Sampo Banks Covered Bonds Kirsi Autiosalo First Vice President, - - PowerPoint PPT Presentation

Sampo Bank’s Covered Bonds

Kirsi Autiosalo First Vice President, Head of ALM 13 September 2012

2

Table of contents

• Executive Summary

3

• Streamlined platform for covered bond issuance 4
• Overview of Sampo Bank Group

5

• Financial highlights

8

• Finnish Economy and Housing Market

15

• Finnish Covered Bond Legislation

21

• Loan Process

23

• Cover Pool Characteristics

26

• Appendix

31

• Contact details

36

3

Executive summary

• Sampo Bank plc, the Issuer
• 100% owned and supported by Danske Bank A/S
• Fully integrated in Danske Bank Group, one of the largest financial institutions in the Nordic region
• Well-diversified funding base with high deposit ratio
• LT ratings of A2 (Stable) /A- (Stable) by Moody’s/S&P, C- Financial strength rating/Moody’s
• Covered bonds
• EUR 10 billion combined covered bond/senior program established in March 2012
• Issuance under Finnish Covered Bond legislation as amended on 1 August 2010
• Finnish Covered bond legislation is similar to other Nordic jurisdictions but lower LTV cap of 70%

and minimum 2% over-collateralization ratio on NPV-basis

• Full recourse to the cover pool and to Sampo Bank
• Aaa / Moody’s
• Covered bonds are fully UCITS/CRD compliant
• Cover Pool
• 100% prime residential mortgages loans originated solely by Sampo Bank plc

(+ supplementary collateral)

• Outstanding collateral score of 5.0% and TPI-factor of probable-high (Moody's PO report June

2012)

• Weighted average indexed LTV of 48,7% (August 2012)

4

Streamlined platform for covered bond issuance

• Act on Mortgage Credit Bank Operations states that covered bonds can be issued either

by specialized mortgage credit bank or any licensed credit institution authorized by FIN- FSA to engage mortgage credit business

• In November 2011 Finnish FSA granted Sampo Bank a license for mortgage credit bank
• perations
• At year end 2011 Sampo Housing Loan Bank plc (SHLB) as a separate mortgage credit

bank was merged into its parent company Sampo Bank plc

• The purpose of the merger was to clarify and simplify the corporate structure in Sampo

Bank Group as allowed by the law

• After the merger, SHLB’s mortgage credit bank business operations, including all the

assets and liabilities of SHLB, were transferred to Sampo Bank without a liquidation procedure and Sampo Bank continues uninterruptedly SHLB’s previous mortgage credit bank business.

• Starting from 1 January 2012 Sampo Bank plc has acted as an issuer for covered bonds

Overview of Sampo Bank Group

6

Mortgage loans in Sampo Bank

Strong Nordic franchise

Sampo Bank is a part of Danske Bank Group

• One of the largest bank groups in northern Europe
• Five million customers
• Two million eBanking customers
• 21 000 employees
• 578 branches
• Operations in 15 countries
• Housing loan portfolio EUR 11,6 billion
• Market share 14 %

Personal customers 1,1 M Business customers 0,1M Market rank 3 Deposit growth (Y/Y) + 0% Loan growth (Y/Y) + 3%

As of June 2012

7

A bank with a long history A bank heading to the future ”

1886

2001 1970 Postal Savings Bank becomes Post Bank 1997 Postipankki and the Finnish Export Credit Agency, merge to become Leonia 2000 Leonia and the insurance company Sampo are merged. 2006 2001-2006 Expansion to Russia and the Baltic countries

2012-

2007 Sampo Bank becomes part of the Danske Bank Group as

• ne of the largest banks in the

Nordic countries The Postal Savings Bank is established Mandatum joins Sampo. The group is named Sampo Group

The Postal Savings Bank opened its first branch in 1897. Today, Sampo Bank has 101 branches around Finland and the most popular mobile banking solutions in the Nordic countries .

One name and brand in

• peration

Financial highlights

9

MEUR H1/2012 H1/2011 Change Net interest income 189 163 +15 % Net fee income 96 101

• 5 %

Net trading income 22 25

• 11 %

Other income 25 36

• 30 %

Income total 332 326 +2 % Staff costs 98 100

• 2%

Other operating expenses 112 133

• 15 %

Expenses total 210 232

• 10 %

Net impairment on loans and receivables 45 46

• 0.4 %

Profit before tax 76 48 + 60% Income tax 25 12 +110% Net profit for the year 51 36 +43%

NII increase due to both increase in lending volumes and in margins H12011 fee and other income was based on some big one –off commissions  Costs decreased by 10% Profit before taxes improved 60%

Sampo Bank Group Financial Performance H12012

10

Sampo Bank Group Financial highlights

Sampo Bank Group H12012 H12011 Change Cost/income ratio, % 63,3 % 71,3 %

• 8.0 %-points

Return on equity, % 4,5 % 3,3 % +1,2 %-points Loans, MEUR ( as of 30 June) 21 719 21 069 + 3 % Deposits, MEUR (as of 30 June) 14 858 14 844 + 0 % Impairment charges/ loans & guarantees, % 0,38 % 0,40 %

• 0,02 %-points

Number of staff (as of 30 June) 2 432 2 696

• 10 %

 The Group’s capital adequacy ratio clearly exceeds the regulatory requirement (8%).

Sampo Bank Group H12012 H12011 FY2011 Total capital 2 661 2 540 2 617

• of which Tier 1

2 661 2 540 2 617 Risk-weighted assets 18 060 18 445 18 155 Solvency ratio, % 14,7 % 13,8% 14,4% Tier 1 solvency ratio, % 14,7 % 13,8% 14,4% Core Tier 1 solvency 12,8% 11,9% 12,5%

11

5 000 10 000 15 000 20 000 25 000 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q12012 Q2 2012

Housing loans Other household loans Corporate loans

Sampo Bank Group loan portfolio*

MEUR

*Average balances

12

• 0,04
• 0,02

0,00 0,02 0,04 0,06 0,08 0,10 0,12 0,14 0,16 0,18

Q4/2008 Q1/2009 Q2/2009 Q3/2009 Q4/2009 Q1/2010 Q2/2010 Q3/2010 Q4/2010 Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012 Q2/2012

% Impairment balance Net losses

Quarterly impairment balances and net credit losses of housing loans in Sampo Bank Group, % of outstanding housing loan exposure

13

0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0 %

30-60 days 60-90 days Over 90 days

Housing loans in arrears

• as percentage of housing loan portfolio of Sampo Bank

Payments in arrears Payments in arrears Total loan balance

14

Sampo Bank Group’s funding structure 30 June 2012

• Strong deposit base
• Strong capitalization
• Covered bond a core funding tool

Deposits 57 % MM deposits 2 % Cd's 6 % Deposits taken from Group 4 % Covered bonds 17 % Issued bonds 4 % Subordinated debt 1 % Equity 9 %

Finnish Economy and Housing market

16 Initiated, number Source: Reuters EcoWin 86 88 90 92 94 96 98 00 02 04 06 08 10 100 200 300 400 500 600 700 800 100 200 300 400 500 600 700 800 % Source: Reuters EcoWin 87 89 91 93 95 97 99 01 03 05 07 09 11 2 4 6 8 10 12 14 16 18 2 4 6 8 10 12 14 16 18 Euro area Finland GDP indexed 2007 = 100 Source: Reuters EcoWin 2007 2008 2009 2010 2011 2012 87,5 90,0 92,5 95,0 97,5 100,0 102,5 105,0 107,5 87,5 90,0 92,5 95,0 97,5 100,0 102,5 105,0 107,5 Denmark Iceland Sweden Norway Finland

Macro economy

18-09-2012

GDP in Nordic countries Labour market has been performing relatively well Bankruptcies at a slightly elevated level

• Finnish economy has been growing reasonably well in 2011 and

H1 2012, which has resulted in better employment. However, Q2 2012 was a modest disappointment as consumers became more cautious.

• Unemployment rate is forecast to stay below 8% in 2012 and

2013.

• Number of bankruptcies has been stable since 2010

17 % Source: Reuters EcoWin 2008 2009 2010 2011 2012 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 Finland Italy Germany Spain

Public finances

18-09-2012

Yield on 10 year government bonds

• Being part of core euro-zone Republic
• f Finland has access to funding levels

close/in line with Germany. Debt seems to be on a sustainable path. Finland has been seen as one of the safe havens.

Source: European Commission forecast for 2012 (May 2012) Source: European Commission forecast for 2012 (May 2012)

• 0,3
• 0,7
• 0,9
• 1,9
• 2
• 2,1
• 2,4
• 2,5
• 2,8
• 2,9
• 3
• 3
• 3
• 3,2
• 4,1
• 4,4
• 4,5
• 4,7
• 4,7
• 6,4
• 6,7
• 7,3
• 8,2
• 8,3
• 8,3
• 10
• 9
• 8
• 7
• 6
• 5
• 4
• 3
• 2
• 1

Switzerland Norway Sweden Finland Germany Bulgaria Italy Latvia Estonia Hungary Romania Czech Austria Belgium Poland Lithuania Denmark Netherlands France Portugal Slovakia Spain United Kingdom Greece Japan Ireland USA

Public deficit/GDP (%), 2012

EU commission forecasts, May 2012 42 37 36 51 82 124 44 10 79 44 74 101 55 40 41 70 91 114 81 91 161 219 116 109 25 50 75 100 125 150 175 200 225

Public debt/GDP (%), 2012

18 1985 = 100, index Source: EcoWin 85 87 89 91 93 95 97 99 01 03 05 07 09 11 70 80 90 100 110 120 130 140 150 160 500 1000 1500 2000 2500 Price, nominal (euro per square metre, left hand scale) Per disposable income (index, right hand scale) Euro/m² Source: Reuters EcoWin

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 Centre of Helsinki Greater Helsinki Oulu Whole country

Housing market – housing prices

18-09-2012

Price of old apartments 1985 -

• The recession caused only a minor dip in housing

prices in 2008/2009 winter. Construction fell to very low levels

• High confidence coupled with low interest rates have

fuelled demand and supply became short since spring 2009

• New housing starts have risen which helps to cool the

market, but prices continued to rise into early 2012.

• During summer 2012 selling times has become

marginally longer and prices do not seem to be rising any longer. Really high prices are mostly limited to Helsinki region

• A large fall in housing prices is unlikely without a

significant number of forced sales, which are unlikely in near future

• New housing loans continue to be largely linked to

Euribor rates, which are expected to remain at very low levels for an extended period.

• Household debt level has risen, but majority of Finns

remain only moderately indebted, if compared to

• ther countries

Housing loan market

19

Housing market – household debt

18-09-2012

Interest rate on new housing loans

• Household indebtedness has grown mainly due to

housing loans

• Thanks to low interest rates, debt is less

burdensome than in the past

• Most housing loans are linked to variable rates and

have a fixed monthly payment with variable

• maturity. Fixed rates are beginning to gain

popularity

• Variable rates create a market risk, which is

mitigated by flexible loan maturity and increasingly popular interest rate caps

• Finnish households are not highly indebted

compared to other countries Household debt to disposable income Household debt to GDP at average EU level

Source: Eurostat

20 40 60 80 100 120 140 160 Denmark Netherlands Ireland United Kingdom Portugal Spain Norway Sweden Switzerland France Germany Finland Greece Italy Austria Belgium Latvia Croatia Hungary Slovakia Lithuania Bulgaria Poland Slovenia Romania

2000 2008

per cent of disposable income

Source: Reuters EcoWin 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2 3 4 5 6 7 8 9 10 40 50 60 70 80 90 100 110 Interest payments (right hand) Debt (left hand scale) % y/y Source: Reuters EcoWin 99 00 01 02 03 04 05 06 07 08 09 10 11 12 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Interest rate on new housing loans >> << Growth of housing loan stock 3 m euribor >>

(asteikko oikealla)

20

Outlook for 2012-2013

18-09-2012

FINLAND

Forecast Forecast National accounts 2009 2010 2011 2012 2013 Volume, y-o-y % GDP

• 8,5

3,3 2,7 0,0 1,0 Imports

• 17,2

6,9 5,7

• 1,0

1,0 Exports

• 21,3

7,5 2,6

• 2,0

1,5 Consumption

• 1,7

2,1 1,8 1,4 0,8

• Private
• 2,9

3,3 2,5 1,5 1,0

• Public

1,1 0,0 0,1 0,2 0,5 Investments

• 13,3

2,6 4,6

• 1,0

1,5 Key Performance Indicators 2009 2010 2011 2012 2013 Unemployment rate, % 8,2 8,4 7,8 7,7 7,9 Earnings, % 4,0 2,6 2,7 3,4 2,7 Inflation, % 0,0 1,2 3,4 2,9 2,6 Housing prices, %

• 0,2

8,7 2,7 1,2 1,0 Current account, Bn, EUR 3,1 2,6

• 2,2
• 2,3
• 1,5

Current account/GDP, % 1,8 1,4

• 1,2
• 1,2
• 0,7

Public deficit/GDP, %

• 2,5
• 2,6
• 0,6
• 0,7
• 0,5

Public debt/GDP, % 43,5 48,6 49,1 52,5 54,0 Forecasts: Sampo Bank/Economists

Finnish Covered Bond Legislation

22

Main features of Finnish MCBA

• Act on Mortgage Credit Bank Operations (“MCBA”, statute 688/2010), came into force

1 August 2010

• Covered bonds are issued either by specialized mortgage credit bank or any licensed

credit institution authorized by FIN-FSA to engage mortgage credit business

• Cover pool can consist of mortgage collateral (both residential and commercial) and

public sector loans. LTV for residential mortgage assets has been raised to 70% from 60%, but LTV remains at 60% for commercial mortgages.

• Introduction of over-collateralization requirement; net present value of the cover pool

has to exceed that of the covered bonds by 2%.

• Swap counterparties to covered bond programs rank equally with bondholders if the

issuer becomes insolvent. This improves the chances of attracting third-party counterparties to provide hedging for the programs, even after the issuer defaults.

• Streamlined set-up if the covered bond issuer becomes insolvent. Effective ring fencing
• f the assets will allow the dedicated administrator to take charge of the cover pool to

repay covered bonds when they fall due

18-09-2012

Loan process

24

Loan granting process

• Customer identification
• Customer must be identified and verified, also regarding age and legal capacity
• Customer’s background and financial position must be determined, both external (credit bureau) and internal

payment defaults

• Application scoring
• Customer is application scored every time when applying for a credit
• Scoring model consist of a scorecard and additional downgrade rules, 26 classes to classify customer
• Income verification
• Customer´s income is always verified
• For current customer income and payer of the income can be check in customer´s account in Sampo Bank
• For new customers income is checked by using pay slip and/or taxation information
• Assessment of the customer´s repayment ability
• Customer must have sufficient repayment abilities for the repayment of the loan
• When calculated customer’s income and expenses and the loan management costs for exposures to Sampo

Bank and other parties are taken into account

• Stress tested with 7 % interest rate and 20 years maximum repayment period

18-09-2012

25

Collateral valuation and loan decision

Collaterals

• all collateral is located in Finland
• nly residential purposes
• must be valued by a valuer independent of the credit decision process
• External qualified valuer or
• Internal valuer who have sufficient qualifications and experience and is independent of

the credit decision process

• Genuine (not between related parties) recent contract of sale (maximum of one year old)
• are revalued at least on yearly basis either manually or automatically

Loan decision

• Preparation of a loan decision and actual loan decision must always be done by two

separate persons (“four-eye principle”) when loan amount is EUR 10.000 or more

• Loan-to-Value ratio is normally up to 80 %

18-09-2012

Cover Pool Characteristics

27

Key characteristics of cover pool

18-09-2012

http://www.sampopankki.fi/en-fi/About/Press/Publications/Pages/InvestorReports.aspx Quarterly cover pool information is available at Sampo Bank’s website: Pool notional EUR 4.90 bn Number of Loans 85,445 Residential/ Commercial 100 % Finnishprime owner occupied residential properties, no vacation/secondhomes, no commercialmortgages WA Indexed LTV 48.7% WA Seasoning 49 Months WA Remaining Term 16.6Years Rate type/Redemption Floating /Fixedrate, 100% of loans amortising Geographical location Spread throughout Finland Minimum OC requirements 22.2 % nominal (5 % committed, 6 % Moody’s) / 23.8 % NPV (2 % statutory) Cut-offdate 31 August 2012

28

Asset pool characteristics 31 August 2012

• regional portfolio distribution by collateral value

Helsinki 60.2 % 6.5 % 23.2 % 6.9 % 3.2 % 2/3 of Finns live south of this line Southern Finland 60.2 % Western Finland 23.2 % Oulu 6.9 % Eastern Finland 6.5 % Lapland 3.2 %

29

Asset pool characteristics 31 August 2012

• loans by LTV and balance size

2 000 4 000 6 000 8 000 10 000 12 000 14 000 100 200 300 400 500 600 700 800 900 1 000 Loan count Loan balance, EUR m LTV

Loan balance Loan count

5 000 10 000 15 000 20 000 25 000 30 000 35 000 100 200 300 400 500 600 700 800 900 Loan count Loan balance, EUR m Loan size, EUR t

Loan balance Loan count

30

Asset pool characteristics 31 August 2012

• loans by origination year and rate type

2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 100 200 300 400 500 600 700 800 900 1 000 <= 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Loan count Loan balance, EUR m Origination year

Loan balance Loan count

Euribor 3M 28 % Euribor 6M 6 % Euribor 12M 43 % Fixed 13 % Sampo Prime 10 %

Rate Type

Appendix

32

Non-performing loans

18-09-2012

Termination letter sent (* Loan transferred to collection (default)

14 Due 90 29

• 1. Reminder

Letter sent Customer defaulted

• 2. Reminder

Letter sent 55 85

• 3. Reminder

Letter sent Days

*) Until defined termination conditions are fulfilled, 3.reminder letter is sent repeatedly

33

Arrears collection process

• Acceleration notice to public auction

18-09-2012

Debt Management

+21 Days

Restructuring Voluntary Sale / Payment

District Court Application for Summons

Court Enforcement Approval Public Auction

Non- contested

Court approval always required. Cumulative Days +128 Days

Letter of Termination Average timing for this process takes about 3-6 months The loan cannot become current again after registered to debt collection system. Will need full payment. It takes about 20 days for the Sampo Banks Debt management to apply to the court. The 3-6 months includes all court actions if non-contested case. The average timing for a Public Auction is about 3 months.

34

Danske Bank’s funding team

Kirsi Autiosalo

• Tel. +358 10 546 7828

First Vice President E-mail: kirsi.autiosalo@sampopankki.fi

Knud Erik Kristensen Tel.: +45 45 12 84 86 Chief Funding Manager E-mail: knkr@danskebank.dk Andreas Hammarbro Ligaard Tel: 45 14 88 81 Senior Funding Manager E-mail: alig@danskebank.dk Steen Blaafalk Tel.: + 45 45 14 63 60 Head of Treasury E-mail: steen.blaafalk@danskebank.dk Senior Executive Vice President Peter Holm Tel.: + 45 45 12 84 85 Head of Funding E-mail: holm@danskebank.dk Senior Vice President Bent Callisen Tel.: + 45 45 12 84 08 First Vice President E-mail: call@danskebank.dk