a significant increase in net interest income, partly due to increased margins, but most of all due to increased volume. We continue to see lending growth but the pace of the growth is coming down. We did see the cost increase somewhat but it's definitely under control and it's in line with our targets and expectations in our cost-improvement program.
On the more negative side, we did see a significant increase in writedowns on lending. We are not surprised by that, but we are a little bit surprised about how fast this increase came into reality. But it's definitely a reflection of generally weak macroeconomic conditions.
We have seen that the authorities in Norway, they have announced measures which definitely we expect to have a big lasting effect, but at the same time we are very clear that this financial turmoil will continue into 2009, and we think that DnB NOR is well prepared to face these challenges also in 2009.
If we just look into the numbers as such, you can -- you will see on page 3 in the handouts that our pretax operating profits before writedowns increased by some 18% in the third quarter compared to the same quarter previous year. The net profit for the same period came down from 3.7 to 2.8, and this reflects what I just mentioned about higher writedowns but also due to the fact that the number in the third quarter in 2007 reflected some one-offs in terms of capital gains, and also lower tax compared to third quarter 2008.
On the next page, on page 4 you see some key figures. We delivered satisfactory return on equity 15.5%, very close to our target of 16%; earnings per share NOK2.12, cost/income ratio is coming down slowly, but it's moving into the right direction, and our core capital ratio came down from 7.2% to 6.7% over the last 12 months. This is partly due to a negative development in exchange rates, particularly in the last quarter, but also due to relatively strong growth on the lending during the same period of time.
So I think with this very, very brief introduction, I will suggest that we open up for questions. Thor.
THOR TELLEFSEN: Yes. So please just [make clear] if you want to make a question.
OPERATOR: (Operator Instructions). First, Matti Ahokas, Handelsbanken. Go ahead, please.
MATTI AHOKAS, ANALYST, HANDELSBANKEN: Yes, good afternoon. Matti Ahokas, Handelsbanken Capital Markets. I have three questions, if I may. First one, how sensitive is the credit quality of the oil and gas portfolio to changes in the values that we've seen in raw material prices, mainly the oil and gas price changes?
The second one is if you look at the NPL increase, excluding DnB NOR, which sectors did this come from; was there a specific sector or were there several? And then third, a technical question; did you take any charge on your Lehman exposure in the third quarter? Thanks.
BJORN ERIK NAESS: Thank you. Let me start with your first item of how sensitive are we to the -- well, in the oil and gas portfolio. And I assume that you linked it to the energy price.
In the area where we are now, in the 60s, we are not sensitive. Most of the projects, most of the activities, most of the investments where we have been involved and where we are involved, they are very profitable even at that level. So we are comfortable with our projects in the level we see today. But of course, if it drops even further, we will definitely be more sensitive. That's where we are today, we are not concerned about it.
MATTI AHOKAS: Is there a level where you would say that there is a kind of a threshold when things --?
BJORN ERIK NAESS: I think you have --
MATTI AHOKAS: -- that you would be uncomfortable?
BJORN ERIK NAESS: That you have to look into in the individual projects and individual regions, but of course if you are -- if you come down in the area of $30 to $40 per barrel, we -- it's a reason to be a little bit more concerned.
With regards to your question number 2, the losses by sectors except for DnB NOR, we see growth pulse on the corporate side as well as on the retail side. And on the retail side it's a growth, not a strong growth, but a growth on credit card as well as on mortgage side. On the corporate side there are no specific sectors which contribute to the underlying growth.
MATTI AHOKAS: And then a question on the Lehman Brothers; did you --?
BJORN ERIK NAESS: Yes, on the Lehman Brothers, we have in our P&Ls for the third quarter, we have booked a loss on Lehman of [NOK25] million.
MATTI AHOKAS: Great. Thanks a lot.
OPERATOR: Next Aaron Ibbotson, Goldman Sachs. Go ahead, please.
AARON IBBOTSON, ANALYST, GOLDMAN SACHS: Yes. Hi there, a couple of brief questions. First of all there, I'm sure you've probably disclosed information previously, but I have misplaced it.
On your book you took over from Nordlands Bank, that's not related to Baltic, i.e., the Nordic book; could you give the size of that book, and also what part of it is related to either commercial real estate or developer construction?
And secondly, I would like, if you can just explain a little bit of the dynamics in the insurance operations, should you lose another, say, NOK3 billion to NOK5 billion over the next couple of quarters, when do you feel that you need to put in capital into that business, particularly obviously with the risk of devaluation of real estate? Anything?
BJORN ERIK NAESS: Okay. Let's start with your last question about the fall in the life insurance business. And to answer that here -- and also I have on Anders Skjaevestad who is the CFO of our life insurance business.
Anders, could you --
ANDERS SKJAEVESTAD, CFO, VITAL: I can certainly do so.
BJORN ERIK NAESS: -- elaborate a little on that?
ANDERS SKJAEVESTAD: I can do so. The risk for another NOK3 billion to NOK5 billion loss of the life business in 2008 is very, very limited. First of all, as you know, we have taken down our equity exposure from 12.5% as of June 30th to approximately 6% as of September 30th. And further down to less...
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