Outlook 2008

The growth of its banking, market and insurance activities in 2007 places the Group in a strong position for 2008.

Consequently, 2008 is expected to be a satisfactory year despite an expected slowdown in economic growth and turbulence in the capital and liquidity markets.

Market outlook
Danish GDP growth is likely to fall from 1.9% in 2007 to 1.7% in 2008, while economic growth rates in the Group’s other markets are likely to exceed the euro-zone average of 2.2%. The Group expects its weighted GDP growth for its markets to reach 2.5% in 2008, underlining the value of the geographical diversification the Group has achieved through acquisitions in recent years.

Interest rates in the Group’s principal markets are forecast to fall slightly.

The turbulence in the capital and liquidity markets is expected to subside gradually in the first half of 2008. Although the Group has unchanged access to funding of home mortgages through Realkredit Danmark, current market conditions are likely to lead to increased funding costs.

The financial turbulence and its potential effect on real economic conditions make the income estimates more uncertain than is normally the case.

Income
The Group expects overall net interest income to climb 6-9% on the basis of growth in lending. The consolidation of the Sampo Bank group for a full year rather than 11 months in itself contributes an increase in net interest income of 1%. The pressure on deposit margins is likely to intensify, whereas the pressure on lending margins will generally ease.

Assuming a normalisation of the financial markets, the Group expects net fee income to rise 8-13% through stronger focus on cross selling. Danish mortgage finance activity is forecast to remain roughly unchanged.

The Group expects net trading income to be slightly lower than in 2007, and this income will continue to depend greatly on trends in the financial markets, including the level of securities prices at the end of the year. Danske Markets expects to expand its market position within customer-driven activities.

Other income is expected to increase 5-10% driven by income from the sale of real property and a higher level of operating lease activities.

On the assumption that investment returns normalise, net income from insurance business is expected to rise around 20% relative to 2007. Net income from insurance business will, however, depend on developments in the financial markets, which saw substantial capital losses on equities in the first weeks of 2008.

Overall, income is expected to be 5-9% higher than in 2007 on the strength of generally expanding activities and the consolidation of the Sampo Bank group for a full year rather than 11 months. Still, the current turbulence in the financial markets makes the income estimates more uncertain than they would normally be.

Expenses
The Group expects operating expenses to rise by around 2-5% (see the table below)

The underlying trend in operating expenses reflects wage inflation and a planned expansion of Danske Markets and wealth management activities.

The planned IT integration of Sampo Bank during Easter 2008 represents yet another milestone for the Group’s “One platform – exceptional brands” vision. In view of this, the Group has decided to accelerate the introduction of new products and simplify processes across national borders. In 2008, an increase of around DKr500m in IT systems investments will help create a solid foundation for reaching the Group’s financial targets in the period until 2012.

Credit loss expenses
Because of the economic slowdown and the continued volatility in the financial markets, credit loss expenses are likely to be somewhat higher in 2008 than in 2007. The Group expects impairment charges to remain lower than the average for a business cycle.

Tax
The Group’s effective tax rate is estimated to be 26%, against 23% in 2007, when the Group benefited from a lowering of the tax rate in Denmark.

Net profit for the year
Overall, net profit is expected to be 0-7% higher than in 2007 on the condition that the Group can book the risk allowance from its insurance activities.

Outlook for 2008

	Danske Bank 2007* (DKr m)	Outlook 2008 (%)
Net interest income	24,260	6 - 9
Net fee income	8,788	8 - 13
Net trading income	7,887	Slightly lower
Other income	3,010	5 - 10
Net income from insurance business	1,118	20
Total income	45,063	5 - 9
Total operating expenses	25,070	2 - 5
Net profit	14,870	0 - 7

At Group level, a halving of average lending growth would reduce net interest income by around DKr750m in 2008, while a 0.25 percentage point rise in short-term interest rates in itself would lift net interest income by around DKr425m.

Booking the full risk allowance of DKr 1.1bn for 2008 requires equity price increases for the rest of 2008 sufficient to compensate for Danica’s loss on equities in the first weeks of the year.

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