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Corporate Governance and the Compliance Challenges on the Global Marketplace
Tonny Thierry Andersen, Danske BankCFO and Executive Committee MemberReykjavik, April 5, 2006
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Agenda
1) Danske Bank�s corporate identity2) Why good governance?3) Danske Bank�s governance infrastructure4) Relevant codes5) Governance initiatives
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Danske Bank�scorporate identity
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Danske Bank�s corporate identity
MissionTo be the best local financial partner
VisionOne platform � exceptional brands
Core ValuesIntegrity � Accessibility � Value creation � Expertise � Commitment
One Group �One System
Effective Governance and Risk Management
Corporate Citizenship
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Financial targets and Group ratings
� Solvency ratio of 9.0%-10.0%� Core (tier 1) capital ratio of 6.0%-6.5%� Hybrid core capital of 0.5%-1.0%� Payout ratio of 30%-50%
Group ratings
Short-term p-1 A-1+ F1+
Long-term Aa1 AA� AA�
Mortgage bonds Aaa AAA -
Life insurance - AA� -
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Financial highlights 2005
� Record-high profit and substantial investments� Strong fundamentals and net reversal of credit loss expenses� EPS up 42% to DKr 20.4 (04: DKr 14.4)� ROE up 33% to 18.5% (04: 13.9%)
DKr m 2004 2005 Index
Income 29,187 34,891 120
Expenses 15,393 18,198 118
Profit before credit expenses 13,794 16,693 121
Credit loss expenses 759 -1,096 -
Profit before tax 13,035 17,789 136
Tax 3,718 4,967 134Net profit for the year 9,317 12,822 138
Dividend per share (DKr) 7.85 10.00 127
DKr bn (end-period) 2004 2005 Index
- Corporate loans 294 380 129
- Retail loans 177 241 136
Bank loans ex repos 470 620 132
Repo loans 145 210 145
Mortgage loans 524 569 109
Trading portfolio 423 445 105
Deposits 488 631 129
Shareholders' equity 67 75 111Total assets 2,053 2,432 118
Risk-weighted assets 808 944 117
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Why good governance?
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Financial symptoms have set the agenda
However, NOT at Danish phenomenon!
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The results of governance malpractice�
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The value of good corporate governance
� Value creating as it can reduce the cost of capital� Institutional investors are willing to pay a premium for good
governance practices
Governance premium, %
An overwhelming majority of investors are prepared to pay a premium for companies exhibiting high governance standards
Source: McKinsey & Co. Global Investor Opinion Survey
20-25%
12-14%
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15
20
25
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North America andWestern Europe
Asia and LatinAmerica
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Improved governance at Danske Bank� has reduced cost of capital significantly
GMI rating history relative to industry peers Danske Bank share price volatility
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Feb 2004 Feb 2006
Industry peers
Danske Bank A/S
10%
20%
30%
40%
2002 2003 2004 2005
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Danske Bank�sgovernance infrastructure
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Danish statutory provisions� versus international ownership
� The Danske Bank Group is managed in accordance with Danish statutory provisions
� The Group�s corporate governance must therefore be understood in the framework of that legislation� Danish Companies Act� Danish Financial Business Act� Danish stock exchange rules
� The ownership structure of Danske Bank is global� Thus, Danske Bank�s corporate governance must also be
understood internationally
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Two-tiered governance structure is in place
InternalAudit Department
Banking Activities Danske Markets
Mortgage Finance Other Business Areas
Danica Pension Resource Areas
Executive Committee14 members
Executive Board2 members
Board of Directors17 directors
Board of Directors Secretariat
Board committees
AuditCredit
Salary & BonusNomination
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International ownership structure
� Danske Bank holds about 290,000 shareholders� 1/3 of the shares are held outside of Denmark
Geographical shareholder breakdown
� Governance framework:� The Sarbanes-Oxley Act� EU recommendations� The Combined Code� Copenhagen Stock Exchange
Recommendations� Governance Metrics International
Non-identified (incl. retail)
22%
Euro-zone12%
USA12%
Denmark54%
Other countries 1%
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Effective governance at Danske Bank
An effective, independent BoardProactive work within
relevant committees
Effective risk andcapital management
Clear, enforcedpolicies and procedures
Effective measurementand accountability
Core values forethical behaviour
An objectiveinternal audit function
A sound internalcontrol framework
Transparent disclosure,effective communication
Independent,external audit
Incentive programmes
Good governance
Rules of procedure forExecutive management
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Ambition and disclosure
� The goal is �Best in Class�� Annual report important, but�� An extensive website� Planning cycle
� A designated teamhandles all day-to-day governance communications
� extensive use of website
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The World�s best financial IR website
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Relevant codes
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Relevant codes � a comparative analysis�Danish and Icelandic similarities are evident
CSE Committee Iceland Sarbanes-Oxley Combined Code
Board structure Two-tiered Two-tiered
IndependenceFormal evaluation
procedure
Audit and remuneration
Full disclosure on individual basis
Audit Committee evaluates controls
Audit Committee evaluates risk management
Board evaluates financial reporting
One-tiered One-tiered
Board tasks and responsibilities
IndependenceFormal evaluation
procedure
Corporate responsibility for financial reports
IndependenceFormal evaluation and
nomination procedures
Board committees Charter specifications if applied
Audit committee appoints auditor
Smith Guidance on Audit Committees
Management remuneration
Full disclosure on individual basis
Transaction disclosures
Prohibition on loans
Full disclosure on individual basis
Internal controls A supplement to current legislation
Management assessment (COSO)
Audit Committee evaluates controls
Risk management Risk identification and risk planning
Corporate and criminal fraud accountability
Board evaluates risk management
Disclosures Openness and transparency
Real time disclosure on material changes
Focus on AGM and Investor Relations
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Corporate governance in Denmark�Copenhagen Stock Exchange Recommendations
� As of 2006 Copenhagen Stock Exchange requires �comply-or-explain�
� With very few exceptions Danske Bank complies and have already issued a �comply-or-explain�-statement� Shareholders� and stakeholders� role� Openness and transparency� Board tasks and responsibilities� Management remuneration� Risk management and audit
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Codes and principles in Iceland
� Icelandic guidelines take among others Danish reports on corporate governance into consideration� Board evaluation and assessment of independence� Sub-committees of the Board
� Audit and remuneration� Stock option plans
� ICEX-requirement as to �comply-or-explain�� Additional recommendations
� Investor Relations focus� Internet transmissions� Dissemination of investor information� Similar Danish initiatives
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The Sarbanes-Oxley Act
� Sarbanes-Oxley codifies certain standards of �good governance� into specific requirements
� A number of the requirements in the Sarbanes-Oxley Act are covered by Danish statutory provisions
� The Bank�s website compares selected aspects of the legislation with Danish legislation and Danske Bank�s practice� Auditors� independence� Management�s assessment� Internal controls� Analysts� conflicts of interest
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The Combined Code
� By virtue of its compliance with Danish law, Danske Bank automatically fulfils a number of the recommendations in the Combined Code
� The Bank�s website compares selected aspects of the code with Danish legislation and Danske Bank�s practice� Board responsibilities� Board composition and independence� Election� Performance evaluation� Board remuneration� Responsibility and auditing
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Governance initiatives
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To comply or not to comply...
� International developments in corporate governance provide ideas and background information for the Danske Bank Group management
� Compliance is not a one-off proposition� Compliance requires ongoing and constant enforcement
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2005 governance initiatives by the Bank
� Publication of the rules of procedures� New Board committee structure with expanded charters� Publication of remuneration policy� Expanded information on the remuneration and salaries of
the individual directors and the members of the Executive Board, including individual shareholdings
� Launch of separate risk and capital management website� More formal Board evaluation procedure� Webcast of Chairman�s report at AGM� Amendment to the Articles of Association
reducing the board members� term of service to two years
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Specific governance rating� a way to increase external credibility?
www.danskebank.com/cg
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