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Danske Bank ordered to reassess its solvency need Share buy-back programme for 2018 is discontinued

Company Announcement No. 59/2018

On 3 May 2018, Danske Bank A/S was given eight orders and eight reprimands by the Danish Financial Supervisory Authority (the FSA). These were the outcome of the FSA’s investigation into Danske Bank’s management and governance in relation to the former non-resident portfolio at the bank’s branch in Estonia (Company announcement No. 31).

On 29 June 2018, Danske Bank sent a reply to the FSA, which served to follow up on the orders and reprimands. The reply contained a description of the initiatives taken by the bank to comply with the orders and to address the reprimands. Danske Bank today publishes the FSA’s decision regarding Danske Bank’s compliance with the orders. In the decision, the FSA orders the Board of Directors and the Executive Board to reassess the bank’s and the banking group’s solvency need with a view to increase the add-on to an absolute minimum of DKK 10 billion in order to ensure an adequate capital coverage of increased compliance and reputational risks.

The order and the FSA’s assessments of the bank’s initiatives are stated in the FSA’s decision, which is attached to this announcement.

Jesper Nielsen, Interim CEO, comments on the FSA’s decision:

“We take note of the FSA’s decision. As the FSA states, Danske Bank has complied with, or has initiated adequate initiatives to ensure compliance with, the orders given to us in May, except for one order, where further initiatives are required. In addition to the initiatives already taken, we will continue our constructive dialogue with the FSA and execute the orders given,” says Jesper Nielsen.

Order for Danske Bank to reassess its solvency need again
In connection with the release of its interim report for the first half of 2018, Danske Bank reassessed its solvency need to ensure adequate capital coverage of its compliance and reputational risks. The background was that the FSA, in its decision of 3 May 2018, had made an initial estimate to the effect that a Pillar II add-on to Danske Bank’s solvency need should amount to at least DKK 5 billion, or about 0.7% of the bank’s total risk exposure amount (the REA) at the end of 2017.

In its latest decision, the FSA finds that, at the end of the second quarter of 2018, Danske Bank complied with the order to adjust its solvency need by a Pillar II add-on of DKK 5 billion. Considering the current developments, the FSA finds, however, that the bank’s compliance and reputational risks are higher than assumed in the FSA’s decision of 3 May 2018. As a result, the FSA has ordered Danske Bank to reassess the bank’s and the Group’s solvency need in order to ensure adequate capital coverage of the increase in compliance and reputational risks.

The FSA’s initial estimate is that the bank, as an absolute minimum, should increase the Pillar II add-on to DKK 10 billion, or 1.3% of its total REA at the end of the second quarter of 2018. This would increase the Group’s solvency need from 11.2% to 11.9% at 30 June 2018. At the same time, the FSA assesses that the bank must fund this Pillar II add-on requirement through common equity tier 1 (CET1) capital.

Danske Bank’s Board of Directors agrees with the need to reassess the Pillar II add-on. As a consequence of the expected increase in Danske Bank’s solvency need of DKK 10 billion, the Board of Directors has decided to reassess the Group’s capital targets and take further prudency measures.

Danske Bank has thus set a higher target for its CET1 capital ratio to be around 16% (previously 14-15%) and the target for its total capital ratio to be above 20% (previously above 19%). Danske Bank fully meets the revised capital targets already today, and the Board of Directors reassesses the targets on an ongoing basis.

In order to remain prudent and in view of the above, Danske Bank’s Board of Directors has decided to discontinue the present share buy-back programme as of today. The share buy-back for a total of DKK 10 billion, with a maximum of 85 million shares, was due to end by 1 February 2019. At the end of week 39, the programme had repurchased 33,029,000 own shares at a transaction value of approximately DKK 6.8 billion.

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