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The intense financial turbulence and weak real economic growth have led to more difficult earnings conditions for the financial sector. The Group’s well-diversified business model, strong capital and liquidity base, and planned cost reductions in the coming years lay a solid foundation for earnings.
In the short term, however, the financial unrest and the weak economic growth make the Group’s income estimates more uncertain than usual. Moreover, the Group has lowered its profit guidance because of the expenses related to its participation in the state guarantee scheme.
The Group expects income from banking activities to increase 3-5% above the figure for 2007. The rise was previously estimated at 4-7%. The reduction is owing primarily to declining fee income caused by the lower level of activity.
Operating expenses are expected to increase around 1-3%. The increase was previously estimated at 2‑4%.
The Group expects profit before loan impairment charges for the full year, excluding net trading income and net income from insurance business, to be 0-5% higher than the figure posted for 2007. At the presentation of the interim report for the first half of 2008, the estimate was 10-20%. The change is attributable primarily to the expenses related to the Group’s participation in the state guarantee scheme and declining fee income.
Danske Markets and Danica Pension operate in particularly volatile markets, and net trading income and net income from insurance business depend greatly on future trends in securities prices. Customer-driven activities at Danske Markets are still likely to see a positive trend, but the Group expects total net trading income to be somewhat lower than in 2007. Danica Pension is expected to record a loss. The Group therefore assumes that it will not be able to book the risk allowance to income in 2008 because it appears unlikely that equity prices will rise to a sufficient level in the remainder of 2008.
The severe economic slowdown in the third quarter is continuing into the fourth quarter. The financial crisis and the deceleration of economic activity will lead to a high level of loan impairment charges.
The need for future impairment charges will depend on the development of the financial crisis and the extent of the economic slowdown.
The Group estimates that its effective tax rate will be 26%.
Because of the extent of the intense financial turbulence, the Group cannot make a meaningful estimate of net profit for the year within a narrow range. |