NASDAQ OMX Copenhagen A/S The Luxembourg Stock Exchange SIX Swiss Exchange AG The Press Company release 6-2009 - FIH Financial Report 2008 Net profit for the year of DKK 184 million Satisfactory net interest and fee income in the FIH Group Negative market value adjustments in 2008 Large writedowns in the FIH Group of DKK 494 million Profit for the year The net profit for the year 2008 is DKK 184 million, or DKK 939 million lower than in 2007. The profit before taxation is DKK 208 million, or DKK 1,068 million below the 2007 figure. FIH and the situation in the financial sector In early October 2008, FIH's parent company, Kaupthing Bank, was put into administration by the Icelandic government. Since then, the Icelandic owners have been attempting to sell FIH, but this has not been possible in the current financial climate. FIH is “ring fenced” in relation to Kaupthing; therefore, FIH has not suffered any losses as a result of the Icelandic crisis and the collapse of Kaupthing, nor has FIH any direct or indirect Icelandic risks on its books. In response to the collapse of Kaupthing and the current financial market situation, FIH decided, in early January 2009, to refocus its business strategy to concentrate on its core business, i.e. lending to corporate customers, and two advisory-based business units: Corporate Finance (FIH PARTNERS) and Financial Solutions (advice on strategic risk management and liability management). Consequently, FIH has shut down the business areas Equity Trading and Research and Wealth Management. FIH's staff and support functions have also been resized to the new business strategy, thereby reducing employee numbers by 94 positions, or 21 per cent. FIH now has 358 employees. As will appear below, earnings from FIH's net interest income are satisfactory. Following the refocusing of its business strategy, FIH will be well placed to meet the challenges ahead in 2009. FIH applied for membership of the Private Contingency Association in autumn 2008 and is thus covered by the government guarantee scheme (Bank Package I), which has had an overall positive impact on the funding situation. As far as Bank Package II is concerned, FIH will no later than June decide whether or not to take advantage of the opportunity to receive government funds. Activities Net interest income from the Bank's lending activities in 2008 is quite satisfactory. During the last couple of months of 2008, the funding situation stabilised, positively impacting net interest income. Total loans outstanding, including investment properties, are at a satisfactory level, totalling DKK 74 billion at year-end 2008 relative to DKK 76 billion a year earlier. Like the rest of the financial sector, FIH is affected by higher writedowns. In 2008, FIH PARTNERS A/S (Investment Banking) completed a total of 14 transactions at a total value of DKK 116 billion and recorded satisfactory earnings - despite a difficult market situation. Demand for FIH PARTNERS' products has changed in response to financial market developments. In 2009, restructuring, mergers and other structural transactions are likely to come more to the fore. The earnings of FIH Capital Markets from interest rate instruments, balance sheet management products and other products targeting the Bank's loan customers were satisfactory in 2008. Commission income from shares, in particular, fell short of expectations, however, prompting FIH to refocus activities on its core business as described earlier. Moreover, market value adjustments of the Bank's own holdings are affected by the financial market turbulence, entailing that market value adjustments are significantly lower than in previous years. FIH's accounting policies are consistent with those applied for the previous year. FIH has decided not to apply the amendment to IAS 39 on reclassification of certain financial instruments from fair value measurement to amortised cost. At year-end 2008, FIH has drawn a total of DKK 11.9 billion under the DKK 15 billion credit facility agreed with ATP when FIH Kapital Bank was established in Q1 2007. The setting up of FIH Kapital Bank provides great flexibility for FIH in terms of liquidity and continues to prove its worth in the current financial market situation. At the turn of the year, FIH's liquidity position is sound, with liquid assets of DKK 15.8 billion. On 1 April 2008, FIH launched online banking services, specialising in deposits from retail customers - and from the beginning of the New Year 2009 also deposits from corporate customers - FIH Netbank Pro. In just nine months, FIH has achieved deposits of DKK 1,886 million and FIH expects to see continued growth in this customer segment. Net interest and fee income Net interest and fee income for the period amount to DKK 1,510.0 million, up 9 per cent on the 2007 figure. Interest income from loans and other receivables increased by 17 per cent to DKK 4,825.6 million. The increase is attributable mainly to a higher average interest rate on the loan portfolio in combination with a higher average loan portfolio than in 2007. Interest on bonds is DKK 1,100.8 million, up from DKK 790.8 million in 2007. The increase in interest income from bonds is attributable mainly to larger bond holdings compared with last year. Interest on derivative financial instruments, mainly interest income and interest expenses linked to swaps, amounts to DKK 21.9 million relative to DKK 25.6 million in 2007. FIH uses swaps to hedge interest rate risks in its general interest rate risk management and in customer transactions. Interest income increased by a total of DKK 735.8 million to DKK 6,144.8 million relative to 2007. Interest expenses increased by a total of DKK 568.9 million to DKK 4,859 million compared with 2007. Fees and commission income declined by DKK 53.9 million to a total of DKK 250.9 million relative to last year. The fall is driven mainly by a decline in fee earnings from Investment Banking. Market value adjustments The market value adjustment is a negative DKK 53.5 million, compared with a positive adjustment of DKK 510.0 million in 2007. The market value adjustment of mortgage loans is DKK 3.7 million, which is cancelled out by corresponding income under market value adjustment of mortgage bonds issued. The market value adjustment of loans, etc., at DKK 447.8 million, relates to loans hedged by financial instruments. The market value adjustment of bonds is DKK 447.8 million against a negative DKK 234.3 million in 2007. The market value adjustment of shares is DKK 18.9 million against DKK 632.3 million in 2007, while the market value adjustment of foreign currencies is a negative DKK 39.7 million relative to a negative DKK 6.0 million in 2007. Investment properties (operating leasing) are fair value adjusted by DKK 8.3 million, which amount is roughly equivalent to the repayment portion of the lease payment recognised under the item “Other operating income”. There is a negative market value adjustment of derivative financial instruments totalling DKK 429.3 million. Bonds issued refer to mortgage bonds issued as well as bonds issued and hedged using financial instruments. The market value adjustment is a negative DKK 511.0 million. Other operating income Other operating income totals DKK 95.7 million against DKK 85.9 million in 2007. Expenses Expenses are up by DKK 126.2 million to a total of DKK 867.6 million. The average number of employees is 396, up from 335 in 2007. Losses and writedowns Writedowns amount to DKK 494.4 million, up DKK 513.8 million on the 2007 figure. New writedowns total DKK 583.4 million in 2008, compared with DKK 87.4 million in 2007. In 2008, writedowns of DKK 86.0 million were reversed, DKK 15.5 million less than in 2007. In addition, DKK 3.0 million was received on claims previously written off, taking net writedowns to DKK 494.4 million. Net losses recognised for the year are DKK 217.5 million against DKK 47.4 million in 2007. Balance sheet Total loans, including investment properties, are down by DKK 2,378 million, equivalent to 3.1 per cent since the beginning of the year, to a total of DKK 73,767 million. Bond holdings amount to DKK 29,296 million, relative to DKK 13,639 million at year-end 2007. Holdings of shares and investments in associates total DKK 1,332 million, compared with DKK 1,017 million at year-end 2007. Bonds issued amount to DKK 32,681 million, relative to DKK 53,632 million at year-end 2007. Equity and solvency The Group's equity is DKK 7.8 billion at year-end 2008, including the profit for the period to which subordinated debt in the amount of DKK 3.0 billion can be added. Accordingly, the Bank's capital base (liable capital) is DKK 10.8 billion. At year-end 2008, the Group's solvency ratio is 11.9 per cent, while the core capital ratio is 8.8. The 2008 solvency ratio has been calculated using the Standardised Approach under the new Basel II Accord; thus the ratio is not directly comparable with historical solvency figures, but is largely the same for 2008, as it would have been using the previous method. At year-end 2007, the corresponding figures were 11.5 per cent and 8.4 per cent, respectively. Basel II FIH Erhvervsbank reports solvency ratios for credit risk in accordance with the provisions of Executive Order on Capital Adequacy, the Standardised Approach, under Pillar I. The Standardised Approach is also applied to market risk, while the Standard Indicator Method is applied to operational risk. The use of method is unchanged relative to Q3 2008. In addition, parallel reporting of solvency ratios in relation to credit risk is done to the Danish Financial Supervisory Authority using the Internal Ratings-based Approach (Foundation). Credit Risk For all exposures, a review of individual exposures is conducted at least once a year. As part of this review, new financial information is examined and ratings are updated, among other things. Monitoring of credit exposures is undertaken centrally based on FIH's credit system, which contains all material information on the size and utilisation of exposures, collateral provided and estimated realisable value, etc. Risk & Legal continuously monitors the scope, diversification and quality of the loan portfolio, reporting its findings on an ongoing basis to the Executive Board and, periodically, to the Board of Directors. Rating models are used in conjunction with individual credit ratings of customers. Corporate customers are rated using the Corporate Rating Model. The rating scale of the Corporate Rating Model goes from 1 to 12, 12 being the best rating. The model also calculates the probability (PD) that, within the next 12 months, the individual customer will not be able to meet his financial obligations towards FIH. Public institutions, etc., are assigned the rating of 13. The model calculates the probability that the individual customer will not be able to meet his financial obligations towards FIH in accordance with the Basel II rules (i.e. will default on his financial obligations). A debtor's exposures are in default if they have been in arrears for more than 90 days, or if FIH believes that it is unlikely that the debtor will pay off all of his financial obligations without FIH's intervention, e.g. in the form of realisation of collateral or guarantees. The Corporate portfolio is distributed as follows on the rating scale. Rating D represents customers in default. Ratings 7-13 correspond to investment grade as defined by the credit rating agencies, while ratings 4-6 are below investment grade, representing the BB rating category and being of acceptable credit quality. Ratings 1-3 include weaker customers, corresponding to the single B segment of the credit rating agencies. These customer relationships are followed closely. Rating 0 covers the weakest and most risky customers, corresponding to the C-CCC segment of the credit rating agencies. In 2008, particularly in H2 2008, the credit quality of the loan portfolio has shown a negative trend, with increasing average default probabilities and a rise in the number of defaults. Market risk Market risk is the risk of loss arising from adverse changes in the market value of the Bank's assets, liabilities and off-balance-sheet items. Market risk includes interest rate, foreign exchange and equity risk. The market risk of the Bank's total balance sheet (including the market risk not included in the trading portfolio), calculated as the Value-at-Risk of interest rate, foreign exchange and equity risks, is DKK 20 million at the end of December 2008. Value-at-Risk adopts a portfolio approach in the calculation of market risk for financial assets. Thus, in the calculation of asset risk, allowance is made not only for the standard deviation, but also for the inter-correlation of assets. Using Value-at-Risk, it is possible to summarise, in a single figure expressed in DKK, the total risk of the Bank's balance sheet. FIH's Value-at-Risk is calculated at 99-per-cent probability and at a one-day horizon. Thus FIH, at 99-per-cent probability, does not expect to lose more than the figure indicated by the Value-at-Risk model on any given day. Funding and liquidity FIH's large holdings of cash and cash equivalents at the beginning of the year and the DKK 15billion ATP facility have been key success factors in a trying year for banks and financial institutions. Thanks to the cash holdings, cash equivalents, and the ATP facility, FIH has been able to conduct business more or less as usual with its core customers, although it has been necessary to raise interest rates on loans. FIH's membership of the Private Contingency Association means that, in practice, all of FIH's senior debt and deposits are guaranteed by the Danish Government until 30 September 2010 (Bank Package I). Since FIH became a member of the Private Contingency Association, the Bank has seen a significant increase in deposits. At year-end 2008 and the beginning of 2009, Moody's and S&P have given AAA ratings to the Danish guarantee scheme, meaning that, from 2009, FIH once again has access to the important international funding markets. FIH has not had access to raise funding under the EMTN programme in 2008. Instead, FIH has utilised other instruments in the international capital market, such as private placements, bilateral loans and loan approvals. This policy will be adapted, allowing for Bank Package II, which was adopted on 3 February 2009. Over the next few years, particular focus will be attached to growing the deposit base, thus ensuring that, in future, an increasing portion of total loans outstanding are financed by deposits. Return on equity At year-end 2008, the return on equity before taxation is 2.7 per cent p.a., relative to 17.6 per cent p.a. a year earlier. The return on equity after taxation is 2.4 per cent p.a. at year-end 2008, relative to 15.5 per cent a year earlier. Additional remarks The financial statements have been audited. No special uncertainties have affected recognition and measurement in the financial statements. At an extraordinary board meeting, held on 8 January 2009, the Board of Directors resolved to refocus the Company's activities and reduce the number of employees with a view to adapting the Company's business activities to the current market situation. In 2009, the refocusing is expected to reduce income by about DKK 30 million, while lowering expenses by about DKK 180 million. In addition, non-recurring expenses related to the restructuring, DKK 80 million, will be charged to the income statement in 2009. The 2008 results will not be affected by the restructuring. Expectations for FIH's results for the full-year 2009 The net profit for the year 2008 of DKK 184 million is lower than the previously announced earnings expectations of DKK 250-300 million, the reason being a need for further writedowns. For 2009, profit in the order of DKK 1 billion is expected before writedowns and taxation. Much uncertainty prevails as to writedowns for 2009. At the time of reporting, writedowns of about DKK 400 million are expected. Under the assumption of writedowns of approximately DKK 400 million, the net profit for the year will be in order of DKK 400-500 million, not including potential government contribution payments. Copenhagen, 6 February 2009 at 4:30 pm On behalf of the Board of Directors Hans Skov Christensen Chairman Appendices Income statement and balance sheet for the FIH Group and FIH Erhvervsbank A/S For additional information please contact Chief executive officer, Lars Johansen, tel. +45 7222 5000 Statement by the Executive Board and the Board of Directors The Board of Directors and the Executive Board have today presented and adopted the annual report of FIH Erhvervsbank A/S for the financial year 1 January to 31 December 2008. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and the annual report for the Bank has been prepared in accordance with the Danish Financial Business Act. Further, the annual report has been prepared in accordance with additional Danish disclosure requirements for annual reports of financial companies with listed debt instruments. The management's review includes a fair presentation of the development in the Group's and the Bank's activities and financial position as well as a description of the material risks and elements of uncertainty that may affect the Group and the Bank. We consider the applied accounting policies appropriate for the annual report to provide a true and fair view of the Group's and the Bank's financial position at 31 December 2008 and of the financial performance of Group and the Bank and the cash flows of the Group for the financial year 1 January to 31 December 2008. Copenhagen 6 February 2009 EXECUTIVE BOARD Lars Johansen Managing Director and CEO Henrik Sjøgreen Managing Director /Kenneth Retbøll-Bauer BOARD OF DIRECTORS Hans Skov Christensen (Chairman) Guðni Niels Aðalsteinsson Ragnar Árnason Hans Ejvind Hansen Svend-Aage Nielsen Jørgen Vorsholt Per Erlandsen Brun Jørgen Bruun-Toft Randi Holm Franke See the complete company release with graphs and tables on enclosed pdf file and can be downloaded from www.fih.com