| The first quarter of 2008 saw turbulence in the capital markets, falling equity prices, a considerable widening of credit spreads and lower economic growth generally. The international liquidity markets were under strain at times, and this caused higher funding costs. Because of its AA rating, however, the Group had unrestricted access to liquidity, albeit at wider credit spreads. The Danish mortgage finance market was generally well-functioning.
Trends in the financial markets led to a loss at Danica Pension and losses on the securities holdings of Danske Markets, but the Group’s banking activities saw growth in business volume and stable earnings, and the customer-driven trading activities of Danske Markets recorded a very positive trend.
Liquidity is strong and improved relative to the position at the end of 2007 through the issuance of covered bonds as a supplement to the Group’s other types of funding.
The Group has a solid capital base with a core (tier 1) capital ratio of 9.5% and a solvency ratio of 13.6%, which considerably exceeds the minimum statutory capital requirements.
Income
Income fell to DKr10,279m, down 6% from the figure in the first quarter of 2007. The consolidation of the Sampo Bank group for one month more than in the first quarter of 2007 added 4 percentage points to the income.
Most of the Group’s income base consists of its retail banking activities, which generate robust earnings. Income from the Group’s non-Danish banking activities grew 19%, and these units now account for 37% of total earnings from banking activities. The non-Danish operations of Danske Markets and Danske Capital also generated significant income, augmenting the Group’s international diversification.
Net interest income saw a positive trend in the first quarter of 2008, owing to good growth in deposits and lending and to higher interest rates, which more than compensated for the pressure on margins. The turbulence in the financial markets led to rising funding costs throughout the period, and the Group therefore raised the lending rates of its Danish units and several other units.
During the quarter, net fee income from investment activities was affected by the significant slowdown in the securities markets in particular in Denmark and Northern Ireland. Overall, net fee income was unchanged.
The significant volatility in the capital markets led to high customer activity, particularly businesses’ hedging of interest rate and foreign exchange risks, which led to a rise in income from trading activities of DKr621m. The considerable widening of spreads and the fall in equity prices led to a decline in the value of securities holdings, however. Overall, net trading income declined 26% relative to the first quarter of 2007.
Other income climbed DKr164m to DKr1,037m, due mainly to proceeds from the sale of real property. |