Bransjeseminar om egenkapitalbevis Fridtjof Berents

Bransjeseminar om egenkapitalbevis

Fridtjof Berents

«Det er bare ikke nok … det er ikke nok….»

2

Buffer building continues to 2015…

3

*Adjusted for announced equity issues Source: Company reports, Arctic Securities

9.2 %8.7 %

9.3 %9.9 %

9.4 %

10.3 %

11.8 %

9.5 %9.6 %9.2 %

9.5 %10.2 % 10.3 %

11.4 %

0%

2%

4%

6%

8%

10%

12%

14%

DNB SRBANK MING NONG SVEG MORG HELG

Q410

Q111

Q211

Q311

Q411

Q112

Q212

… though with a better starting point

4

Source: DNB

9.5 % 9.5 %11.0 %

5%

10%

15%

CT1 trans CT1 BII CT1 BIII

MING

10.3 % 10.3 %

12.5 %

5%

10%

15%

CT1 trans CT1 BII CT1 BIII

MORG

Capital ambitionsfrom DNB’sCMD

DNB’sassumptionsfor the Basel III transition•Transitional floor removed•International Accounting Standard 19 included •Credit Value Adjustment (CVA) charge included •Increased CET1 deduction for expected loss (EL) > loan-loss provisions •Deduction method applied for consolidation of insurance

Implications for growth (at least for some)…

5

0

50

100

150

200

250

300

Q106 Q107 Q108 Q109 Q110 Q111 Q112

Lending (incl. Boligkreditt). NOKbn

SRBANK MING SVEG MORG NONG

… And pricing

6

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

14-Nov 14-Dec 14-Jan 14-Feb 14-Mar 14-Apr 14-May 14-Jun 14-Jul 14-AugDNB NDA DANSKE SRB ANK SVEG

Norwegian mortgage margins (3m mortgage rate vs 3m NIBOR) have increased from December as NIBOR has come down. Banks lowered their mortgage rate (~20bps) following Norges Bank’s rate cut mid-March.

Source: Company websites, Norges Bank

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

%

SHB NDA SEB SWED

“Look to Sweden” (if Roosevelt was a banker…)

7

SHB, SWED and NDA reduced rates to customers by 13-15bps late August.

Source: Compricer, DI, Riksbank, Arctic Securities

But don’t forget the LCR…

8

… As it is not all about higher funding cost…

Møre’s funding gap has declined in recent years, while other saving bank has recorded an uptick

9Source: Company reports, Arctic Securities

*Funding gap = Lending – Equity – Subordinated loan capital - Deposits

15%

20%

25%

30%

35%

40%

45%

50%

Q106 Q107 Q108 Q109 Q110 Q111 Q112

Funding gap


Though it is important …

Maturing pre-crisis funding has a negative impact on saving bank’s NII as funding costs have increased

Holding all other effects constant (repricing to customers, increased liquidity portfolio, longer maturity...), refinancing will contribute to a 3-5% negative NII drag compared with today’s level.Our funding model assumes existing covered bonds are refinanced with new covered bonds, while seniors are refinanced with new senior debt.

10

Refinancing effect on NII (as % of NII)

-5 %

-4 %

-3 %

-2 %

-1 %

0 %

Aug-

12

Nov

-12

Feb-

13

May

-13

Aug-

13

Nov

-13

Feb-

14

May

-14

Aug-

14

Nov

-14

Feb-

15

May

-15

Aug-

15

Nov

-15

MING

MORG

-

50

100

150

200

250

sep. 05 sep. 06 sep. 07 sep. 08 sep. 09 sep. 10 sep. 11 sep. 12

Appro

xim

ated

fundin

g co

st

Issue Date

Senior

Covered

NOK 2bn

With the cheapest source tapping the market most often…

MORG has been less reliant on senior funding among others helped by higher deposit coverage.

The spread between covered and senior funding has increased in recent years and now stands at ~100bps

11Source: Bloomberg, Arctic Securities

-

20

40

60

80

100

120

140

160

180

sep. 05 sep. 06 sep. 07 sep. 08 sep. 09 sep. 10 sep. 11 sep. 12

Appro

xim

ated fundin

g co

st

Issue Date

Senior

Covered

NOK 1bn

Funding profile MING Funding profile MORG

With more to come (“Manna from heaven”)

Norwegian saving banks have transferred a smaller part of total lending to covered bond companies than DNB

12

36 %

31 %

23 % 24 %

31 %

20 %19 %

15 %

0 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

40 %

DNB SRBANK MING NONG SVEG MORG HELG RING

Loans transferred to covered bond companies. 2011.

Source: Company reports, Arctic Securities

Cost dicipline part of «new normal»….

MORG has a cost/income ratio in the low end compared with peers and roughly in line with the bank’s 50% target


40%

45%

50%

55%

60%

65%

70%

75%

Q406 Q407 Q408 Q409 Q410 Q411

Cost / Income ratio 12m average


Alliance vs. Non-Alliance

14

30%

40%

50%

60%

70%

80%

90%

Q406 Q407 Q408 Q409 Q410 Q411

NII's share of total income (12m rolling)

SRBANK MING SVEG MORG NONGSource: Company reports, Arctic Securities

MING’s Cost/Income ratio is adversely affected by higher share of non-interest related income where the cost level generally is higher (e.g. real estate brokerage and accounting services)

With cost development being a function of cost of living …

15

* Adjusted for one-off relating to pension booked in Q2/11, Q4/11 and Q2/12


1 000

1 100

1 200

1 300

1 400

1 500

1 600

1 700

1 800

1 900

Q109 Q309 Q110 Q310 Q111 Q311 Q112

Costs per employee 12m rolling (NOKt)

MING SRBANK* NONG SVEG MORG

16

… at least to some extent…

House price development in different regions

Source:

80

100

120

140

160

180

200

Q1/

05

Q2/

05

Q3/

05

Q4/

05

Q1/

06

Q2/

06

Q3/

06

Q4/

06

Q1/

07

Q2/

07

Q3/

07

Q4/

07

Q1/

08

Q2/

08

Q3/

08

Q4/

08

Q1/

09

Q2/

09

Q3/

09

Q4/

09

Q1/

10

Q2/

10

Q3/

10

Q4/

10

Q1/

11

Q2/

11

Q3/

11

Q4/

11

Q1/

12

SRBANK's Home Market SVEG's Home Market NONG's Home Market MING's Home Market MORG's Home Market*

Appendix

17

Around 60% of loans to private customers

Møre’s total loans amounted to NOK 42bn end Q2/12Important industries in the region include fisheries, fish and fish products, shipbuilding, shipping/offshore, furniture and tourismThe region’s strong link to fisheries is evident in the Møre’s lending portfolio with 7% of total loans

SMN’s total loans amounted to NOK 101bn end Q2/12Real estate operations, shipping/offshore and primary industries are among important sectors

18

Agriculture and forestry 1 %

Fisheries 7 % Industry and mining 3 %

Building and construction 2

%Trade and hotel

industry 2 %

Shipping/Supply 4 %Property

management 14 %

Transport 4 %

Private customers 62 %


Retail customers

57 %

Primary Industries

6 %Aquaculture

2 %

Manufacturing and mining

3 %

Construction and building

3 %

Commerce2 %

Shipping6 %

Real estate operations

12 %

Services4 %

Lending profile MING Lending profile MORG

Deposits remain a vital funding source

With 63%, Møre has the highest deposits/lending ratio among peers

19

40%

45%

50%

55%

60%

65%

70%

Q106 Q107 Q108 Q109 Q110 Q111 Q112

Deposits / Lending


Loan losses among Norwegian banks have been low since mid 2000

We expect loan losses to remain moderate in the medium term among others supported by the low interest rate environment

The amount of problem commitments has come down in recent years for both MING and NONG

MORG has a somewhat higher share of NPLs than MING

20

-0.4 %

-0.2 %

0.0 %

0.2 %

0.4 %

0.6 %

0.8 %

1.0 %

1.2 %

1995 1998 2001 2004 2007 2010

SRBANK SVEG MING NONG MORG

Loan losses in % of total loans. Norwegian saving banks.1995-2011.

Source: The Norwegian Saving Banks Association, Arctic Securities

0.0 %

0.1 %

0.2 %

0.3 %

0.4 %

0.5 %

0.6 %

0.7 %

0.8 %

2007 2008 2009 2010 2011 Q2/ 12

Gross non-performing loans (in % of gross loans)

MING MORG

0.0 %

0.5 %

1.0 %

1.5 %

2.0 %

2.5 %

3.0 %

3.5 %

2007 2008 2009 2010 2011 Q2/ 12

Gross non-performing and impaired loans

MING MORG

ROE down compared with pre-crisis levels

ROE has come down in the aftermath of the financial crisis as among others banks have boosted their capital position


0%

5%

10%

15%

20%

25%

30%

Q406 Q407 Q408 Q409 Q410 Q411

ROE last 12m


Limited liquidity remains a problem in the saving bank space

Over the last year liquidity has improved (vs the 2007-2012 average) as average bid-ask spreads have narrowed somewhat.

22

0%

2%

4%

6%

8%

10%

12%

SRBANK NONG SVEG MING MORG RING HELG

Bid-Ask spread 2007-2012 2nd and 3rd quartile (25-75% of observations)

0%

2%

4%

6%

8%

10%

12%

SRBANK NONG SVEG MING MORG RING HELG

Bid-Ask spread 2011-2012 2nd and 3rd quartile (25-75% of observations)

Source: Bloomberg, Arctic Securities

Saving banks liquidity: Volume

Average volume in SRBANK has picked up following the transaction to a limited liability company (ASA)

Significantly higher trading volumes in SRBANK and MING than other saving bank peers

23

SRBANK

NONG

SVEG

MING

MORG

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Dec-06 Oct-07 Aug-08 J un-09 Apr-10 Feb-11 Dec-11

Accumulated volume (NOKm)

HELG

RING


24

Relative performance last 6m: Savings banks vs DNB

Saving banks are lagging DNB YTD by over 20 percentage points.


75

85

95

105

115

125

135

3-Jan 17-Feb 2-Apr 17-May 1-Jul 15-Aug

Total return

DNB SRBANK MING SVEG NONG MORG RING HELG

DNB SRBANK MING SVEG NONG MORG RING HELG

03.01.2012 100 100 100 100 100 100 100 100

31.08.2012 117 97 100 88 81 89 102 102

Savings bank valuation (Arctic estimates)

All savings banks trading below book value

25Source: Factset, Arctic Securities

0.59

0.67

0.75

0.69

0.54

0.72

0.45

0.63

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

NONG MING SRBANK MORG SVEG RING HELG

Price/Book YE 2012 Arctic Estimates

P/ B YE 2012e Average P/ B

6.3 6.5

7.8

6.6 6.5

11.0

6.47.3

0

2

4

6

8

10

12

NONG MING SRBANK MORG SVEG RING HELG

Price/Earnings 2012e Arctic Estimates

P/ E 2012e Average P/ E

Arctic estimates Ticker Rating Price Target 2011 2012 2013 2011 2012 2013 2011 2012 2013

Nord Norge NONG-NO Arctic Buy 25.1 38 0.59 0.59 0.56 8.2 6.3 5.9 5.6 % 6.4 % 6.8 %

SMN MING-NO Arctic Buy 33.8 44 0.75 0.67 0.63 5.2 6.5 6.4 5.9 % 6.1 % 6.3 %

SR-Bank SRBANK-NO Arctic Buy 35.2 42 0.72 0.75 0.70 6.5 7.8 7.6 4.3 % 3.9 % 5.3 %

Møre MORG-NO Hold 149 185 0.74 0.69 0.66 6.7 6.6 7.1 5.4 % 6.8 % 6.3 %

Vest SVEG-NO Hold 27.1 35 0.56 0.54 0.51 6.0 6.5 6.8 8.9 % 9.2 % 8.8 %

Ringerike RING-NO Hold 114 130 0.73 0.72 0.69 10.6 11.0 10.0 7.0 % 5.4 % 4.9 %

Helgeland HELG-NO Arctic Buy 29 44 0.47 0.45 0.43 7.8 6.4 5.6 6.5 % 7.5 % 8.9 %

Average 0.65 0.63 0.60 7.3 7.3 7.1 6.2 % 6.5 % 6.8 %

P/E Dividend yieldP/B

26

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Bransjeseminar om egenkapitalbevis Fridtjof Berents