Earnings Call: Q4 2017

Feb 7, 2018

Good morning, ladies and gentlemen, and welcome to the ABN AMRO Quarter 4 Financial Year 20 17 Analyst Presentation. At this moment, all participants are in a listen only mode. Following the presentation, there will be a question and answer session. I would now like to hand the call over to the Chairman, Mr. Keith van Dijkow, the CEO. Go ahead please, sir. Thank you very much, operator. Good morning, everybody. Welcome to the Analyst and Investor Call for Avian Amro's Q4 results. I'm joined by Clifford Abrams, our CFO and Tanja Cooper, our CRO. First of all, I would like to say a few words about the announcement earlier this week of our Chairman of Supervisory Board to hand over some responsibilities as Chairman and not to opt for a second term. I respect her decision. There's been quite some coverage in the press and this kind of publicity is of course not helpful not for the bank, not for our clients and our employees. Thanks to our clients and employees, ABN AMRO is in good shape and is making great steps in the area of digitalization, sustainability and innovation. And this is also very much valued by our clients and is evidenced by our rising Net Promoter Score. We will continue to focus entirely on our clients. I hope you will understand that I will not go into further details on this matter. Now let us focus on the achievements and results of ABN AMROF 2017. On Slide 2, you can see that the 4th quarter, our net profit amounted to €542,000,000 reflecting another solid quarter. Our commercial business lines continue to perform well and our cost savings programs are delivering. We proposed a total dividend of 1.45 per share for the year, up strongly versus 2016. And this amounts to 50% of the full year results reported, which benefited from a number of incidentals. We have a strong capital position with a core Tier one ratio of 17.7%. We promised you an update on capital in Basel IV and we will provide this today. Going forward, our dividend payout will be 50% of sustainable profits and we have formulated the context for additional distributions on top of this. Combined, these will deliver shareholders distributions of at least 50%. On the next slide, you can see that I would like first to remind you of the good track record we have made since IPO. The chart on the left shows our strong profit development driven by high business returns and declining impairments. I'm pleased to say that 2017 was a record year for the new bank with net profit at $2,800,000,000 This result was helped by incidentals including the sale of Private Banking Asia. As promised, we will pay out 50% of reported profit in dividends and therefore our shareholders will fully benefit from this strong result. Our dividend increases by more than 17% versus last year to €1.45 per share. As you know, our approach has been to accumulate capital ahead of Basel IV as can be seen from the right hand chart. Our capital position was already quite strong in 2014 at 14%. Since then, we have added another 3.6 percentage point notwithstanding the record dividends payout this year. On the next slide, you can see that we have consistently said that Basel IV would have a material impact on us. We guided last quarter that 500 bps 600 bps was possible. Following the Basel announcement in December, we are now in a position to estimate the impact on our RWA, which is an increase of around 35%. We ensured we were well placed for this outcome by building up a strong capital position in the recent years, thanks to our prudent capital management. As a consequence, even today, we are well positioned for Basel IV, which in fact will be implemented gradually between 20222027. Based on all of this, we have set a new quarter 1 target range of 17.5% to 18.5% for 20 18. Against the backdrop of this clear capital target, we can now better determine shareholders' distributions. Going forward, distributions will consist of 2 parts: a payout of 50% of sustainable profit and on top of this, we will consider additional distributions when our quarter 1 ratio is within or above the target range. I will elaborate on this later. On the next slide, you can see that a fair number of transformation projects are underway. These programs aim to streamline and improve the way we run the business, while always looking to improve the service to our clients. I want to highlight the declining trend in staff levels on the right hand chart. We previously announced a 5 year reduction of FTEs by 13% in 2020. Currently, 2 years, we are now down the road, we are now at 10% below the level at year end 2015. Looking at the trend in our branch network, we currently have just over 200 branches. Our digitization efforts in retail bank led to fewer clients visiting our branches, allowing further closures going forward. So we are showing good progress on our transformation programs. On the next slide, Slide 6, we highlight a number of our initiatives. We are ready for PSD2. Our client applications are ready to include 3rd party bank accounts. We can turn this functionality on as soon as other bank release their PSD2 APIs. Our own developer portal was launched during Q4. Tiki continues to grow rapidly. Currently, we are at 2,000,000 users, which is 1,000,000 more than 6 months ago. There's a lot of interest from business to use this platform to make payment requests. The next area highlighted here is blockchain technology. We have been active in this area for a number of years now, which has led to concrete initiatives in real estate, shipping and commodity transactions. Our online wealth manager Prosperi was launched in Germany at the end of last year. It offers wealth management for fixed fee and a low priced entry point. Even though Prosperity is branchless, clients will still have access to a personal account manager. And with Frank's, we recently launched an online multi currency account for SME clients to facilitate their international payments. Over the past year, we have launched new ambitious programs for socially responsible investment, real estate sustainability and circularity. For the lever, we received an award during the World Economic Forum in Davos for being a forefront of financing new business model based on principles of circular economy. This year, our sustainability efforts were ranked in the top 5% of the global banking industry in the Dow Jones Sustainability Index. We scored 91 out of 100 points in this index compared to an average score of the banking industry of 58. Our efforts in human rights and transparency, particularly related to social and environmental issues were rated highly. I'm pleased with this score, but I believe we can do even more. Another area we will make good progress is diversity. The percentage of female employee in senior management has gone up from 23% to 38% since the introduction of the new management structure, as you can see from the chart on the right. Then I would like to hand over now to Clifford for more details on our Q4 results. Thank you, Kees. As Kees mentioned, we had a solid quarter. Our net profit was €542,000,000 We had quite a few incidentals this quarter, the main ones we disclosed to you prior to our results. In aggregate, the impact on net profit of these incidentals is limited, unlike Q4 2016, where incidentals had a significantly negative effect. We have continued to benefit from low impairments during the year, thanks to the strong Dutch economy. I will now go into more detail on individual line items on the next slide. Turning to Slide 9 regarding client lending. The left hand chart shows our development for mortgages. Volume was up by €1,300,000,000 for the year, although declined during Q4 as usual due to seasonal voluntary redemptions. The mortgage book continued to grow in a strong market and we maintained our 20% market share despite increased competition from other banks in longer dated mortgages. Client loans in Commercial Banking grew through 2017 and continued to grow modestly during Q4 before the transfers to corporate banking. Lending in CIB increased by €1,300,000,000 and was broadly based coming from financial institutions, large corporates and natural resources. Consumer lending was flat during the quarter. Turning now to net interest income. Our reported net interest income was up sharply during the quarter. However, looking through the incidental items and the sale of Private Banking Asia, net interest income was more or less flat compared to Q4 last year. Mortgages showed higher volume, while margins were flat. Commercial Banking showed higher volumes for both loans and deposits with stable margins. The volumes and to a lesser degree margins improved within CIB. Margins improved for domestic deposits both in retail and private banking. Group functions have higher liquidity buffer costs and higher steering costs. Both Commercial Banking and CIB include the full year benefit from the TLTRO, which was recognized this quarter. So net interest income, our main source of income, remained resilient and we see stable margins and some modest volume growth in our main portfolios. Moving now to fee income on the next slide. Fee income during Q4 recovered compared to the previous quarter, Q3. Q3 was weak for Commercial Banking and CIB and both showed a rebound this quarter. Compared to Q4 last year and excluding the impact of the sale of Private Banking Asia, fee income increased marginally. Private Banking and Global Markets increased their fee income during Q4. This was offset by clearing reflecting lower market volatility and retail due to the lowering of fees charged for payment packages in earlier periods. Other income overall was up and up in most segments, but mainly reflects the sale of Visa shares, which delivered around €100,000,000 which was recorded in retail banking. Edge accounting effects for Q4 2017 amounted to €54,000,000 and CVA, DVA, FDA was €32,000,000 Combined, this is €18,000,000 lower compared to Q4 last year. Now moving on to costs. There are quite a few incidental items within expenses during the quarter. However, looking through these numbers, we can see expenses were up compared to Q3 2017, reflecting seasonal patterns and down compared to Q4 2016 last year. Personnel expenses are down over the year, reflecting the steady decline in FTE levels. We took another severance provision in Q4 of €90,000,000 in anticipation of further FTE reductions during 2018. Other expenses are also lower when compared to Q4 2016, again looking through incidental items. This is a result of our progress on the various cost control programs, which Keith discussed earlier. I will now hand over to Tania for an update on impairments in our current capital position. Thank you, Clifford. Turning to slide 13 on impairments. The strong Dutch economy and global economic development resulted in low new impairments. We have a fair amount of reversals leading to a net release of impairments. IB and I reduced this with $7,000,000 while our mobile update led to a release of $31,000,000 mainly within commercial banking. Looking at our ECP portfolio, we booked $33,000,000 impairments during Q4. The impairments added during 20 16 2017 remained well within the scenarios we modeled for the energy and shipping portfolios for those years. As of January, IFRS 9 will replace our current impairment rules. The impact of the first time adoption is limited, reflecting the benign economic outlook. The impact will be around 15 basis points on our CET1 ratio, in line with our earlier guidance. Under IFRS 9, impairments are moving are more forward looking. So going forward, we expect more P and L volatility through the business cycle. Now turning to our capital position. At year end, our CMP1 ratio amounted 17.7%. Looking at the RWA development, credit risk RWA increased mainly due to business growth. This was partly offset by the sale of the CEVA Equity stake and higher house prices, which benefited collateral values. Market risk RWAs declined as well due to lower volatility in financial markets. The leverage ratio increased to 4.1% at year end on a fully loaded basis. We issued a new AT1 instrument. The effect of this was partly offset by applying the EBA Q and A interpretation. As you will remember, this has put a limit on the amount of capital instruments, which are eligible at regulatory capital at holding company level. The leverage ratio was further helped by the decline in exposure measures, mainly the result of lower on balance sheet exposure. Now turning to Basel IV and the impact on our RWAs. As Kees mentioned earlier, we estimated the impact of VASA-four on our RWAs. Based on a static balance sheet and without taking into account mitigating actions, we estimate RWAs to increase by around 35%. The biggest impact is on credit risk in our corporate loans and mortgages. These numbers assume, amongst other things, loan savings to be applied for mortgages and commercial real estate as less operational risk RWAs. Uncertainties remain, for example, due to the room, but before it gives local regulators for setting certain parameters and the fact that it's not always 100% clear how we should be interpreting the rules. I will now hand back to Kees. Thank you very much, Tanja. As you know, we have been consistent on the need to prepare for a possible, but significant Basel IV outcome. And we now understand the impact more clearly being inflation of RWAs of 35%, which Tanja described. We recognize it will take some time before this will materialize. Also the EU may make some modifications and we will mitigate some of the impact as we adapt the business ahead of the gradual implementation in the period 2022, 2027. Nonetheless, we need to manage our capital prudently through transition. We have determined what this means for our current capital in Basel III terms, namely Basel IV implementation buffer of 4%, 5% of CAT1 on top of our current target of 13.5%. This leads to our new capital target range of 17.5%, 18.5% to 18%. We are already in this range. This target range is not a static number. It will be reviewed at year end. And we will, for example, incorporate a possible impact for TRIM as well as Basel IV, SREP and other regulatory developments. We now have a clear target range we wish to operate in and this forms the backdrop for our distribution policy. On the next slide, there are 2 components you can see to our shareholder distributions going forward. The first is a dividend payout of 50% of sustainable profit. On top of this, additional distributions will be considered. So together, shareholder distributions will amount to at least 50%. I will explain each in turn. Our payout ratio will be 50% as we feel this level is sustainable under various scenarios, giving a resilient profile we can expect to maintain. We will exclude from profit exceptional items of an incidental nature, both positive and negative. For instance, dollars 270,000,000 derivatives SME in 2016 or $200,000,000 sale Private Banking Asia last year. These items will of course reflect if they are present in any quarter. On top of the regular payout, additional distributions will be considered if we are within or above the target range of 7.5percent, 8.5percent. Percent. As I mentioned before, this range will be reviewed at year end to incorporate relevant developments. With regards to capital distribution, it's important that we target modest business growth, leading to low single digit growth in our loan book. Also, we expect any M and A opportunities to be funded from earnings. There's no buffer earmarked for M and A. Finally, I want to update you on our overall targets. This Slide 18 lists our current targets showing our updated quarter 1 and dividend targets. Over 2017, our return on equity was 14.5%, when adjusted for the sale of Private Banking Asia, it amounted to 13.4%. So we are performing clearly above target for our ROE. Cost income is also clearly moving closer to the cost income target of $56,000,000 $58,000,000 declining to 2016 to 20 17 from 66 to 60. This target of 56, 58 is set for the year 2020 and we will be focusing on further cost savings and modest business growth to achieve this target. I've discussed in-depth our new core Tier 1 target of 17.5percent to 18 percent and with a core Tier 1 ratio of 70.7 percent, we are within this range. As you can see, we intend to pay our 50% reported profit for 2017, in line with the oil dividend policy, amounting to a total dividend of €1.45 per share. Before I open up the call for questions, I will briefly summarize. On the next slide, you can see I'm pleased with the solid results for the quarter. Our strategic initiatives are on track, leading to better service to our clients at lower cost. We have had a record year in terms of profitability, helped by the Dutch economy, which is performing very well. Our sustainability efforts have received a number of awards this year. We're actively involving our clients on the topic of sustainability, using our influence to make an impact far beyond our own footprint. As promised, we update you on capital. We have carefully analyzed the December Basel IV announcement and this has given us good understanding of the impact on our RWAs. It's clear that even today, we are well positioned for Basel IV, which is reflected by a new capital target. We've given you the factors with which we will look at when deciding on additional shareholder distributions on top of the 50% payout ratio. With that, I would like to ask the operator now to open the call for questions. Thank you, sir. We're starting the question and answer session now. Our first question is from Mr. Paul Ziv of Goldman Sachs. Go ahead sir. Your line is open. Hi and thank you for the presentation. So a few questions from me. Firstly, just clarification on dividend policy. You mentioned that you will consider additional distribution if your capital is within or above the range. Can you help us understand what scope for additional distribution you have when your capital is within the range? I understand that if it's above, you can pay out more. And then second, just technically, you mentioned write backs as well as the option to return capital. Can you clarify at what point in time you will be ready to initiate such program? What needs to happen? And do you think that can take place before the year end? And then the second question will be on Basel IV. Your guidance today for 35% risk weighted asset inflation implies a hit not that far off from 500 to 600 basis points that you previously seen as possible outcome. So I was wondering if you can walk us through any mitigating actions that you are considering at this point in time are possible. And if you are looking to review any of your business lines in the scope of perhaps higher capital requirements? And I leave it at that. Okay. Thank you very much. Clifford, would you answer the questions? Yes. Thank you, Kees. I think on there are 3 questions. So we think about the range as the amount of capital that we want to comfortably operate in at least until we review the capital range going forward. So you asked about scope for capital return within the range. Any consideration of distributions while we're within the range will reflect a range of factors, capital but also other considerations. But importantly, we want to operate comfortably within that range. And so clearly, in practice, that would impose a limitation, recognizing that range is 1%. In thinking about buybacks, I would note that buybacks require regulatory approval, which can be up to 3 months. And further that we don't comment on our process with the regulator. In terms of the timing of any buybacks, we don't rule out buybacks and we don't rule them in. In thinking about additional distributions, we'll reflect on a range of factors. But clearly, we're not ready to do that now as we are at the bottom of the range after IFRS 9 impact and we want to operate comfortably within the range. So any such distributions will be later. In thinking about maybe I'll comment on risk weighted assets perhaps case pick up more general business considerations. Yes, we said that an impact of 500 to 600 basis points was possible in November when we last spoke together as a group. The announcement regarding the rules came out a few weeks later. And so I don't think it should be a complete surprise that we are somewhat lower. 35% corresponds to 4.50 basis points. So somewhat lower impact than we were considering at Q3. And that reflects, I think, the widely reported somewhat more favorable terms when compared to previous consultations. So some of the ratios were somewhat lower references to loan splitting and so on. In terms of business impact, Cees, perhaps you care to comment on how we're thinking about the business going forward in relation to Basel IV? Yes. Thank you very much, Clifford. I think indeed and we've said it before that when Basel IV would be in place, at least known, not in place, but known that of course, we will analyze all the rules and look into all our business lines, how we can adapt here and there ways of doing business. So that is something which is in process right now And we will take of course some time for that. Then of course also repricing in this respect is important. That of course will not happen immediately. But I think that is something which over the coming, yes, presumably years will get more clear. So there are yes, there are several elements. Of course, European Union, I mentioned. So there are still a lot of items which should be analyzed, but also our business lines and that's what we're doing right now. Thank you very much. Maybe just one very quick follow-up. So when we think about the timing of potentially additional capital returns that would that is very unlikely to happen before, let's say, you update us on your capital position again at the end of the year. Is that more or less correct? I think that it will not logically be in the first half of the year presumably, but saying something about the second half of the year, I would say, is perhaps too early. We'll see during the year. Perfect. Thank you very much. The following question is from Ms. Sophie Peterson, JPMorgan. Go ahead. Your line is open. Yes. Hi. Here is Sophie Pietersen from JPMorgan. So in on one of your slides, you also briefly comment other regulatory impacts, including TRIM. Could you just give us an update on how your discussions regulators are going with regards to TRIM? Also, if you are seeing any impact from the new EBA guidelines? And my second question would be on you also briefly mentioned M and A, that if you have any M and A opportunities, those will be funded through profits. At the moment, are you looking at anything planning to expand to new markets? Or how should we think about it? And my third question is on fees. They rebounded in the Q4. How should we think about fee growth in 2018? Thank you. Tania, will you take the first? Yes. Thank you, Toshi for your question. I will take your first question on TRIM. Well, as you are aware, TRIM is an ongoing exercise and we have had our TRIM reviews of mortgages and market risks so far. Well, the final results still need to be communicated. We expect limited impact so far, but this is a continuing exercise. If I can link it and it will take 2018 2019 to basically become fully clear what the impacts will be. We see TRIM as front running on Basel IV. It will harmonize models across Europe. So what you will see is that the impact of TRIM will be reducing the impact of Basel IV. So that's in relation to our capital targets. Thank you. With respect to M and A, no, we have not something in mind at the moment. And in the past, we have mentioned, for instance, in the private bank in France or Germany as an example where we could create a bit more scale. Fees? Yes. Finally on fees, look, you do see some volatility regarding fees and we called that out. So we're pleased that it's bounced back in Q4. I would say this is a more steady level. We see some opportunity to grow fees in certain of our businesses, but we see ongoing pressure in others. So hopefully, that gives you the guidance you need to think about fees going forward. Thank you. The following question is from Mr. Bernard Peartouir of Kepler Cheuvreux. Go ahead. Your line is open. Yes, good morning. It's Benoit Petrar from Kepler Cheuvreux. Yes, a couple of questions on my side. Sorry to come back on the distribution, but I would like to better understand how you will think about additional distribution when you are within the range of 17.5%, 18.5 percent. What are the kind of conditions? Because it looks like you will be somewhere probably be above 18% at the end of the year. So can we expect already more than 50% for 2018? And also, how do we need to see kind of the when you kind of hit the level of 18.5%, so above 18.5%, can we assume this is a more well, substantially higher payout than the 50% limit? The second question will be on net interest income for 2018. And could you provide maybe a bit of guidance in terms of how do you see margins moving into the year? And also looking at your replication portfolio and current rates, do you see still headwinds? Or are things going are things looking a bit better? I was curious about that. And then finally, maybe you could update us on the cost savings program, the €900,000,000 you've put to the market last year. I think you realized a lot of FTE reductions already, also cost cutting. So I was wondering where you are in this kind of big program of EUR 900,000,000 cost reduction by 2020? Thank you very much. Thank you, Benoit. Clifford? Yes. Benoit, so we think a range is the right way to think about our capital position right now. We want to operate comfortably within that range. I think it's important not to get too mechanical regarding CET1 ratio. We do think it's the most important driver, but it's also our way of reflecting the uncertainty regarding Basel IV implementation and our flight path to full compliance from 2022 onwards. In thinking about the factors that we would consider would be how we're positioned within that range or indeed above that range, The trajectory on momentum from that and I'd highlight IFRS 9 as a bit of a wildcard this year. There are other factors to consider regarding capital. We talked about TRIM, but this year there's an industry wide stress test underway. We have the normal threat process and we have other commercial considerations like the interest rate and the impairment cycle. So you answer the things we consider. It's rather a long list. I think in practice that means, as Kees said, look, it's not something that's very likely in the early part of this year. I think towards the end of this year and in particular as we head into our final and the usual time we pay a dividend, all these factors will be fully considered and we will clearly update you then. So hopefully that gives you a bit more color. I think on net interest income, you've seen our margins resilient. I think we see some positive developments on net interest income from modest volume growth when you look through some of the incidentals that we've called out. I think our margins, I'm pleased with how we've managed that. So our interest rates have remained low. We've also reduced further rate to customers. I think it's fair to say that process is nearing its end. And if rates remain as low as they are for an extended period, we'll continue to see some margin pressure in that area. And putting all those factors together is behind our calling out sort of flattish net interest income. I think from a cost savings perspective, that's our comment and in case if you wish to comment further, I think we're making progress. You see that through the FTE reductions. I think I'd like to see those also come through expense savings. We also see cost pressures. It costs us money to save money. We also you've seen our recently announced wage settlement that adds to cost inflation and there's money that we want to spend in developing the business. So it's management's job to manage all of that and hit our targets, which Koos indicated we're comfortable with and remain on track. Just to clarify on the kind of 18.5% and above question. So what will happen when you hit the 18.5%? Can we think about a substantially higher payout ratio than the 50%? Well, I think clearly, if we're at the top of our announcement range, then we're more comfortable. And that will support a consideration of distribution. We also need to see where the Basel IV developments have arisen And as Kees indicated, that will reflect EU implementation. There are a number of other moving parts. But I think as Kees indicated, we're looking to deliver on modest loan growth. So organically, we expect to continue to accumulate capital, which will move us more comfortably within our range, which in isolation will support distribution consideration, but we need to reflect other factors, which a board sensibly needs to consider when paying out sort of discretionary additional capital. So I'm sorry, I can't be more specific, but the nature of our dividend policy now is really to give you to give comfort regarding an underlying 50%, but then frankly retain discretion to top that up in the light of business and regulatory developments. Thank you, Clifford. You, Clifford. And I would like to add one other one, which is also part of the consideration, of course, in the Q4 of each year. Also Dutch Central Bank looks at the 3% Dutch add on capital add on. So that is also something which will be evaluated by regulators every year. So that is also something which is well, but that's a Q4 element. Thank you very much. Our following question is from Mr. Robin van den Broek, Mediobanca. Go ahead. Your line is open. Yes. Good morning, gentlemen. My first question is on operational risk. The RWA inflation you mentioned, is there any consideration in there for potential internal loss effects what the Basel Committee has basically left to the discretion of the local regulator. I think if you look at the SME derivatives file, you've incurred pretty high additional OpEx and also the compensation scheme might be considered as internal losses, which could potentially further inflate the RWA impact. Secondly, if you look at the mortgage book dynamics, I think velocity in Q4 was at its highest level almost historically. And house prices, of course, are very supportive and still the book is only up a very little bit. That's flagging, of course, the underlying redemption of that book that at some point will go even further due to the new annuity framework. And I was wondering if the comment you make on organic growth, could there be something on the table that you might look for a new growth pillar given the fact that your mortgage book might start to release capital at some point? The third question is on Paycomic. You have stopped the initiative together with the incumbent banks yet to work together on that. Can you maybe discuss how you feel TIKI is positioned on the market and why going for something alone could be a better way to fend off new entrants on the market after PSD2? Thank you. Thank you very much. Well, you greeted us as gentlemen, but I will give the first question to Alain. Okay. Well, thank you very much, Kees. I will take the question on operational risk RWAs. Well, of course, here, historic losses will go into the calculation of operational RWAs and the Basel IV. And you mentioned as well that this is also subject to local implementation. So we cannot comment on that yet. I can mention that for our own assessments we have used our current situation. So as of the end of 2017 and we have applied a multiplier of 1. Thank you very much, Tanja. With respect to the mortgage book, I think your analysis is right, of course. It's very hard work these days to keep the book stable or grow. We've been able now to grow it for some period right now. If you look at other banks, you will see a decline in the Netherlands. But we've been able to grow it. There is pressure, of course, as you mentioned from redemptions here. We expect house price to increase by the way this year significantly, but volumes are presumably down. There's no such thing at this moment in time that we look at for an organic growth as asked. With respect to Peconic, it's too early to tell. I think you should not look this only from a Dutch perspective by the way. It's a more European approach where also fintechs and all kind of other solutions will be there in the payment area. So our decision to spend here to work further with TIKI and other possibilities we see also in the fintech environment. Thank you. Okay. Thank you very much. Our following question is from Ms. Filza Pace of Societe Generale. General. I just have two questions really on your capital planning. The first one relates to the 13.5% capital target that you have maintained. Can you just explain why you decided to maintain a 50 basis point management buffer on the top of your SREP and P2G? I guess the remark that goes along with this question is that if you have factored in a 50 basis point management buffer on the top of regulatory requirements, why would you ever need to consider a 5% buffer for regulation to be binding because this is already 40 basis points higher than your estimated capital cost from Basel IV? And then the second question is that I just wanted to get your view about what you expect the ECB to do on future SREP requirements, if you have any view. Do you think that the new vessel proposals now that the new vessel proposals have been issued, the supervisor will be prone to reduce regulatory requirements in the future? Thank you very much. Can you take the first one, Kevin? Yes. I think look, we're comfortable with our target. So our target is 17.5% to 18.5%. We've explained the rationale, which is our call it our existing target in the Basel IV buffer. In coming to that consideration, frankly there are risks as well as opportunities. So you've highlighted some opportunities around double counting of buffers. I think there's some risks in terms of possible unfavorable treatment and further rulings. We've got IFRS 9 coming in. And I think all the whole sector is learning about the volatility of impairments that that will bring. I think we also need to work through the volatility of the Basel IV capital requirements themselves. So we understand how it works with respect to our internal models, but a cap applied to the standardized approach, I think is new territory for us as well as the industry. So we think I don't think it's right to unpick particular elements. That's not the way we thought about it. We've looked at it in the round. We're comfortable with this range. And I think we've been open that we will review it annually, particularly the end of this year as things develop, because our whole regulatory process is still evolving despite the clarity that we saw from Basel IV in December. Thanks Clifford. With respect to new Basel regulation leading to other regulators to lower their regulatory requirements. But we have no indication from ECP at this moment in time. With respect to the Dutch regulator, I would say they have, of course, a Dutch kind of a Dutch add on. And I think their decision making process would not so much look at now Basel is there, we will lower, but more how is the European integration and the banking union and the policy guarantee schemes working out with backstops in case of crises and the likes. So I think that's more the things they look at than just some other regulator have increased their regulatory requirements. Thank you. Okay. Thank you very much. Next question is from Mr. Johan Ekblom of UBS. Go ahead sir. Your line is open. Thank you very much. I think we probably covered capital from every angle. So maybe going back to net interest income. I guess if we look both in the retail business as well as in the private banking and just for some of the incidentals, there seems to have been quite an improvement on the level we saw in prior quarter. Is that a sustainable margin in Q4? If it's just or are there any sort of other effects we need to bear in mind there? Yes. I think, well, looking through incidentals is an art as well as the science. I think we've called out a few. We see the underlying as more flat, to be honest. So I don't know how you've treated the TLTRO. I think that we obviously see the benefit of that going forward, but we booked, call it, the full annual amount last year in 1 quarter. So I think we're pleased with how we've managed it, particularly on the deposit side. I think we've remained, I would say, disciplined on margins. And you can see volumes are, call it, modestly higher, but not significantly higher despite, call it, the benign market conditions. So we're focused on managing NII as a whole. We see it as resilient and we see frankly the prospects that I described earlier for flattish development going forward with some pluses and minuses and some risks and opportunities around it. Can I just follow-up there? I mean, of the TLTRO benefit, where is that booked divisionally? And then maybe just to follow-up on when you say flat, I mean, should we think flat on Q4 ex incidentals or flat on full year 2017 ex incidentals or underperformance? Yes. So the TLCRO is booked in Commercial Banking and Corporate Banking. I think in terms of I mean, I would say Q4 is the level. But when you look through the incidentals, it's been fairly flat through the year in our view. Perfect. Thank you. The next question is from Mr. Adrian Ciecke of RBC Capital Markets. Your line is open. Go ahead please. Hi, there. Thank you. It's Adrian. Tighe from RBC. Just two follow-up questions, please. 1 on NII and particularly on NIM. So you've seen a pretty meaningful increase in NIM quarter on quarter. And can you provide us some more color behind the drivers of this increase? Is this repricing mix or other drivers? And one more follow-up on capital, if I may. So you've outlined essentially two measures today. 1 is the 4% to 5% CET1 buffer and the other one is the 50% payout target. Now even assuming the 35% risk weighted asset inflation, you're still generating somewhere around 150 basis points of capital a year pre dividend. So even post the 50% payout and some risk weighted asset inflation or growth, you're still building 50 basis points organically a year. You have 10 years before Basel comes into place and you're essentially already meeting the target given the 4% to 5% buffer, which realistically comes as a buffer on buffer strategy or a very, very cautious strategy. How much of this is regulatory driven and how much of it or regulator driven rather and how much of this is self imposed? Thank you. Clive, let me just start with the NIM. So a couple of things. There were around $100,000,000 of incidentals in that NIM. So if you look at the chart that we've disclosed, you can see the dotted line is quite close to the trend line. So we don't see a step up in NIM in Q4 when you look through those incidentals. And I would say those directions and some truing up in relation to mortgage penalties. So I refer you to my comments earlier regarding the trend. I think on capital, there are a few elements there. I guess you I think being called prudent, I take that as a compliment. I think that there are we've tried to provide an approach that gives some comfort around resilience of the sort of the stated payout, but also the prospect of incremental distributions when they're there. And in particular those distributions not kind of setting a new platform to grow beyond that because we don't think that's the way to manage a transition in the regulatory developments. So the things I think your figures, I would say, are roughly right in terms of organic capital generation. And those were behind our statements that we would expect to move upwards within our capital target range, but we are now currently at the bottom reflecting IFRS 9. We're hopeful of moving upwards within that range given the trends that Kees described. It's not a life isn't mechanical. There are a number of other drivers of risk weighted assets including credit quality developments, modeling developments. I think we've all been used to a benign economic environment where those credit quality developments have been coming through moderating any growth on our risk weighted assets to date. We need to manage the transition cautiously as well as the economic cycle cautiously. And when there's excess capital, we've called out what we would do with it, which would be a clear consideration of additional distributions. That's fair. Thank you very much. The following question is from Mr. Jean Pierre Lambert of KBW. Go ahead. Your line is open. Good morning. And I listened to the call from the beginning and I still have some clarification or angles on the capital. I'm sorry about that. So the first question is, practically, are you going to reevaluate the excess capital quarterly or at the end of the year? So is it going to be a quarterly process? Or it will be a sweep at the end of the year? Second question related to that is the leverage ratio, which is normally a constraint for dividend payments, I would say, or for your co equity Tier 1 management. How do you incorporate that? Thirdly, will you give a there's a trade off for you between share buybacks and special dividends. How do you see it planning? And why do you need to keep these options open? And finally, the M and A, just to clarify what you said, M and A buffer, does it come on top of the 18.5 percent? Thank you very much. Clifford, can you start with? Yes. So one of your colleagues said that we've done capital sufficiently, but obviously, there's some consensus there. I think there are a few comments. Well, we think about capital all the time, so real time. I think the more material review would be at year end, and you should not expect to see quarterly changes in our capital range of 17.5% to 18.5%. We think that expressing it in Basel III terms gives you comfort that you can calculate it and is clear to everybody. But the major developments that Kees talked about, we see happening through the year. And so we'd expect really the year end to be the opportunity to do that. And clearly, if there were material developments, we'd need to reflect on those. But in thinking about special dividends in particular, the natural time to consider that seriously would be at the year end with our regular dividend. I think in terms of leverage ratio, we're pleased with the current leverage ratio of 4.1%. Tanja talked about the drivers. We will look to maintain that at above 4% going forward. We don't think that would be a material constraint on what we've been talking about, but does need managing and there are regulatory developments in that space as well. In thinking about buybacks versus special dividends, I think we're clear we're open minded about any form of capital return when the Board considers it appropriate. Each has advantages and disadvantages depending on circumstances and frankly depending on the share price. So we want to keep those open. I think special dividends, I commented on the timing considerations regarding that. I think buybacks also requires a more formal process with the regulator, which could take up to 3 months. And so both tools have pluses and minuses and we want to express to you we're open minded about those depending on the circumstances. But first, we need to determine whether there's an excess in which to distribute. I think regarding M and A Yes. M and A, what I try to say is that there's no buffer on top of the 7.5%, 8.5% if we do small acquisition, we would finance it from our profit. Great. Thank you very much. Our next question is from Mr. Bruce Hamilton, Morgan Stanley. Go ahead sir. Your line is open. Hi there. Good morning guys and thanks for the presentation and all the answers. So I've got one more on distribution. So I think I understand the message is quite clear that you want to move towards sort of the upper half of the or the upper end of the sort of range or a comfortable level. So I assume you haven't thought about trying to make the total distribution progressive as we think about what you paid for 2017 is the first question. Then secondly, I'm just looking at sort of SME demand dynamics in the Dutch market. The loan growth in your commercial book looks pretty good indeed. I mean, if I look at the system level data, it looks like growth has been pretty lackluster on the corporate side. So I was just trying to understand if you it looks like you're taking market share, but are you seeing any underlying signs of improvement driven by the improving GDP backdrop? And then finally, on cost of risk, what's in terms of the ebony reserve outstanding, I mean, I guess we should just thinking about 2018 cost of risk, we should assume sort of normalizing back towards the cost cycle average, but presumably running below that. Any words you have on guidance there would be helpful. Thanks. Stefan? Yes. So I'll deal with the first two and Tanja perhaps the 3rd. Look, we're aware of and pleased with our dividend for 2017. And that reflects a step up from 2016 relating to a disposal, but also I think cyclically low impairments. We can't really comment on distributions regarding 2018 beyond the comments we've made. But we're clearly looking to sustain the stated 50% power and we'll consider additional distributions on top of that in light of the circumstances we described earlier. I think around SME, I think your comments are interesting around that. I mean we've seen, I would call it, steady growth in the Commercial Banking book, which we're pleased with. We have we've introduced a new sector approach to the team there, which is quite a big change for the market and in terms of our relationship with our clients. And we're pleased we've traded quite well through those material changes. And I think medium term, I'm hopeful that will sustain our market share going forward. And we do need to recognize, I think we're pleased with the economic conditions, but we don't want to do things we'll regret in a few years' time when the cycle inevitably turns. I think positive risk, Tanja. Yes. A few comments on cost of Also in the IFRS 9, we still believe that through the cycle cost of risk will be between 25 to 30 basis points. Of course, last year was not a normal year. If you correct for all kind of model changes we have then the average the cost of risk would be around 6 basis points. Our outlook for 2018 is well above that number, which was I think historically low, but well below the through the cycle cost of risk. Thank you. Our next question is from Mr. Bart Jooris, the whole of Stuttgen. Regarding IFRS 9, if I can come back on risk costs, do you have already a more quantitative view of what that would mean for 2018 impairments? And then on costs, given that you already reduced FTEs by 10% of your 13%, does that mean that we should no longer see significant restructuring charges? And what about your expected ICT investments this year? Okay. Thank you. Well, on the expectations for 2018, I cannot add anything to what I just said. It's well, it will be above the levels that we've seen in 2017, but still below the through the cycle cost of risk. And just to clarify that, is that because of IFRS 9? Or it's just because you have flash releases planned? No. It's not specifically related to IFRS 9, which you will see as a consequence of IFRS 9 that some of the cost of risk will be front loaded through the introduction of Stage 2. Cost of risk, But given the economic outlook, we don't expect a very major impact in 2018. Okay. Thank you. Yes. I think just commenting on costs. I think we're pleased with our digitization progress. We do expect costs to require further work going forward. And it's possible that there are further FTE trends that play out over the medium term. So we're not I don't think we're calling the end of FTE reduction. Any business in this environment needs to continue to bear down on costs and people costs are an important part of the business. I think in terms of restructuring charges, I think in terms of restructuring charges, they've been meaningful last year and this year. And we are conscious of the need to continue to improve our processes and work on that. It's possible that there are restructuring charges going forward. And we'll call those out to you. I think in terms of ICT, there are a few things going on. I mean, we do need to see cost of technology, cost of change as part of our overall ongoing expenses, not a sort of lump sums that dispense and then disappear going forward. We're investing in our new challenger propositions that Kees described. We also have a new Innovation and Technology Director. And we'll update you further on plans and thoughts around that. We're not looking or expecting major programs, but I'd be disappointed if Christian hasn't got good ideas about how we can improve our business going forward. And we will update you further on that later in the year. Okay. Thank you very much. The next question is from Mr. Stefan Nedialkov of Citi. Go ahead sir. Your line is open. Yes. Hi, guys. It's Stefan from Citi. I got three questions, hopefully quick ones. Number 1, on the leverage ratio benefit from the clearing redefinition. You have upped the guidance to 50 to 60 basis points. I wanted to confirm that this is already net of the off balance sheet factors. And to get some color on what exactly early adoption means? Are we talking 2018, 2019, etcetera? So that's question number 1. Question number 2, in terms of M and A, can you please refresh us on your M and A targets? What type of criteria does Target need to meet in order for you to go ahead, especially with respect to cost of equity or ROI or ROAC, etcetera, etcetera? And the last question, when you talk about M and A being funded out of earnings, just looking at consensus, consensus has you basically making anywhere between €2,000,000,000 to €2,300,000,000 per year through 2020. You're paying 50% of that, so that leaves you SEK 1,000,000,000 or so for an acquisition. Applying all the assuming one times book value, RWA additions, etcetera, that basically led to buy something for, I guess, dollars 20,000,000,000 $25,000,000,000 in assets. Does that make sense? Am I thinking about it the right way? And what sort of $20,000,000,000 to $25,000,000,000 worth of assets make sense to you from a strategic point of view domestically or outside of the Netherlands? Thank you. Leverage ratio? Yes. I think on leverage ratio, I think we're calling out the impact to slightly larger, reflecting growth in the business of clearing and our overall balance sheet dynamics. I think the confirmation you were looking for was yes in terms of your first question. In terms of timing, I think it reflects the implementation of CRD V, CRR II proposals. We don't expect that in the short term, in particular, not in the time scale that you talked about. I think what's on our minds is we do see the likelihood of this benefit in the medium term, and we want to reflect that in terms of how we manage it in the short term, which means we're more frankly more comfortable being at around 4 knowing there's a prospect of a meaningful, call it, uplift in the medium term. And that's how we're thinking about it. So we don't expect that uplift short term, but it's giving us comfort that it's there in the medium term. And we manage to and we think about this in terms of a glide path. I think M and A thanks Clifford. M and A, I think we've communicated, I think it was around IPO and actually our sponsor is still the same, is that if there would be the private bank in say Germany or France will be add ons, which would add scale, but onshore impeccable positions and the like. So there are not so many opportunities around. But that's what we said. So that's small. And your first question about the $20,000,000,000 $25,000,000,000 assets, that's all the kind of calculations we make right now. Okay. Thank you. Our following question is from Mr. Tarek El Mejjad of BAML. Go ahead sir. Your line is open. Hi, good morning. Yes, I think I have another angle to the capital question topic. So you guide for a review of your capital return once you are above or within the range. But if you look at your capital generation, given like a negative immigration in RWAs and so on and some growth, You won't be there between before 2020 or 2021. Is that quick thinking? And also the TRIM, I'm a bit surprised by your comments that will your term was France 1 Basel IV. My understanding is that there's no really overlap between the 2, but maybe you can tell us why you come to this conclusion that actually higher TRIM will be will mean lower sorry, higher buffer for will mean lower TRIM. And on the asset quality review, the idea I mean, last time in 20 16, you didn't score very well. The drawdown on the stress test was very high. What have you done since then to make sure you pass it better? Because my understanding is that the Pillar 2 gs is probably highly impacted by that results. And maybe you can actually disclose to us the Pillar 2 gs as some of your colleagues did to give us more comfort that actually your 13.5% includes some decent management buffer. And last point, which is not really a question, is a comment. I mean, I understand market wants to get some capital back, but it's clearly stated today that there is no excess capital as such in the medium term. And I think you better keep any capital built and try to find roots for growth rather than hoping for some special, which at the end, I'm not sure that adds much to shareholder, but that was my personal view. Thank you. I think to Trim, can you help me? Yes. Can I start with your question on Trim? So as you are aware, we have quite low RWA levels for shares and asset classes. And if that would increase because of TRIM, it would still be below the output source for Basel IV. So that's why it will reduce the impact of Basel IV. On the EBA stress test, of course, we have done a full exercise and lessons learned based on the last stress test and the past 2 years, a full remediation plan has been implemented to be well prepared for this year's exercise. And on the P2G, I cannot give any comments. It's included the P2G in the 1.5%, percent which then indeed includes the management buffer and the P2G. So you can well, I think you can make more or less your own calculation. Then with respect to growth, I think what we're aiming for is, of course, growth if it's profitable, and that's our perspective. So it's not just growth, yes, by itself. Okay. Thank you. Yes. Our following question is from Mr. Matthew Clark of Main Go ahead please. Your line is open. A few questions on net interest income and growth and that sort of thing. So firstly, you gave a flattish net interest income outlook last quarter. The yield curve is materially higher since then. And you're still talking about a flattish net interest income outlook from here. Is the higher yield curve really changed anything from you? And maybe if you could also just talk about mortgage spreads here, given that the yield curve has moved and mortgage rates don't seem to have done yet? Is it still attractive for you to be writing new mortgages at the current level of spreads and any commentary there would be appreciated? 2nd question is on CIB loan growth. Obviously, pretty strong. I think it's 11% or 12% in your slide. Are you happy with that kind of level of loan growth going forward from a risk perspective? Any comment there would be appreciated. Thanks very much. Yes. On loan growth? Yes. On the CIB loan growth, yes, so of course, we carefully look at the economic cycle. If it comes to loan growth, we have seen in our main sectors, the ECP sector, we have seen considerable improvement in terms of credit quality and also the modest loan growth projected we are comfortable with from a credit risk point of view. Yes. I think on margins, we hedge the hedge our position with respect to interest rates. So we're not all that sensitive to interest rates, although we welcome a gently rising interest rate environment. I think you sort of answered your question in a way, which is it takes time for the business to adapt to a different interest rate environment. I think it's possible that interest rates may well be higher this quarter than last. But I think we need to see that persisting and maturing before we called general change in trends in the business. So let's monitor it quarter on quarter and look forward to catching up later in the year. Okay. Do you based on the forward curve as it is, do you still see a headwind from the kind of falling calculatory asset yield 2018 versus 2017? Yes. On the deposit side, yes, we are we're looking to actively manage margins and we're reaching towards the end of that. So we're kind of at an inflection point, which was behind my comments earlier on margins. So if rates stayed lower, that will put pressure on margins. If rates are ticking up, that would relieve pressure on margins, but then we need to see where consumer rates move in that direction. But you say if rates are you talking from the current level as of today or from a kind of a 2017 average level or from a 4th quarter average level just because the yield curve has moved so far year to date or since the Q4 average? Just trying to work Yes. Look, I understand. And I can understand. But we don't manage the business in that way and don't give guidance in that way. I think I gave the guidance earlier, really keying off Q4. I mean, we'll update that later in the year if there's structural change. And clearly, week to week, month to month, you can take a real time snapshot and frankly form your own views on the direction. We need to operate the business in a stable way, which I think reflects some of the Okay, understood. Thanks so much. And with respect to the Okay. Understood. Thanks, Suraj. And with respect to the I mentioned the 1.5 B2G management buffer. But as mentioned on Slide 16, it's 1.7. Sorry for that. Our next question is from Ms. Natasha Blackman, Societe Generale. Go ahead. Your line is open. Ms. Blackman, your line is open. Go ahead and ask a question. Hello. Hi. Sorry, I was having some technical problems. This is Natasha from the credit research team at SG. My questions are on funding. First of all, you have any subordinated debt funding to do this year? It looks like you're now full on the AT1 side. And second, would you be able to provide an update on timing of nonpreferred senior issuance and how much you're looking to do? Thank you. Yes. I mean, we don't comment on our issuance plans at that level of detail. I think in nonpreferred senior, we're looking to build our MREL over time and take advantage of new market opportunities, which we expect towards the end of this year, early next year. Okay. Thank you. Following question is from Mr. Kiri Vijay It's Kiri Vijayarajah, HSBC. Just a couple of follow-up questions on your volume ambitions. So firstly, where do you expect your mortgage market share on new origination in the Netherlands to be this year? Is it do you expect it to be up or down on last year? And then when I look across Slide 9 and the mix of growth in the different loan segments there, is there any rebalancing we need to think about back towards the Netherlands when we look at some of the macro indicators? Or is it more just the same where actually the international book continues to drive the growth for you guys? Thanks. Think with respect to the mortgage markets, over the year, we had a 21 market share, Q4 2019. So that's a bit of the margin we are, I think, the largest bank in the Netherlands was a 2022, Rabo. So I think it's we like this market share, but it's definitely in the end related to making hurdles and making profit doing a profitable business. With respect to the growth, well, this means it's difficult to forecast the mortgage book. We have flattish or small growth there. And with respect to the growth of the SME, we always guide Dutch growth. And with international, we guide world trade and we still do. Our following question is from Ms. Alicia Chung. Go ahead. Your line is open. Good morning, everyone. Just one question for me. The underlying cost for 2017 was around €5,200,000,000 including the rent cost. If we look at 2018 specifically, what can we expect in terms of investments and cost savings this year? And can you give any guidance around what kind of cost growth we can expect when you combine the 2 together? Then more broadly, is it possible that you under given the way underlying cost is progressing, is it possible that you undershoot your €5,200,000,000 target by 2020? Or is the intention to reinvest any cost savings or any of your undershooting back into the business? Thank you. Yes. I think from a I agree with your calculations in terms of costs excluding incidentals for last year. We are focused on driving down costs sustainably over time to and in particular to meet our cost income ratio target for 2020, there will be some movement. I think we want to we do want to invest in the business and we expect to see that happening further both technology and client developments, but also investments in, call it, further cost reduction. So we want to see that happening in 20 18 2019. We're very committed to our cost income ratio targets in 2020. And hopefully, that gives you the guidance. I mean, it's possible that the cost levels drift up reflecting those investments, but we don't want to we don't want that to drift up too much quite frankly, because it's important that the whole business manages costs in a disciplined way and hits that costincome ratio target in a way that's sustainable going forward. Our following question is from Mr. Max Enslow Govelo of Jefferies. Go ahead. Your line is open. Yes, good morning. I have no question on capital, just focusing on business. The first one is on retail and private banking. Can you give us how many how much asset have been moved over 2017 from private from retail banking to private banking? And which kind of ability you're going to have to increase the profitability by the transfers on those assets? The second question is a follow-up on the corporate and institutional banking comment of Antania. On the offshore segment in your interim report, you're saying that we reached a bottom. The comment is meaning that you are feeling more comfortable in terms of managing your cost of risk or you are going to have the ability to accelerate the loan growth? Many thanks. Yes. I think on net flows, I think we saw EUR 1,700,000,000 net flows into Private Banking, and about half of that represents a transfer. That's for Q4. Okay. And on full year? Yes. It's a similar sort of trend, I would say. Okay. And by how much you are able to increase the profitability? Because I believe you are going to be able to offer to those clients moving to the private banking more adequate products. How long would it take to improve? Well, I'd say that business, as you know, is a EUR 200 billion private client asset. So we're working hard to deliver value to all our clients. And I think we'd like to see improved growth and financial performance across that business. I wouldn't call out that specific chunk of assets in particular. We think those businesses are those kinds are best managed within the private bank. Okay. Okay. And then with respect to your question on CNIB, you mentioned specifically offshore. With respect to offshore, we will continue to be cautious and want to see some more fundamental improvements as well. My comment was more broadly as well on the ECT sector. Okay. Many thanks. Next question is from Mr. Marcel Huben, Credit Suisse. Go ahead. Your line is open. Good morning. Thank you for taking my questions. I have 2 left. The first one just to come back on your interest rate hedging. Could you disclose to us the interest rate sensitivity in year 3 or post year 3? I think you have disclosed it in the year 1, but I just would like to know year 3 and if you just adjusted your hedging program as some of your peers have done. The second question is on, again, Bauser foreign capital. Am I just right to assume that the 35% risk weighted WA inflation is assuming no watering down of the output floor? So it seems ultra conservative to me. And would that in turn also mean that if there is watering down, your target would decline by that? Thank you. Yes. Just on picking up these questions. The on Basel IV, look, we with rules that are just out, we think the most transparent way is to provide an estimate on the rules as published in line with our best judgment. I'm not completely clear what others have done, but I think we've been quite transparent on that. As the rules emerge, we will reflect on our estimates and reflect on our capital range. But we as we stated earlier, we need to prudently manage the transition, not snap backwards and forwards in the light of the latest sort of speculation regarding rules? So I think that's on the first question. Yes. The question related to Basel IV 35 being too prudent because no watering down of output floor included. That's correct. That's not included. To be honest, I don't know what the effect there will be in Europe, because the output floor is, of course, quite a yes, it's a real Basel outcome. So to change that, I don't know if that's possible. Let's see. Or that in Brussels, also discussions will concentrate, for instance, on mortgages and the likes or growth in Europe as me, I don't know. So we don't know yet, but it's too early to tell that this is too prudent. Yes. Just picking up your first question. Look, we hedge our interest rate. We match that. We are exposed to rising rates. We'll disclose that in our annual report when it's out in a few weeks. In terms of our overall position, we have shortened our equity duration towards the end of last year. I don't think it's I don't regard it as hugely material because our overall interest rate position is fairly modest. In hindsight so far that looks smart frankly, but we need to see how rates develop going forward. And you'll see a few more details in our annual report when that comes out in March. Okay. Excellent. Just a follow-up, if I may, on the cost programs. I was just wondering because now underlying for 2017, it's like roughly EUR 5 point 2,000,000,000 that is in line with your target for 2020. How much more cost savings would you need to keep this nominal level of €5,200,000,000 sort of flat for 2018 2019? How many cost savings programs additionally or incrementally should we expect to keep it flat? Thank you. Well, I think we're working on our existing programs at the moment and we think that we can manage then the needed cost development in line with the 56, 58. Okay. Thank you. Our next question is from Mr. Davey no, excuse me, Nick Davey of Redburn. Go ahead please. Your line is open. Yes. Good morning, everyone. Three questions, please. The first one just sort of high level question really, thinking ahead to the next three quarters. If I sort of sum total, lots of your areas of guidance, you've talked about flattish NII. I think you've talked also about some pushes and pulls on fees, which alludes to flattish. You're talking about costs with some pushes and pulls maybe flattish, and you've postponed the dividend debate for another year. So when we tune in over the next three quarters, what are our sort of benchmarks of success? What do you hope to be sort of showing us between now and this time next year by way of progress, just some tangible things for us to look for, please? 2nd question, back to the sort of revenue and cost dynamic. You're sticking to the 56% to 58% cost income, but again, the revenue momentum at the moment is not as you planned. At what point would you revisit the shape of revenue and cost aspirations to give us a clearer path to the 56% to 58% if the revenue environment is tough? And then the third question, sorry, it's another sort of interest rate and yield curve 1. But I just wonder if there's any other help you can give us really on the deposit hedge or replication portfolio, how it's constructed, so we can understand or make our own estimates from the outside in on where the yield curve would need to get to for you not to be worried about this deposit hedge reinvestment. I think ING we're talking about savings accounts at a 5 year duration, current accounts at 7. Does that resonate at all? Thank you. Thanks for your question. Let me take the first one. I think when you have a high income level and a low cost level, I think indeed in some circumstances some keeping some NII to give an example flattish and so on is something we also think it's would be a good result. We already mentioned, I think, the mortgage the pressure on the mortgage book as a result of redemptions. So we have to work hard there. And I think you should also take into account the levels of ROEs we have right now. So I think that should also be taken in consideration, I think, with respect to this question. But we will work hard, of course, to grow and to diminish costs and the likes. So no worries about that. But you have to take it into context of the figures. Yes. I think on replicating portfolio, I've actually read the transcript. I think those orders of, call it, duration are not unfamiliar. We're operating in the same market following the similar sort of analytical process. I don't think giving specific guidance around that is all that helpful. What we've done is called out some of the pluses and minuses. We've reduced our deposit rates, including bonus rates. So we're able to manage, at least so far, the consumer rates. I think I've called out the challenges if low rates continue in the medium term that would pressure margins in the medium term. And we need to we're frankly managing margins across the business, including the asset side and on the funding side. And that's what's driving our guidance around NII. So we don't plan to give specific sort of yield curve guidance on specific products. But based on what you've said, that sounds broadly familiar. Very helpful. And sorry, if I could just ask a follow-up on the shape of the plan to get to 56% to 58%. At what point, if the revenue environment is still tough, would you update us on maybe a more punchy cost aspiration? Yes. I think we're committed to the 56% to 58% costincome ratio target because we think that reflects an efficient business in this market rather than a specific number. That triangulated to the CHF 5,200,000,000 I think we're broadly on track with those numbers and we'll continue to update you. I think we're also conscious on some of the comments earlier around growth and the need to invest in growth. And I think it's our challenge is to ensure we do both, which is to invest selectively in profitable growth areas, but also continue to bear down on costs and digitize processes so that we are serving our customers cost effectively. I think Kees updated briefly on that at the start of his presentation, and we'll look to do that on an ongoing basis each quarter. Very helpful. Thank you. We have another question from Mr. Stefan Nedialkov, Citi. Go ahead. Your line is open. Yes. Hi, guys. It's me back again. Hopefully, a very quick one. In terms of costs, could you update us on the overhaul of your core banking systems, the simplification process that you started several years ago? Where are we? And should we expect in 2018 more of a cost pressure coming from there? And then secondly, in terms of the ATM consolidation with all of the other Dutch banks, can you just give us again some color on how that is likely to impact the ongoing costs in 2018 plus? Thank you. Thank you. I think the ATM is actually too early to white labeling over there to I'm not seeing figures yet in that respect. I think it's on the €5,200,000,000 will not be very big, I presume. No, I mean that's exactly the sort of thing you'd expect us to be doing. It's not hugely material to the EUR 5,200,000,000 but sensible cost management on the part of the industry. So I think in terms of I'm not sure frankly we've got much further to add regarding costs. I mean the we've discussed it in detail. I think the what we call our TOPS 2020 program is proceeding well. We gave an update on the migration of the systems to cloud at the last quarter. I wouldn't necessarily call an overhaul of our core banking system. I think it's more in terms of a simplification and modernization of IT. It remains on track and that underpins our update and our confidence regarding our long term costincome ratio target. Okay. Thank you. I think it's 12:30. So I think that we more or less need to finish this one. So if there's still an urgent question then, but if not then I would like to end the call. Operator, are there still questions? Sir, we have no further questions. Please continue. Okay. That's great. Well, then I would like to thank you all very much for attendance of this call and hope to speak to you later. Thank you very much. Operator, thank you as well. Thank you very much, sir. Ladies and gentlemen, this concludes this conference. On behalf of Abi and Amro, thank you for attending. You can disconnect your line now.