- Pre-tax profit down 81% as a result of market value adjustments of equities and bonds
- Strong growth in customer-driven activities generated very solid trading income
- Fixed income and equity markets are expected to remain very volatile
Pre-tax profit fell 81% from DKr921m in the first quarter of 2007 to DKr171m.
The financial markets remained very volatile in the first quarter of 2008, particularly in March when the liquidity and credit crisis accelerated. This led to a considerable widening of the credit spreads of all covered bonds under supervision and, to a lesser extent, of Danish mortgage bonds. Proprietary trading therefore ended the quarter with a loss, primarily from losses on mortgage bonds.
Similarly, the strong pressure on equity markets continued in the first quarter of 2008. Institutional investors generally reduced exposure to Danish equities and other types of securities, thus contributing to continued uncertainty in the market. The Danish OMX C20 index saw a fall of 7.8% in the quarter, against a rise of 5.7% in the first quarter of 2007.
Driven by good customer activity, income from trading in fixed income and foreign exchange products remained healthy, rising 55% above the level in the first quarter of 2007. The result for this quarter was thus very solid.
Income from Group Treasury was affected by the negative trends in the mortgage and covered bond markets as well as an increase in fees paid for CDS transactions hedging the credit risk on a mortgage loan portfolio and thus reducing allocated capital by lowering risk-weighted assets.
Operating expenses grew 10%, owing primarily to rising IT development costs and higher performance-based compensation to staff involved in trading activities.
The high level of activity at Danske Markets is expected to continue throughout 2008. The current financial crisis will have a significant effect on the result for the coming period. |