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Article Excerpt
UNIDENTIFIED COMPANY REPRESENTATIVE: (Audio starts in progress) 12 o'clock. Welcome to the presentation of the fourth quarter results on the full year 2008.
The presentation will be broadcast by webcast and, after the presentations, there will be a question and answer session. And there is also an option to post questions on the Internet. So this presentation will be given by Mr. Rune Bjerke and, CFO, Bjorn Erik Naess. So, without further ado, I think we'll just get started.
RUNE BJERKE, GROUP CHIEF EXECUTIVE, DNB NOR ASA: Thank you very much.
No doubt that 2008 has been a challenging year for DnB NOR. I must admit that I had not foreseen all the events during the year and we have had quite a tough time to meet all the challenges that we have faced but, however, I feel that we have been able to maneuver quite well.
Despite financial turmoil and despite the global economic recession, we have managed to deliver strong underlying earnings. We have had market volatility which has presented challenges, but also opportunities. And of course that fluctuation in interest rates, foreign exchange and commodity prices have given opportunities for the DnB NOR markets when it comes to customer-driven income.
We also believe that we have managed to follow up our cost ambitions. We have had strict cost control all through the line and we are on the schedule when it comes to achieving NOK1.4b in cost reductions by the year end of 2010. We have had a rise in write-downs and guarantees during this year, especially during the last quarter, and, all in all, the loan losses increased by NOK3.3b. Most of the loss increases came outside Norway through our subsidiary, DnB NORD, and we will elaborate on these particular items later on.
Based upon the results, the challenges and our aim to strengthen our capital base, the Board of Directors has decided not distribute any dividend for 2008. If we look at the full-year result, you can see that we have had an increase in pre-tax operating profit before loan losses by 5.8%. Included in these numbers there is a goodwill impairment of about NOK1.1b, and we feel confident with the numbers we have delivered.
We have had a strong increase in our NII, from a level close to NOK18b to NOK22b, or NOK4b in increase. If you look at the profit for the period, however, there is a fall in 38.5%. The reason why the profit is at the lower level, of course, has to do with the write-downs, but also the fact that we had income from the sale of our premises last year, which added on NOK2.4b in income, which we didn't have this year.
And you also have to take into account the low tax rate we had in 2007, where we paid about 13.7% in taxes, which we increased to 26.6% in 2008. The reason for the tax increase has to do with the fact that we, of course, have goodwill impairment which is not tax deductible. We had also, last year, capital gains from Vital which we didn't pay tax related to. This year, we have had capital losses without tax exemption. Looking forward, we expect the tax rate to stay at the estimated level, at 23%.
If you look at the key figures for the year, you can see that we have achieved a return on our equity at a level close to 13%. That is lower than last year but related to the reasons I mentioned, due to the profit of the tax and loan losses.
If you look at the earnings per share you can see that we earned NOK7.15. And the cost income ratio has increased somewhat but, adjusted for the impairment on goodwill, it's about at the same level for 2008, as we had the previous years. The core capital ratio is at a level at 6.7% by the year end, and Bjorn Erik will elaborate on the capitalization later on.
Looking at the results in fourth quarter, we have had an increase in the pre-tax operating profit by 53.6%. [That's the] best quarter ever when it comes to profit before tax and write-downs.
When we look at the profit for the period, it's down by 61.7% and that, again, has to do with the losses, and we booked loan losses at the level close to NOK2.3b during the quarter and, again, we had no income gains from sales of premises in fourth quarter which we had fourth quarter last year, and that quarter we booked NOK1.6b in income from sale on premises. I believe it was the premises here at Aker Brygge, actually.
When it comes to the tax rate for the fourth quarter, you have to compare the tax rates at 40.5% with a tax rate we had the last year at the level 3.7%. The taxes paid is up from NOK193m to NOK1.3b and that, again, has to do with the reasons I mentioned for the year.
Looking at the different business areas, we are quite satisfied when it comes to Corporate Banking division. They have managed to increase volumes, increase margins and have cost activities under control, and the improvement is at the level close to 13%.
If you look at the Retail Banking division, it's a drop in pre-tax operating profit by 20.3%. Here, you have to take into account that we allocate less equity to the business area due to the implementation of advanced Basel II. On top of that, we have had a drop in fee income and also a drop in income from real estate brokerage amounting to about NOK150m all in all. We have also had some start-up costs related to our activities, both in Sweden and in Norway.
Looking at the result of DnB NORD markets, it's -- it makes no sense to talk about percentages. They have been able to increase the customer-related income related to different products, especially interest rate products, commodity products as well as foreign exchange products. They have also managed to maneuver well when it comes to prop trading and they have a positive effect related to the bond portfolio, as it's booked from second half of the year 2008.
Looking at Life and Asset Management, you will see that we increased the profit by 26.8%. We are quite proud of the profit made by Vital and also by Asset Management, due to the fact that they have been able to reduce costs in nominal terms during the year. In Vital, they have also managed well when it comes to positioning towards allocation of assets. They have a very low exposure to the equity markets, less than 4% actually, and they have nice income coming from the mark-to-market bond portfolio related to the sharp decline in interest rates.
Looking at DnB NORD, we are not proud. The joint venture we have together with Nord Deutsche Landesbank made losses at the level higher than NOK800m last year, and that has to do with the losses booked in fourth quarter of NOK907m and the goodwill impairment of NOK133m.
The losses are biggest in Denmark and we have had quite some challenges related to the Commercial Real Estate portfolio. Looking forward, we expect the problems to gradually come down in Denmark, but we foresee some further challenges when it comes to the situation in Lithuania and Latvia.
If you look at the lending growth it's hard to feel that the heavy debating in Norway going on regarding the credit to Norwegian corporates are reflected in the numbers. And, as you can see, we have increased the total lending by about 22.9% during the year. Adjusted for currency effects the growth is at the level at about 20%, but we have slowed down the growth significantly during the second half of the year.
From third quarter to fourth quarter the growth is at the level close to 7%. And, if you annualize the growth from third quarter to fourth quarter, you will see a growth level going into 2009 at about 10.6%. We expect the growth to come further down, and we have planned for a growth in 2009 close to 5%.
Looking at the deposits you will see that the growth is somewhat lower, close to 14%. But, contrary to the lending growth, you will see that the growth actually accelerates during the last quarters of 2008. If you annualize the growth from third quarter to fourth quarter, you will see that the growth in the deposits is at the level close to 14.4%, and that situation seemed to follow on going into 2009.
We have showed this chart in previous presentations, but I think it's important to see that the combined spread to our customers have come down from a very high level in the last decade and to a level close to 1% in the year 2008. The reason for the sharp decline in combined spreads has to do, of course, with increased efficiency in the banking sector, it has to do with more fierce competition among banks and, of course, it has to do with a low premium paid on risks during the last couple of...
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