Financial results

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.

	Profit before credit loss expenses (DKr m)	1. kvartal 2008	1. kvartal 2007	Indeks 08/07	1. kvartal 2008	4. kvartal 2007	3. kvartal 2007	2. kvartal 2007	1. kvartal 2007	Året 2007
	Danish banking activities	2,512	2,718	92	2,512	2,749	2,821	2,486	2,718	10,774
	Non-Danish banking activities	1,523	1,269	120	1,523	1,664	1,726	1,437	1,269	6,096
	Total banking activities	4,035	3,987	101	4,035	4,413	4,547	3,923	3,987	16,870
	Danske Markets	171	926	18	171	357	759	883	926	2,925
	Danske Capital	242	259	93	242	283	259	288	259	1,089
	Danica Pension	-565	311	-182	-565	180	269	358	311	1,118
	Other Areas	501	44	1,139	501	-42	25	110	44	137
	Total integration expenses	428	411	104	428	541	583	611	411	2,146
	Profit before credit loss expenses	3,956	5,116	77	3,956	4,650	5,276	4,951	5,116	19,993
Excel

	INCOME STATEMENT (DKr m)	Q1 2008	Q1 2007	Index 08/07	Q1 2008	Q4 2007	Q3 2007	Q2 2007	Q1 2007	Full year 2007
	Net interest income	6,236	5,730	109	6,236	6,320	6,267	6,074	5,730	24,391
	Financing	376	392	96	376	445	417	409	392	1,663
	Investment	320	517	62	320	391	395	425	517	1,728
	Services	37	33	112	37	40	12	25	33	110
	Fees generated by activities	733	942	78	733	876	824	859	942	3,501
	Financing	168	141	119	168	166	155	169	141	631
	Investment	650	549	118	650	659	640	632	549	2,480
	Services	662	603	110	662	629	646	676	603	2,554
	Fees generated by portfolios	1,480	1,293	114	1,480	1,454	1,441	1,477	1,293	5,665
	Net fee income	2,213	2,235	99	2,213	2,330	2,265	2,336	2,235	9,166
	Net trading income	1,358	1,834	74	1,358	1,522	1,855	2,167	1,834	7,378
	Other income	1,037	873	119	1,037	872	586	679	873	3,010
	Net income from insurance business	-565	311	-	-565	180	269	358	311	1,118
	Total income	10,279	10,983	94	10,279	11,224	11,242	11,614	10,983	45,063
	Staff expenses	3,057	2,771	110	3,057	2,966	2,918	3,062	2,771	11,717
	Severance pay	24	92	26	24	14	61	259	92	426
	Holiday payment*	17	27	63	17	39	-114	74	27	26
	Bonuses	312	322	97	312	304	298	341	322	1,265
	IT expenses	850	648	131	850	775	705	700	648	2,828
	Other expenses	1,188	1,190	100	1,188	1,500	1,231	1,306	1,190	5,227
	Staff and administration expenses, Sampo	0	-	-	0	-	-	-	-	-
	Staff and administration expenses	5,448	5,050	108	5,448	5,598	5,099	5,742	5,050	21,489
	Depreciation, intangibles	314	364	86	314	419	428	429	364	1,640
	Depreciation, tangibles	540	448	121	540	537	423	486	448	1,894
	Other operating expenses	21	5	-	21	20	16	6	5	47
	Operating expenses	6,323	5,867	108	6,323	6,574	5,966	6,663	5,867	25,070
	Hereof integration expenses	219	139	158	219	285	261	326	139	1,011
	Profit before credit loss expenses	3,956	5,116	77	3,956	4,650	5,276	4,951	5,116	19,993
	Credit loss expenses	542	-178	-	542	427	255	183	-178	687
	Profit before tax	3,414	5,294	64	3,414	4,223	5,021	4,768	5,294	19,306
	Tax	847	1,472	58	847	659	1,344	961	1,472	4,436
	Net profit for the period	2,567	3,822	67	2,567	3,564	3,677	3,807	3,822	14,870
Excel

In the first quarter of 2008, the Group’s insurance business generated a loss of DKr565m, against a profit of DKr311m in the same period in 2007. The trend was attributable to capital losses on equities, and the Group therefore had to postpone the booking of its risk allowance. The Group can book the risk allowance at a later date – with no time restrictions – if the trend in the financial markets permits.

Operating expenses
Operating expenses rose 8% to DKr6,323m, which is slightly lower than expected. Four percentage points of the increase derived from the full-quarter consolidation of Sampo Bank. The rest of the increase was owing to general wage and price trends as well as the expansion of activities. The cost/income ratio was 61.5%. Excluding total integration expenses, the cost/income ratio was 57.3%.

Credit loss expenses
Credit loss expenses amounted to DKr542m, against a net positive entry of DKr178m in the first quarter of 2007. The figure includes collective impairment charges of around DKr350m for customer segments which the Group expects to be affected by the economic slowdown, but for which the Group has not yet found evidence of individual impairment.

At the end of March 2008, credit quality was still good. The Group’s exposure to international investment companies in the form of backup liquidity facilities was reduced further through the period.

Outlook
Because of the continued turbulence in the finan-cial markets and lower real economic growth, the Group expects net fee income and net income from insurance business for 2008 to be lower than expected at the presentation of the Annual Report 2007. In addition, the Group expects credit loss expenses to approach the average for a business cycle.

Overall, the Group expects a decline in net profit of 6-13% relative to 2007, against the previously estimated increase of 0-7%. The outlook for 2008 is subject to greater uncertainty than usual, owing to uncertainty about the duration and extent of the financial turbulence.