The past 12 months have been characterised by financial turbulence, including highly volatile capital markets, falling equity prices, a considerable widening of credit spreads and falling economic growth. In recent months, the outlook for general economic growth in Europe in both 2008 and 2009 has worsened.
Danish GDP growth is now expected to fall from 1.7% in 2007 to 1.0% in 2008. Economic growth rates in the Group’s other markets are likely to fall as well but to remain above the euro-zone average of 1.4%. The Group now expects the weighted GDP growth for its markets to be 1.6% in 2008. At the beginning of the year, the estimate was 2.5%.
The financial turbulence and the 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 growth. In the short term, however, the financial turbulence and the fall in real economic growth make the Group’s income estimates more uncertain
than usual.
At the presentation of the interim report for the first quarter of 2008, the Group expected net profit for the full year to be 6-13% lower than in 2007, assuming a rise in income from banking activities of 4-7%. The Group still expects to realise this rise in income.
Operating expenses are still expected to increase around 2-4%.
The Group expects profit before credit loss expenses for the full year, excluding net trading income and net income from insurance business, to be 10-20% higher than the figure posted for 2007. This is in line with expectations at the presentation of the interim report for the first quarter of 2008.
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. The Group still expects Danica Pension to record a loss and the booking of its risk
allowance to be postponed.
Economic conditions have deteriorated significantly over a short period of time. The need for impairment charges has not accelerated, though, and the Group still expects its credit loss expenses to approach the average for a business cycle. Unstable market conditions and falling asset values may, however, lead to credit loss expenses above the average.
The Group still estimates that its effective tax rate will be 25%.
Because of the particularly volatile markets, the Group cannot make a meaningful
estimate of net profit for the year within a narrow range. Net profit declined in the first half of 2008 because of the trend in the financial markets. The Group expects the trend in the capital markets to have a significant effect on net profit for the second half of 2008 as well.
Last updated on 7 August 2008