Thank you, operator, and hello, everyone. Welcome to
the conference call for Danske Bank's financial results for the first half of twenty twenty one. Thank you all for taking the time to listen in on this call today. My name is Claus Inger Jensen, and I'm Head of Danske Bank's Investor Relations. With me today, I have our CEO, Carsten Eris and our CFO, Stefan Engels. Slide 1, please.
In today's call, we will present Danske Bank's financial results for the first half of twenty twenty one. We aim to keep this presentation to around 30 minutes. And after the presentation, we will open up for a Q and A session as usual. Afterwards, feel free to contact our Investor Relations department if you have any more questions. I will now hand over to Carsten.
Thanks, Claus. In many ways, the first half of twenty twenty one was a period with a lot of changes, not only for the societies, but also for Danske Bank. The year started with a more or less complete lockdown in many countries, whereas the status at the end of the first half year with an almost complete reopening of the societies in which we operate, thanks to a successful rollout of vaccine programs. This reopening also allowed for a solid recovery of the economies led by improved consumer spending, which is now at levels higher than the levels before the corona crisis. In Denmark, the housing market has remained surprisingly strong throughout the pandemic and together with other macroeconomic indicators, it serves as a strong evidence of an economy in good shape.
For us at Danske Bank, this continuing rebound has translated into higher customer activity in particular driven by customer activity in the capital markets, where we benefit from strong value propositions, not least within the fast growing area of sustainable finance. Despite some uncertainty still existing with regard to the impact of phasing out of government support facilities, the outlook for the remaining part of the year is promising. And on that basis, on 8th July, we announced a revised net profit outlook for the full year. We now expect net profit for 2021 to be more than €12,000,000,000 based on lower than expected loan impairment charges as well as higher customer activity. Financially, we had a good first half of the year.
Our profit before tax came in at $7,800,000,000 up from $1,500,000,000 in the same period the year before, driven by stronger income, lower operating expenses and a significant decline in loan impairment charges. The result is equivalent to return on shareholders' equity of 7%. It's clearly a step in the right direction. However, it's not at the desired level and we still have a lot of work ahead of us to ensure we can meet our financial ambitions. We have continued execution of cost management initiatives as evidenced by lower expenses in the first half of the year.
Expenses were down 7% from the same period last year when excluding primarily tax related one offs in the first half of this year. One of my key priorities after taking up the CEO role has been to assess our progress on the ambitious targets we set for our stakeholders and Q3 2019 and our focus areas for 2020 2021 to ensure that we focus our attention on the right things. We have clearly stated that in the short term, we would get compliance and costs under control, while at the same time gaining commercial momentum. We continue to deliver on these targets, especially with regard to compliance, but also on the cost side, where we can see that our cost initiatives are yielding results as underlying costs are gradually coming down. It is also clear that we have areas of the bank in which we're top ranked by our customers and performance is firing from a commercial perspective.
This is especially true at LC and I where our capital markets offerings performed extremely well. And over the course of several quarters now, our efforts within sustainable finance are becoming an even more important part of the value proposition to our customers. However, parts of our retail banking division are not seeing momentum at desired level due not only to increased competition in the Nordic countries and the interest rate environment, but also to reputational issues in Denmark. Further, our operating platform outside Denmark is not yet at a sufficient scale and therefore we still need to become a simpler and a more efficient bank. We do have tremendous potential to leverage in these markets with our top tier offerings across the Nordic region and our extensive customer base in Denmark.
The decision to sell our business activities in Luxembourg also reflects our efforts to simplify our footprint and allow us to focus on the Nordic customers. Moreover, during the Q2, the commercial leadership team has further accelerated its effort to identify areas of weak performance and profitability potential, which will be in scope for targeted business initiatives. Moreover, we're now approaching the midpoint of our better bank plan and a lot has happened both in terms of execution, but also in terms of the operating environment and the macroeconomic conditions that we have changed since 2019. We are therefore in the process of sharpening already planned initiatives and recalibrating our assumptions for the remaining period towards 2023 in order to illustrate how we deliver on our financial ambitions and we expect to update the market on this at the presentation of our Q3 results. Slide 3 please.
I'm confident that improving our market position in Denmark and the momentum across our Nordic platform is achievable. What we've accomplished with regard to various parts of the Better Bank plan clearly demonstrates a strong foundation and the ability to execute on our priorities. And I want to highlight the 3 pillars that demonstrate this. The first pillar is how we've managed to upgrade the compliance function over the past years. The compliance function has been completely rebuilt based on best practice and with strong profiles in leading roles who have both extensive and international experience.
Moreover, we've launched and seen good progress on our financial crime plan, which covers all regulatory requirements and best practice recommendations. And finally, our compliance related IT systems and processes have been significantly upgraded. We have successfully developed and launched an important first solution that it will allow customers to submit their personal information digitally. In addition, we successfully embedded an automated review capability to support the assessment of customer information and customers' use of our products and services. The second pillar is how we've completely transformed our development organization, which comprises around 4,000 employees.
Just changing the governance structures, the incentives, Resource allocation and so on is an achievement where the number of employees in scope is of this size. However, we're now roughly 7 months into after the launch, and we have managed to do the change while staying on schedule in respect of planned deliverables and new solutions and infrastructure. Building even further on this momentum within digitalization will be crucial in order to regain our commercial momentum in Denmark, in Sweden and in Norway by delivering better and more efficient digital solutions to our customers. Just by way of examples, I want to highlight the progress made on the Swedish mortgage processes as 95% of all mortgage applications now run through a digital flow and also the recent improvements to our click to remortgage process for personal customers in Denmark, which now offers more efficient processes and additional calculation options. Similarly also in Norway, we reduced the time to yes from 14 days to just under 3 hours for our digital car loan solution, something which has already improved customer satisfaction and increased volumes.
I believe it is safe to say that these First results are important elements in supporting our commercial momentum. However, as digital transformation is more of a constant, we're far from done. For the second half of the year, we plan further digitalization initiatives to ensure we capture the before mentioned potential, but also to ensure that we establish a foundation to build on in the years to come. For instance, we're further expanding the toolbox available to our customers to self-service their remortgaging needs. We'll also make it far easier for them to ensure an ongoing inflow of deposits into investment funds through the mobile banking app.
Finally, we'll further expand the functionality of our district platform for business customers and pilot a new fully digital sales channel for low and medium complexity products to our corporate customers, which will be a stepping towards increasing the rate of digital sales. And in addition to these initiatives, we'll of course continue to allocate a sizable amount of our development capacity fulfilling regulatory requirements and supporting our compliance in AML agenda. However, important both are to a large extent also important enablers of our general digitalization efforts. The optimization of our customer journeys feeds directly into the 3rd pillar, namely how we are in the forefront of supporting customers, commercial and sustainability ambitions. The importance of sustainability transitioning is growing rapidly and we do our utmost constantly to adapt our capabilities in this field to support our customer goals.
As latest last week, we tripled our 2023 target for volumes within sustainable financing from well above DKK100 billion to 300,000,000,000, a level we consider quite ambitious. We continue to make sustainable financing and investments accessible for our customers through products new products such as the 2 new mutual funds, global sustainable future and Danica Green Balance and also by supporting issuers and investors in a substantial amount of transactions, which confirms our position as a leading bank and our top 10 ranking globally as a ranger of green bonds. Moreover, our position within sustainable financing also supports the continuously strong momentum we have when it comes corporate and institutional customers in general. We continue to see the fruits of our investments in our Capital Markets platform as our customer satisfaction ranking remains the highest among the pack and we capture an increasing volume of opportunities within ECM and DCM. I believe that this underpins the value of our diversified business model, especially in the current environment with subdued demand for credit from businesses.
Finally, the offerings we have within Asset Management remain attractive as evidenced also by net sales growing for several quarters now. And the majority of our investments funds perform above benchmark. So taking a step back after my Q1 as CEO. I'm encouraged by the commercial priorities that we've set out and from what I've also experienced First hand from our frontline offices and my constructive dialogue with existing and with new customers and clients, I'm confident that we have the foundation and the capabilities for navigating in the current operating environment and also playing a leading part in terms of the sustainability agenda as our customers and society as a whole transition to meet the realities of tomorrow. I'm looking very much forward to providing you with more details later in the year and We're taking questions later on this call.
And then I'll hand over to Stefan for the financial results in more detail.
Slide 4, please, and thank you, Carsten. I will now go through our group income statement before we provide more detailed insight into performance of our business units. As Carsten just mentioned, we had good results for the 1st 6 months. Overall, the results were founded on good progress for all Key reporting lines, including total income, expenses and loan impairment charges. Total income benefited from a positive development in all income lines.
NII was stable from last year as well as the preceding quarter as deposit repricing initiatives partly mitigated continued margin pressure. Net fee income benefited from stronger customer activity and came in 11% higher than the year before, not only on the basis of strong demand for capital market financing solutions among our customers, but also on the basis of a rebound in activity rate fee income from personal and business customers. Compared with the preceding quarter, we saw a positive impact from a couple of large capital markets transactions and mortgage bond refinancing, The strong momentum for customer activity driven primarily by LC and I continued and fee income held up well. Trading income benefited from improved market conditions. Compared with the same period last year, trading income was up 21%, however, stable against the preceding quarter when adjusted for the gain from the sale of our shares in Visa.
Our insurance activities also contributed to the improvement in total income as improved market conditions and growth had a positive impact on the result in the life insurance business. Other income for which we usually do not have many Comments was up 48%, due mainly to higher income from our Danish real estate broker, Home, driven by generally higher turnover in the housing market. Operating expenses came in lower as our initiatives to reduce costs continued to yield results, and we saw the expected decline in cost transformation and remediation. Expenses in the 1st month included one off items of €600,000,000 mainly against tax related items. Excluding one offs, operating expenses were down 7% from the level in the same period last year and slightly up against the preceding quarter due mainly to an increase in performance based compensation.
As a result, Profit before loan impairment charges adjusted for one offs for the 1st 6 months was 27% up from the same period last year, where it was 9% against the preceding quarter as a result of slightly lower income and higher cost. The change in impairment charges was the most significant driver of the improvement in profit before tax in our core activities. The charges for the 1st 6 months amounted to €700,000,000 €200,000,000 for the 2nd quarter due to an overall improvement in credit quality. The result of our non core activities improved as the first half of twenty twenty was impacted by losses related to the final exit from Estonia. Slide 5, please.
At personal and business customers, we saw a significant uplift in profit before tax of 34% against the same period last year, due mainly to significantly lower impairment charges, which are now resuming a more normalized level following a positive revision of the macroeconomic outlook. Total income was down 2% as higher volumes could not compensate for margin pressure, which resulted in slightly lower net interest income. However, the repricing initiatives in Denmark that took effect in the first half of the year stabilized the net interest income at Personal Customers Denmark. The growth in lending at P and PC was driven by our Nordic Retail business, for which lending was up 9% from the level in the same period last year, however, partly offset by a lack of growth and to increase repayment of loans at personal customers Denmark. Underlying fee income benefited from higher customer activity in general and was up 2%, adjusted for a value adjustment for a distribution agreement and the effect from structurally lower income from mortgage bond refinancing.
However, to some extent, the effect of our cost management initiatives and lower transformation costs countered the decline in total income. Costs were down 4%, resulting in a decrease in the cost income ratio of 1 percentage point. Although this is a positive trend, It is not at the desired level in view of where we want to be in the longer term, especially with the current margin environment and only fragmented commercial momentum. There is no doubt that our efforts to improve cross sales through investment offerings combined with the current environment have led to a significant increase in investment activities at both Personal Customers Denmark and especially at Personal Customers Sweden. Here we are succeeding in harvesting the fruits of our new investment centers, which allows us to provide more holistic advisory services to our customers.
In fact, the number of investment advisory meetings in Sweden was up 13%, and AUM for managed accounts almost doubled for the period, together with an up tick in cross sales for existing as well as new customers. The latter was also a result of improvements to our onboarding process. Slide 6, please. Turning to LC and I. Profit before tax was also significantly up as a result of a 12% increase in total income and significantly lower impairment charges.
Especially fee income is a contributing factor to our strong income development following the extraordinarily positive development we have seen within Capital Markets business, which compensates for slightly lower NII that was due to lower credit demand. In fact, the combination of our strong offerings and the constructive market conditions in the past quarters has resulted in higher income from capital markets offerings and serves as a strong proof point for our strategic focus on customer driven and less capital consuming income. Income from our activities within Investment Banking and Securities ended at a record high level of more than €1,000,000,000 for the first half of twenty twenty one, translating into 63% increase from the same period last year. The strong momentum further underpins our position as the leading Nordic bank in terms of volumes. Similarly, with in sustainable financing, we continue to see a high level of demand allowing us to continuously support our customers with their need financing.
In the first half of the year, we arranged sustainable bond issues in the amount of USD 8,000,000,000 for our customers, more than we have ever arranged even in a full year. Our asset management activities are also developing favorably. AUM increased 16% both in the institutional and the retail segment, and net sales in the retail segment have now been positive for 3 consecutive quarters. Slide 7, please. Now let us have a look at Danica Pension and our activities in Northern Ireland.
Danica delivered a strong financial performance in the first half of the year. Net income amounted to EUR 1,000,000,000 up 14% from the level in the first half of twenty twenty. The results saw a positive effect from an improved result in life insurance and benign developments in the financial market. Solid growth in premiums and assets under management, up 22% 12%, respectively, also added to the positive development. Quarter on quarter, net income at Danica was 6% due mainly to an improved result in the Health and Accident business, which was impacted by a tax related provision in the Q1.
Premiums as well as assets under management continued to grow in the Q2. Our business in Northern Ireland is showing good progress despite constraints in the operating environment from subdued activity in the U. Economy following Brexit and the pandemic. The improvement in profit before tax from the same period last year was mainly due to significantly lower impairment charges, but also to ongoing cost management initiatives. Lending and deposit volumes increased.
However, a sharp decline in UK interest rates had an adverse effect on net interest income. Against the preceding quarter, we saw further progress in Q2 as profit before tax benefited from higher income and reversal of loan impairment charges. Lending was up 3% on a reported basis. And in combination with an improved outlook for the economy, We remain optimistic for the coming quarters. Slide 8, please.
Now let us take a Closer look at the underlying development, the net interest income for the group. NII came in slightly lower than in the same period last year. The first half of twenty twenty deposit margins benefited to a large degree from elevated ex IBOR levels, whereas lower ex IABO levels this year had the opposite effect and reduced deposit compensation to the business units. Approximately half of the impact on deposit margins came from the lower value of surplus deposits at LC and I, whereas the other half was evenly split between PNPC and Northern Ireland with the decline in value in Northern Ireland being due to a sharp decline in UK interest rate. Obviously, this movement between our business units and the internal bank had no impact on group net interest income.
When we look at Q2 against Q1, NII was up slightly due mainly to the day effect and a positive effect on lending margins from lower NIBOR rates. The negative effect on deposit margins was due to lower deposit compensation from FTP comparable to digital development I just described. As we communicated in connection with the announcement of our results for Q1, further action in form of lower thresholds and pricing initiatives have been taken with regard to deposits in order to improve profitability. These initiatives took effect on 1st July, and we expect an effect of approximately EUR 250,000,000 all else equal for 2021. Year over year, lending volumes were up at personal and business customers due mainly to growth for personal customers in Norway and Sweden and for business customers.
Deposit volumes were up at Torsenal Customers Nordic and Business Customers, whereas deposits were flat at Thorsten Kustomers Denmark and down from Q1 to Q2, partly reflecting a positive development in AUM where net sales for retail customers grew. Slide 9, please. Let's have a look at fee income. As we have discussed on some of our previous slides, fee income, which was up 11% from the same period last year, made a variable contribution the good results for the period. The increase was due mainly to much stronger income from capital markets related activities, which was up 63% for the half For the first half of last year and only slightly down from the preceding quarter as the high level of activity continued into the second quarter.
Fees generated by investment activities benefited from higher customer activity and a positive development in assets under management, whereas there was a slight decline in fees from the preceding quarter. Both year over year and relative to the preceding quarter, activity related fees were up 16% 4%, respectively, positively impacted by higher customer activity as a result of the reopening of societies. In addition, in Q2, this fee category was impacted by a negative value adjustment for distribution agreement. For lending and guaranteed related income, however, we saw a decline due to a lower amount of refinancing of variable rate mortgages. The decline in Q2 was due partly to the refinancing auction that takes place in Q1 and lower lending at personal customers Denmark.
Slide 10, please. Trading income came in at €2,300,000,000 in the first half year, up 21% from the same period last year and benefiting from a good customer activity at LC and I in the Q1 in particular. At LC and I, which is the main contributor to this item, Q1 saw higher trading income than Q2 due to seasonality driven mainly by Equities and Markets Business. The result of the trading line, which has been relatively stable over the last four quarters, reflects both cyclical as well as structural changes in our markets business. In general, the trading environment was more supported following the recession last year, driven among other factors by higher volatility and easier monetary policy.
As a result, trading income was an average higher in the past 5 quarters than in 2018 2019 when trading conditions were more challenging. Our risk appetite, however, remained structurally lower than historical levels, reflecting the strategic decision to reposition our LC and I units toward more capital light and fee driven activities and to improve the capital efficiency of the markets area. The first half of the year, we also We saw a positive impact from the gain from the sale of our shares in Visa of €200,000,000 and small positive value adjustments. Slide 11, please. Now let us turn to operating expenses, which, in line with our expectations, came in lower.
The main contributors were a decrease in cost for transformation, for which we booked significant amounts in 2020 and lower costs for AML, including in particular, the Estonia case. The initiatives we announced in October of 2020 continue to have a positive effect on staff costs as numbers of FTE continue to decline as we continue to execute on our plan to discontinue positions. We expect further effects, primarily natural attrition and discontinuation of business areas going forward. Expenses were down 7% from 11% in the first half of twenty twenty, adjusted for items of a one off nature and down 2% on a reported basis. The one off items were mainly tax related following the rulings by the European Court of Justice and the Swedish Supreme Administrative Court.
We have also seen a positive effect from our strict focus on non personnel cost as we continue to see a decline in traveling tech activity among other things, including lower cost for rent and premises because of further adaptation to a new working environment. Lower IT expenses and lower amortization of intangibles also contributed to the decline in operating expenses relative to the first half of last year's. In the Q2, costs were impacted by additional tax related one offs and performance based compensation due to strong results in our Capital Markets related businesses, in particular. According to plan, cost of transformation remained flat. In respect of the cost development for the remaining part of the year, we'll comment in more detail later on this call.
Slide 12, please. Overall credit quality remains strong as we continue to see a low level of actual credit deterioration In combination with positive macroeconomic trends based on the reopening of the societies and the rebound in economic activity, this led us to a change This led us to change our outlook for the impairment charges for the full year. Impairment charges are not expected to be no more than €1,500,000,000 Impairment charges for the Q2 came in at €200,000,000 down from €500,000,000 in Q1 and an equivalent to a loan loss ratio of 5 basis points. The charges in Q2 consisted of charges recognized due to updated credit models and a few charges against segment impacted by the corona related lockdowns. We saw a reversal of €100,000,000 related to macroeconomic adjustment and €200,000,000 related to post model adjustment.
However, the vast majority of the corona related post model adjustments recognized in 2020 remain in place, while we continue to monitor the potential effect of the phase out of government support packages. We continue to see a very small impact from the oil related exposure in Q2 for which impairment charges were on par with the level in Q1. From the business unit perspective, LC and I accounted for most of the impacts recognized in Q2. The charges at LC and I were against a few single name exposures affected by the coronavirus pandemic. Slide 13, please.
Our capital position remains strong with a reported CET1 capital ratio of 18 sent a year 18% at the end of the second quarter. The total capital ratio decreased 0.1 percentage points relative to Q1, due primarily to an increase in the rea, although the increases was countered by an AT1 issue in May and other small effects. The CET1 capital ratio saw a 0.1 to 10 points decrease, driven mainly by a higher rea, while net profit and other effects countered the higher rea somewhat. The fully loaded CET1 capital ratio was 17.8. Total REA came in around €18,000,000,000 higher than at the end of last quarter, mainly Because of credit risk, we are up EUR 21,000,000,000 including an increase of EUR 23,000,000,000 related to the implementation of EBA guidelines, but also partly due to a decline in market risk of €5,000,000,000 We expect the remaining part related to EWA guidelines, which amounts to around €50,000,000,000 to €70,000,000,000 for the full year, to be implemented in the second half of the year.
The leverage ratio increased 0.3 percentage points to 4.7 according to transitional rules and 4.6% under the fully phased in rules. Slide 14, please. And finally, the revised version of our financial outlook for 2021, which we announced on 8th July based on lower than expected loan impairment charges due to a faster than anticipated macroeconomic recovery as well as higher customer activity. We therefore adjusted the net profit guidance for 2021 from €9,000,000,000 to €11,000,000,000 to now more than €12,000,000,000 We now expect total income to be higher than the level last year, including the gain from the sale of the business activity in Luxembourg and higher customer activity. The gain from the merger of MobilePay of approximately €400,000,000 is subject to final approval from the authorities and expected in the second half of twenty twenty one or early 2022 and is therefore not included in our current outlook for the full year.
We have revised the outlook for expenses, and we now expect underlying expenses to be lower than €24,500,000,000 Total expenses are expected to be no more than €25,000,000,000 and include tax related one offs of €700,000,000 of which €200,000,000 will be recognized in the second half of the year. In addition, in the second half of the year, we We expect higher charges for pension yield tax at Danica Pension, which will be recognized in net income from insurance business. And finally, impairment charges are now expected to be no more than €1,500,000,000 due to primarily lower model driven impairment charges as a result of a better than expected macroeconomic recovery and overall improved quality credit quality. Slide 15, please, and over to Claus.
Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to 2 questions. If you are listening to the conference call from our website, you are welcome to ask questions by e mail. A transcript of this conference call will be added to our website within the next few days.
Operator, we are ready for the Q and A session.
Thank you.
One.
Our first question comes from the line of Jakob Brink of Nordea. Please go ahead. Your line is open.
Thank you and good morning. First question on systemic risk buffer. Have you heard anything more? And apart from sort of just the mechanics, What do you think is the strategic impact for your Norwegian business if this 4.5% systemic risk buffer is to be implemented? Thank you.
Yes. Hi, morning, Jakob. No, we haven't heard anything yet. So we are still waiting to see what will happen. Lots can happen and obviously timing is also uncertain.
So we'll wait and see and update you when we know more.
Okay. Fair enough. My second question is actually in the I guess you briefly mentioned now as well, Carsten, but also in the To one conference call, you mentioned that, of course, you were sticking to the 9% to 10% return on equity target next year or in 20 23, sorry. Looking at my own estimates and consensus, we would need to lift our estimates by around 15% to 20% To get to that level, where do you think that we and we consensus are wrong?
Yes. I won't comment on your consent as such, but We continue to maintain our ambition of 9% to 10% ROE in 2023. And we believe that we've shown in the last few quarters that we're heading in the right direction. There are clearly areas where we can do better and that's what we're fully focused on. And we'll update as part of Q3 more on the moving parts of the plan, the progress of the plan.
And also, of course, some things have changed since we originally set out our plans in Q3 2019. So we'll update and what that means both in terms of the revenue components and the cost components of the plan.
So just to get that right, so basically you think that what you will tell us in Q3 will still be Above 9%, but the components have changed. So it could be also lower loan losses helping you to get to 9% or
Correct that we maintain overall 9% to 10% target and correct that some of the moving parts will change given what's happened over the last Couple of years and we'll update on that in Q3.
Okay. We'll have to wait and see. Thanks a lot.
Thank you.
Thank you. Our next question comes from the line of Robin Rain of Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Good morning. Thank you for taking the questions. The Stage 3 loans increased in the quarter. I think you say it's in the personal customers area.
Could you please give some more color on that move? And then secondly, on capital. Would you given all the developments on requirements and capital that you see ahead, would you consider yourself to have excess capital now? Or would you be more hesitant on that? Thank
you. Yes. Look, on the capital side of things, we feel very comfortable with our capital position. But clearly, we continue to go through the Estonia process. And until we've got more clarity on that, then we won't update on capital excess position and what comes Therefore, we continue to, of course, maintain our dividend policy of 40% to 60%.
Now I didn't quite catch The first question on loans.
If I understood it right, you were asking a little bit how do our lending How does our lending develop in the PB and C segment? If you flip in the IR presentation to Page 18, there you can see a pretty good representation. It's mainly growing in personal customers Nordic and also in business customers. And we are, as mentioned also earlier, seeing a little bit less lending in personal customers' decay, reflecting some of the trends I alluded also to in the speech.
Thank you for that. Actually, my question on the lending was the Stage 3 lending increased Quite a lot in the quarter. I guess it's in the personal customers. Did you have any comment on that?
Yes. Sorry, then I didn't get your question right. That is mainly a fraction of adapting to the upcoming EBA guidelines around definition of default. So this is more model driven than reflecting any real loss experience.
Okay. So no impact really on online quote. It's more of a technicality.
Now in general, as I said before, the real loss experience is still very limited. And if you look at the split also in the presentation, you can see that there is quite a bit of model driven adjustments and movements. Again, we are currently seeing very, very small credit deterioration.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Sophie Peterson of JPMorgan.
Here is Sophie from JPMorgan. My first question would be just around the Estonia case. In your report on Page 12, I think You got to say that you continue to cooperate with the authorities, but you might need to take some more or to do some more internal investigations in 2021. In 2021, I thought the internal investigations were kind of completed by now. So could you just That comment why you might have to do more internal investigations and also what your latest East with the U.
S, have you submitted all the information from your side? Or are they still waiting for data or some Formation from Danske. So that should that would be my first question. And my second question would be TLTRO. Did you take any TLTRO in Finland or elsewhere in the group?
And has that had any positive impact On your net interest income? And if so, how much? Thank you.
Yes. Hi, Sophie. I'll take the first one and then I'll let you take the Telstra question. But On the Estonia case, there really isn't anything new. We have finalized our own internal investigation, is that exactly as you say.
And I think the commentary should only just be seen in the light that of course questions could come up from authorities. And if they come up, then we're ready to respond. And all questions that we have received over time, we, of course, have responded to. So nothing else new to that.
On TLTRO, we have reduced our level a bit during the first half of this year following the, let's say, good liquidity situation of the bank in general. I don't have the complete exact numbers on the top of my head. There is a remainder still being there. But we'll get you the numbers if you eat them on the line.
Okay. But have you booked any TLTRO benefit in your net interest income? No, no, No. Okay. And should we expect any TLDRO benefit to come through that net interest income at some point?
Let's again keep in mind that it is basically then the euro business and extremely small. So that is not going to be anything to write home about in all honesty.
Okay. And just a follow-up on the Estonia case. So basically, the ball is now with the other authorities Or it's in Danske's court. If I understood it correctly, you're just waiting for the U. S.
Authorities and other authorities to get back to you. Is that correct?
No, correct. I mean, we've done the work that we needed to do. So we are awaiting what the further process is from here.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Johan Ekblom of UBS. Please go ahead. Your line is open.
Thank you. Just two quick questions. First of all, on the asset quality, if I sum up the post model adjustments, I think you still have some $2,500,000,000 or so. What kind of time frame should we think about in terms of these potentially being released? And is that a major part of your loan loss guidance for this year?
And then the second question is just a broader question on business momentum. I mean, You talked about good expectations for customer activity in the second half. But when I look at official statistics, it looks like you are Giving up market share in Swedish mortgages, you're giving up market share in terms of AUM in Denmark, In Norway and in Finland, how much of that do you think is due Internal focus and how much of that is or is there anything else driving that? And when do you think you can get back to kind of your natural market share?
Yes. Thanks. I'll take the business momentum and then I'll hand over to Stefan on the ask quality question. On the business momentum, if you step back, there's clearly parts of the business where we've seen strong momentum as highlighted, Where we've gained market share and where we have very strong customer satisfaction and that's very much in our LC and I businesses. If you look at the business banking business, again, a large part of our business, we've actually seen quite stable performance, but also some growth and also ability to maintain our current positioning.
You're then right that when you look at the retail businesses, both in Denmark and Nordics, if I take Denmark, first of all, We need more momentum. We need more commercial momentum in Denmark. I think there are some positive signs, for example, increasing AUMs. And so we are seeing some momentum on the back of some of the initiatives that we've taken, but we need to do more. In the Nordic retail businesses, although we continue to grow, you're right, the market shares haven't grown as much as they have in other quarters.
I think we've also said before that we continue to want to manage for value, continue to want to increase relationship with our customers. And for example, in the retail In Sweden, we have in fact increased our ability to deepen relationship through more Advisory and sales of investments. So those are the kind of things that we continue to focus on and we need to continue to take that momentum with us one and relentlessly execute on a lot of smaller and larger different things on those business areas to get even more traction.
And on asset quality, on your questions, 1st of all, the post model adjustments that we currently hold is more in the range of just shy of €2,000,000,000 We Have said consistently over the last quarters that we want to see basically the end of the government support which is including the delays for a tax related payment as one of the main corner points to start adjusting these PMAs on any bigger scale. We also mentioned tapering of the central banks as one of the possible points After the ECB announcement of yesterday, I'm not sure whether that might be a bit far too out. And in that sense, These PMA releases, other than if they are done for specific clients or smaller portfolios, do not expect them to be part of the 2021
guidance.
Thank you.
Thank you. Our next question comes from the line of Mats Syngard of ABG Sundal Kalia. Please go ahead. Your line is open.
Yes. Thank you. And two questions from me as well. The first one is on the FTE reductions. I can see On your Slide 11 that you point to 700 net 700 FTE net reduction from the plan In I guess that was announced in October last year, which were the last time we really heard Anything new about initiatives?
I don't know if you could put a bit of flavor on what if we are if we could expect a new round perhaps, coincide or perhaps timed at the before or with the update You are going to give on Q3 on the better bank plan progress. That would be quite helpful. And then looking into the numbers here on Q2, I don't know if you could put a Bit of more flavor on the drop you have in LC and I lending volumes. I think, Carsten, you mentioned a bit about High rankings that you could leverage on, but it seems volumes are down quite a bit NII, perhaps just half of that. But if you could address the 7% lending drop Quarter on quarter, that would be helpful as well.
Thanks.
Yes. Let me start with that and then I think, Stefan, you will take the cost question. But I think the point on the LCI lending volumes is that you've seen a significant shift from credit demand and then into one. Capital market demand in terms of both raising of equity and bonds and other activity. So what we've seen and again I point out the diversified nature of our LC and I platform is that you've seen a very successful ability to capture the Capital Markets business and several also Landmark transactions, but there is no question that corporates in general have had a reduced demand for credit.
So a lot of the credit facilities that have been granted through corona. Those are simply not being used due to the wait and see right now in terms of The requirement for credit, frankly, to make investments and so forth. I do expect that activity will pick up in the second half of the year as we have more sort of clarity, but those are the dynamics on that front. Okay. So but every month
Sorry.
No, Justin. Do you
have another question?
No, it's okay.
On the FTE number, First of all, you need to keep in mind that the original clear communication was that we will discontinue 1600 positions. So it is obviously a mix of both real FTE net reductions. And on the 700,000,000 you mentioned, I would expect that we will probably again see like half the size of the first The tranche happening towards the rest of the year. So in the sense of that, we And that says we will meet our goal. Currently, that's the expectation of having 1600 positions closed in comparison to the starting point.
As I've also mentioned in the speech, we Expect to achieve that goal at least for 2021 by a mix of natural attrition as well as Existing arrangements and agreements that we have available to our employees. So in short, For 2021, currently we don't see another big round.
Okay. Just execution of the first round from last year?
Yes. Yes.
Okay. Thanks.
Thank you. Our next question comes from the line of Narita Samfani of Barclays. Please go ahead. Your line is open.
Hi, thanks. I've got two questions, please. Firstly, the RW inflation we've seen this year Related to the EBA guidelines. Is that expected to continue into 2022? And secondly, given the new 2021 net Perfect guidance.
I guess, even excluding the gain from the sale of the Luxembourg business and lowering the threshold, the negative rates on deposits, Revenues would still need to grow. So is it the investment banking fees which is sustainable or which parts of the revenue line do you see growth for in the second half of the year? Thanks.
Yes. If I take the first one and then I'll let you comment on the RWA inflation and the EBIT guidance. But I think if look at the second half of the year, overall, we expect that activity will pick up across the board. Now we had a very strong Q1 on fees and trading, also a good Q2. That's always hard to Extrapolate exactly, but we expect that both the Capital Markets business, But also general credit demand will pick up in the second half given also what we see in general in the macro environment, which is A good pickup in spending, strong confidence across the Nordic countries And also our feeling from our conversation, discussions with customer clients.
And then on RWA?
RWA inflation, we have roughly seen SEK 35,000,000,000 of real inflation for the EBA guidelines The first half of the year, we expect the full year to be between, call it, €50,000,000,000 to €70,000,000,000 And that would then get us to our goal that we have stated.
Thanks very much.
Thank you. Our next question comes from the line of Per Gombow of SEB. Please go ahead. Your line is open.
Yes. Thank you. Good morning. Also two questions from my side. First on the VAT ruling, one thing is the amount you are paying right now, what will that add to future cost in Sweden and what are the risks related to primarily Norway?
I don't know whether there also is a risk related to Northern Ireland. I know You have take the charge for Finland earlier. That was the first question.
Should I directly answer, Hei Per? There is 2 components around the PAT matter. 1 is That we have the historic charges that we have booked a provision for in Q2. We will also restructure our VAT group for which you have taken a provision in Q1. We expect to be able to organize or to kind of adapt to the new rules in a way that will slightly, but only slightly, impact costs through slightly higher VAT than in the current setup.
The exact split hasn't been finally Agreed upon, we'll update you towards the end of the year on that one.
Are we talking about a low double digit number of 1,000,000 per annumor more?
Yes. Call it a mid double digit number.
Okay. Then that's nothing that really can be spotted. Thank you. My second question is on your investment products. When I look at your investment products income, Excluding performance fees, it's largely flat year over year.
U. S. Under Management is up by 15%, 16%. Any flavor on why you don't have why you have such a smaller growth in your revenues versus your AUM?
Two answers to that. One is you need to keep in mind that we are not booking any performance throughout the year. We only booked those in Q4, which is true for both years, but that also reflected a little bit the comparison to the industry. A second part, we have obviously a bit of a margin pressure on the institutional business as you would expect. And the pickup in net sales in the Private Clients business It has only started, if you want.
So it has a positive trajectory, but we are still a peer Punching below our back book weight in a way. So I think it will need another few quarters until we are getting Front book and back book stuff in sync, which then which should also be more visible in the income line.
Number still your flow numbers, they are not great, but they have improved tremendously versus how bad they looked last year. It looks like the margin pressure must be quite imminent for 15% volume growth not to get any revenue impact.
Yes. Again, volume movements, specifically in the institutional business, I wouldn't overestimate because there is partly higher volumes at very little fees being moved. We are also kind of reviewing the, call it, overall approach there a bit one. And we'll probably also adapt a little bit in the sense of Being more focused on the more volume on the more fee driven part rather than volume only.
Okay. Thank you.
Thank you. Operator, can we have the last question, please?
Yes. We have one third question. That's from the line of Riccardo Riberi Mediobanca, please go ahead. Your line is open.
Thanks and good morning everybody. Very quick one. With regard to the risk cost outlook, what can drive from now on Sharp deterioration of PDs and LGDs in retail and corporate exposures.
Sorry, I'm not sure I got the question.
Yes. What could drive from now on, what could drive A sharp deterioration in probability of defaults and in loss given defaults when you got to calculate the expected credit losses From now on.
Look, I think in general, we are very comfortable with our asset Quality, we see a strong and diversified portfolio. And the real sort of problem areas, As you know, the last has been in oil and gas, which is significantly derisked and is a small part of our overall For you at this stage with a higher coverage, I don't see any concern areas at this stage. I mean clearly the biggest area if you will is going to be in the Hardest hit corona parts of the book. So the hotel industry, the entertainment industry, where we are very well impaired and have very significant post model adjustment. Clearly, we still wait to see what the outcome is of reducing government support schemes on that.
But that's how I would answer that, Ricardo. Does that And to your
question? Yes, it does. It's actually very clear and very clear answer. If I may follow-up very, very quickly. But if, let's say, if they Took out the measures and all of a sudden the vulnerable sectors had to Find themselves in troubles.
Now do you think they will reinstate the subsidies once again or support measures once again? What's the point I would do about it?
I think well, I mean, my personal opinion is that the most likely scenario is a very gradual weaning off of the government support. And therefore, many SMBs And larger companies, but it's really mostly SMBs that are impacted will have some time to regain and re earn capital and therefore have an ability to repay the various different loan schemes and support schemes. But clearly, there will be some that will be impacted. But I don't see that as a big asset quality issue
for us. Thanks. Thanks, sir.
Thank you very much. Very, very clear. Thanks.
Very good. Well, Thank you all very much for your interest and your questions in Danske Bank. Very much appreciated. As always, you're welcome to contact Our Investor Relations department, if you have more questions, after you've had time to look at the financial results in detail. So thank you very much.