Earnings Call: Q1 2019

Apr 30, 2019

Summary

Q1 net profit fell 39% YoY to DKK 3.0bn as lower NII, higher expenses and impairments weighed on results. FY guidance remains DKK 14bn–16bn, including an expected Danica Pension Sweden sale gain, while NII is forecast below 2018.

Hello, and welcome to the presentation of Danske Bank's financial results for the first quarter of 2019. Thank you all for taking the time to listen in on this call today. My name is Jesper Nielsen, Interim CEO, and with me I have our CFO, Christian Baltzer, and our Head of Investor Relations, Claus Ingar Jensen. Slide 1, please. In today's call, we will present Danske Bank's financial results for the first quarter of 2019. We aim to keep this presentation to around 20 minutes. After the presentation, we will open for a Q&A session as usual. Afterwards, feel free to contact our investor relations department if you have any more questions. Slide 2, please. The first quarter of 2019 posted a weak financial result compared with the result for the same period the year before. Net profit for the period came in at DKK 3 billion, against DKK 4.9 billion in the first quarter of 2018. The result was affected by lower net interest income, higher expenses, and an increase in loan impairment charges, but also by a one-off value adjustment in our non-core activities. The result, which represents a return on shareholders' equity of 7.7% against 12.6% in the same period the year before, does not live up to our financial ambition. Given this clearly disappointing development, we have revised our net profit outlook for 2019. The previous outlook for a net profit of between DKK 14 billion and DKK 16 billion is maintained, but we actually guide for a lower net profit as the outlook now includes the expected gain from the sale of Danica Pension Sweden of approximately DKK 1.3 billion, subject to closing of the transaction. The outlook also includes a revised estimate for net interest income, which we now expect to be lower than the level in 2018. Overall, customer activity remained at a good level, and we continued to see a good inflow of business. In particular at Banking Nordic, lending grew 3% from the level in the same period the year before, and 1% from the level in the preceding quarter. The stable macroeconomic environment continues to offer good underlying business conditions. However, the development differs somewhat among the Nordic countries. In Denmark, we have started to see a slowdown in the housing market in particular, which affected Banking Denmark in the quarter. Although we saw satisfying growth in lending, net interest income suffered from a combination of margin pressure due to strong competition and an increase in market rates and higher funding costs. Following the last quarter of 2018, during which we did not issue any non-preferred senior bonds, we had significant issuance activity in the first quarter, through which we obtained a major part of the funding plan in the form of non-preferred senior bonds for 2019. Throughout the quarter, we executed a number of successful benchmark transactions that attracted broadly based attention from global as well as local investors. Against this background, higher funding costs impacted the first quarter, in which we also had only very limited redemptions of old funding. The acquisition of SEB Pension Denmark in 2018 had a positive effect on Wealth Management, whereas items of a one-off nature had a negative effect on trading income. Trading income at C&I recovered, however, from the very low level in the preceding quarter due to less challenging market conditions. Expenses were up 9% from the level in the same period last year as a result of increased costs for regulatory compliance, further AML efforts, and continued investments in digital transformation. Expenses also include costs for SEB Pension Denmark. Our capital position remains strong. The CET1 capital ratio of 16.7% is well above the minimum regulatory requirement and above our target level of around 16%. Slide three, please. Now, let me just briefly touch upon the Estonia case, which is obviously still on everybody's mind. We remain under investigation by a number of authorities, but unfortunately, we have nothing new to share with you concerning timing, the size of potential fines, or anything of the like. As usual, we will inform the market of any important developments. Our investigation continues, and we continue to share all our findings with the relevant authorities. We still cannot say when we expect the investigation to be completed, as this is also subject to our dialogue with the authorities who may ask for further information on the customers or transactions we report to them. Since September 2017, when we launched the investigation, we have spent around DKK 450 million on the Estonia case. Looking at our franchise, the impact of the Estonia case on our retail business in Denmark seen last year continued in the first quarter, however, at a slightly slower pace. On a net basis, some 8,500 core retail customers, the so-called NemKonto customers, left Danske Bank in the first quarter against an outflow of 9,900 customers in the preceding quarter. During the last month, inflow and outflow data indicate a better balance between customer inflow and outflow. Hopefully a sign that the outflow we have seen in the last couple of quarters has peaked. We also continue to invest in improving our AML efforts. We now have around 1,700 full-time employees working with AML, an increase of more than 850 people since 2017. In the first quarter of 2019 alone, we up staffed this area with around 300 people. However, our goal is to digitalize many of the AML processes, which is why we will invest up to DKK 2 billion in digitalization over the next three years. That process has already started and will be intensified in the coming quarters. We are now in a detailed planning phase, which means that there is no material impact on expenses in the first quarter. We expect to be able to present more details in connection with the Q2 presentation. Now, I will give the word to Christian for more detailed comments on the numbers. Christian, please proceed. Thank you, Jesper, and slide 4, please. Let me make some overall comments on our result for the first quarter before we take a more thorough look on the various items of the income statement on the following slides. As Jesper mentioned in his introduction, net profit amounted to DKK 3 billion in the first quarter. This was a fall of 39% from the same period the year before. Profit before impairment charges came in 20% lower at DKK 4.7 billion due to an almost even split between lower total income and higher expenses. Total income was down 6%, and the decline can be attributed to almost all income lines, except fee income, which was up 3% from the level in the same period last year. The decline in fee income of 5% from the preceding quarter was mainly due to seasonality. Total income was only slightly lower than in the preceding quarters as trading income, despite a negative one-off, rebounded from the very low level we saw in Q4 last year. Expenses, I will comment on in more details later, were up 9% due mainly to cost for regulatory requirements and compliance, and the inclusion of SEB Pension Denmark in our cost base. Loan impairment charges showed a net charge in the first quarter of DKK 0.4 billion, up from the year before and the preceding quarter when we had a net reversal. Finally, the result on our non-core activity, which was a negative DKK 0.3 billion for the period, was mainly due to one-off value adjustment. This also had an adverse effect on the financial result for the first quarter. Slide 4, please. Now let's take a closer look at the underlying development in net interest income. NII was down 7% from the level in Q1 2018. The increase in lending volume had a positive effect. However, this was more than offset by an unfavorable margin development. NII was down 6% from the level in Q4 2018. These factors affected the business in the first quarter. Firstly, competition continued to be very intense in most markets. Secondly, we saw higher short-term rates in Norway and Sweden in particular. Thirdly, as Jesper alluded to earlier, the dynamics from funding activities were significant. We saw rising funding costs for a large amount of MREL eligible instruments, for which the issue volume amounted to DKK 36 billion. As we have previously communicated clearly, the part of the higher funding costs that exceeds a comparable level for our peers will be held internally and will therefore not deteriorate our competitive position. These costs are included in the other item shown on the slide. Slide 6, please. The pressure on margin was most significant in Banking Nordic. The effect of higher short-term rates also had a negative impact on floored loans within commercial lending in Sweden. We do not expect to see any further negative impact on this type of loans from additional rate hikes in Sweden. Corrective pricing action has now been initiated in line with the development we have seen among our peers. The effort of these actions will be seen in the second quarter, however, only part of the quarter. At C&I, the decline in NII, as well as in lending volume, was due to the transfer of portfolios to non-core. We continue to see solid lending growth in Banking Nordic, driven by most segments. In Norway, retail lending measured in local currency was up 8% from the level in the preceding quarter, mainly because of a strong inflow of customers from our partnership agreement with Tekna. At Banking Denmark, lending was up 2% from the level in the same period last year. Lending was flat, however, for the level in the fourth quarter of 2018, partly due to slowdown in the housing market and lower risk appetite. Slide seven, please. Let's have a look at fee income. Compared with the same quarter last year, fee income was up 3%, due mainly to the acquisition of SEB Pension Denmark that had effect from June 2018. The acquisition explains a significant part of the increase in fee income at Wealth Management from the level in Q1 2018. Whereas the decline of 5% from the preceding quarter was due to seasonality, as we usually reconcile performance fee as income in Q4. Investment fee saw a decrease from the same period last year, due mainly to lower margins from a change in product mix in asset management. Capital market-related fee income came in lower than in the year earlier period, as well as the preceding quarters, due to lower customer activity at Corporates & Institutions. Fee income from lending and guarantees was lower. The decline can be attributed to Banking Denmark, where we saw lower customer activity in the housing market related business in particular. Slide eight, please. Trading income was down 9% from the same period last year, but up 38% from the level in the preceding quarter when trading income was very low. In Q4 last year, trading income even benefited from a positive one-off of DKK 0.2 billion. At Corporates & Institutions, which accounts for the bulk of our trading income, market condition was less challenging in the first quarter, which benefited from slightly higher volatility and tighter credit spreads. This had a positive effect on trading income on the FICC and DCM. However, there was a negative impact from value adjustments of the derivative portfolio. Income from the refinancing of adjustable rate mortgages was flat at the level for the year earlier period. At Wealth Management, a negative one-off of DKK 140 million was booked in the first quarter due to a regulatory change in the discounting curve for valuation of liabilities in our life insurance business. This change also had an impact on our capital position, which I'll comment on later. Slide nine, please. Moving on to expenses. Total expenses for the first quarter amounted to DKK 6.1 billion and were up 9% from the level in the same period last year. Compared with expenses for the preceding quarter, there was a 2% decline due to seasonality. The increase in staff and consultancy cost includes higher expenses for compliance, the investigation related to Estonia, and all costs related to SEB Pension Denmark, which is now part of our cost base. All business units are impacted by higher costs for regulatory requirements and compliance. The headline number for C&I is lower, however, due to a transfer of portfolios to non-core. The positive impact from rent is of a more technical nature and relates to the implementation of IFRS 16, with the counter entry being depreciation of tangibles. Slide 10, please. Loan impairment charges in core activities amount to DKK 0.4 billion for the first quarter, corresponding to a loan loss ratio of 8 basis points. Credit quality overall remains strong due to the stable macroeconomic environment and strong collateral values. However, the increase in loan impairment charges was caused by lower reversal of Banking Denmark in particular, but also by higher impairment charges against agriculture exposure as well as model adjustments. We now have a total accumulated impairment against exposure to agriculture of DKK 3.4 billion, and this is a level that we consider to be very sufficient. At C&I, single name exposure pushed impairment charges up a slightly higher level than in the preceding quarters. In our non-core activities, impairment charge amount to DKK 3 billion as a result of fewer reversals and negative value adjustments. Slide 11, please. Our capital position remains strong with a reported CET1 capital ratio of 16.7% at the end of the first quarter. The CET1 capital ratio is thus well above our target of around 16%. The total capital ratio was 21.8%, also well above our capital target of above 20%, and was up 0.5% following a new EUR Tier 2 issuing from March. The development in CET1 capital ratio was affected by a higher REA, due mainly to a higher credit risk as a result of technical implementation of IFRS 16. The CET1 capital ratio was also affected by a higher deduction of Danica Pension related to the reduction of the VA add-on. The leverage ratio was 4.5% according to the transitional rules as well as fully phased-in rules. Slide 12, please. Then finally, the outlook for 2019. We have changed the outlook for NII and the net profit from the outlook stated in the annual report 2018. We now expect net interest income to be lower than the level in 2018, as volume growth will be more than offset by higher funding costs and margin pressure. Finally, we continue to expect net profit for 2019 to be in the range of DKK 14 billion to DKK 16 billion. However, this now includes the expected gain on sales of Danica Pension Sweden of approximately DKK 1.3 billion, subject to closing of the transaction. Slide 13, and over to you, Jesper. Thank you, Christian. We are ready for the Q&A session after our initial comments and messages. Please limit yourselves to two questions. If you're listening to the conference call from our website, you're welcome to ask questions by email. Operator, we are ready for the Q&A session. Thanks. Thank you. Ladies and gentlemen, if you would like to ask a question, please press 01 on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There is going to be a brief pause while questions are being registered. Our first question comes from the line of Jakob Brink from Nordea. Please go ahead. Your line is now open. Thank you very much. Two questions. The first one is regarding what you just mentioned briefly before about the price initiatives in Norway and Sweden, with the impact into Q2 and 3. Could you maybe help us a bit? How much should we expect from Q1 to Q2 and from Q2 to Q3 in basically all the Nordic countries? Secondly on SEB Pension. When you acquired it, I just looked through the slides, and your stated synergy targets, et cetera. Could maybe give an update on that, especially in the light of the quite negative development on illness and accident, which you book in your other line. At the same time, maybe give us a little guidance for other income going forward, which seems to be quite weak. I do understand from you that you are mentioning the SEB Pension as part of the reason why it is so weak. Could you give us an update on that? That would be appreciated. Thank you. Thank you, Jacob. I will try to give a little bit of color on the pricing. In Sweden, we have hiked our prices around 20 basis points across selected maturities. This has a large effect into the Q2, and we had only very little effect in Q1. You will see a full year effect of that also in Q3. In Norway, we have a little bit of a delay before we can actually reprice the back book. We have priced the front book up 15 to 25 basis points, in general. Predominantly, the 25 basis points range is where we have had most of our both front and back book has been priced to. Those are kind of the effect, and you will start seeing the effect of this in May, because that is the timing for the delay of repricing some of our agreements. You will have full effect in Q3 and Q4. Hopefully that gives you a little bit more color, both on the numbers and the rate hikes that we have done. We basically followed our competitors in the market, more or less. With respect to the SEB, the integration is going very well. Also, we are starting to see significant on our cost savings, synergies savings on SEB. You are absolutely right that we have seen some adverse development in the other line, and some of this is due to the accident and health. There has been some detailed understanding of the accident, the health book over the past year, which has made us put up more reservation on repricing. Currently, we do not anticipate the other line to be affected by accident health more in the future. It is always, of course, hard to predict on this line. We have actually seen some more technicality adjustments here in Q1 on the other line. Some of this is the reserving models for accident health that has been updated that are giving some adverse effect. You should see more the Q1 numbers as more technical character and not as much as a going level for the profits on the accident health book. In general, I would say the SEB, as you are going to also read in our impairment section of that book, we believe there are great value in the acquisitions that we did, even though there has been a little bit adverse development on the accident health areas. We are seeing the benefits of our synergies rolling in quite nicely. You used to be at DKK 400 million per quarter in the other income line. Then you sold the Norwegian real estate brokerage, and you are down to around DKK 300, and now we are at DKK 100. Are you basically saying we are going to go back to DKK 300, or will there still be some adverse impacts? I think the other income line does have some more volatility. I think the DKK 100 is a low level in my mind, and it should be coming up higher. We are not really guiding for that line. I think what you are saying seems more or less in the right range. Okay. Thank you. Thank you, Jacob. Thank you. Our next question comes from the line of Per Grønborg from SEB. Please go ahead. Your line is now open. Yes. Thank you. Let's start off on the commission line. Your fee from investment products are down 10% Q-over-Q, even if we exclude performance fees. What drives this, and how should we look at the timing aspect of the strong rebound we have seen in asset values during the first quarter? My second question, more structural. If I look at your numbers for Finland, cost income rates are now in the 70s. How do you see Finland proceed from here? I assume this is not satisfactory, the performance we are seeing currently. Do you want to take that first one? I will try to explain you Finland. I would actually say that on our Finland, a lot of the costs that are coming in here is central driven costs that will be allocated out. It is more of a technical, it is not the underlying cost income ratio of Finland. I think in Finland, we are generally seeing a strong growth in our corporate segment. We are still working hard on our retail segment. I think some of the products that we have been pushing out with the top floor and whatnot are showing good traction in the market. We are happy to have MobilePay in Finland and actually seeing to gain some momentum there. But you should not read the cost income in Finland too much into that. There is a little bit of an allocation thing internally that with the high amount of additional costs from our investigation and AML activity is pushing a little bit on some of our allocation keys. Then you had a comment about commission. Jesper, you want to? No. Please, you take it. I think that what we have seen in general, if I am answering your question, is that we have had asset under management that has been reduced also from a market share perspective. We are having net asset under management, net sales that are positive. But I think in general, we have seen some insourcing of mandates. We have seen some customers leaving because of the Estonia. It is very little amount of what we have lost. I think with the strong performance in our Q1 numbers, that should hopefully start gaining some more momentum in also selling some of our portfolio and get commissions from that. I do not know if that was what you were alluding to, Per, or please ask a follow-up question. If we start by going back to Finland. Yeah. Your income in Q1 is the lowest ever you had in Finland, so it does not look like you have any great momentum on the sales side in Finland. I of course understand if we should be reluctant to look at the cost due to the AML issue. That is fair enough. I think, in general, the lending growth is good in Finland, Per, and I think that on the income lines, I do not recall right now what the actual deduction or the put together of the income line in Finland could be, but maybe we will follow up with you later on that. Let us do that. On the commission side- Hold on, Per. Claus is happy to help here. No, we have seen a decent growth in the commercial lending, but no reason to hide that on the retail side, we have struggled to get momentum on the growth. Secondly, Finland is, as you know, one of the most competitive countries where we are operating in. So Finland has always been, I would say, the least profitable of the Nordic countries, and that is confirmed by the numbers we have seen in Q1. Okay. Back to the commissions and the investment fees. We are down 10% quarter-over-quarter. I assume you have not had a 10% outflow of assets. Is there such a strong measure on margins or is this a reflection of the rebound in asset prices coming in with some delay into your asset fees? I think it would be fair to say that there could be some delay. But on the other hand, there is a pressure on margins, yes, and there is also a shift in products, which is trending towards more lower margin products, and that is also having an effect on the fee in Wealth Management. Meaning -5%, 10% next quarter is not unrealistic. I think that is too early to conclude anything around the run rate on that development for now. Okay. Thank you. Thank you. Our next question comes from the line of Bruce Hamilton from Morgan Stanley. Please go ahead. Your line is now open. Yeah. Thanks, guys. Firstly, just on the internal investigation. I know you cannot give us a timeframe for when that might complete, but do you plan to share what you learn from that with the market or is that just going to be for the regulators? Because I guess, for example, if you were to find no sanctions breach, having done the full clean, then clearly that is probably quite an interesting or an important data point for the market. I am just trying to understand, will you share that or should we not expect anything, and therefore it is going to be only when we get through the sort of regulatory process? Secondly, in terms of the competitive dynamics in Norway and Sweden, I hear a way of saying the structure of the balance sheet means that you are probably suffering a bit more on the short-term funding moves. Is there any push to try and increase the deposit funding to reduce some of that impact? I know that would take time, but do you think that the structure of your balance sheet is how you would like it to be in Sweden and Norway at this point? Thanks, Bruce. Let me just answer first on the internal investigation. As no news here, basically, we will share everything we know, basically, with authorities, and we will only get back to the market if there are things that we think we need to address. This is a combination of factors, if you like, but I think the most important reason for that is we do not want to upset the investigations of the authorities by providing a lot of news to the market around this. Unless the story changes in terms of what we presented on the 19th of September, when we presented the Bruun & Hjejle report, we will not actively go into the market unless there is news. But obviously, if something happens, we will come back on that. Then in terms of the competitive dynamics in the Nordics, I think it is fair to say we have been very good at dealing with or getting lending growth. The cross sales in general and our split between lending and deposits, we think could be strengthened both in Norway and Sweden. It is more important for us in Norway since we have launched Danske Hypotek in Sweden, but we would like to see deposits coming up in both countries, and we would like a better balance between lending and deposits in both markets. Thanks. Sorry, just to clarify, if at the end of your internal investigation, you haven't found any evidence of sanctions breaches, you wouldn't share that with the market because it wouldn't be a change on what you said back in September. Correct. Got it. Okay, thanks. Thank you. Our next question comes from the line of Mads Lingard from ABG. Please go ahead. Your line is now open. Yeah. Hi, this is Mads from ABG. Thank you for taking my questions. The first one is moving a bit back to NII, and I think, I was a bit puzzled when you guided for flat NII in 2019 back in February, and I think a lot of investors had the same view. Could you elaborate a bit what have surprised you? Is this merely due to doing more funding than you expected, or have you also seen more margin pressure in the market that you actually expected there back at the start of 2019? Perhaps also you could shed a bit of light on how you see that moving forward, the margin pressure. Then I would like to ask about the large rebound in the FICC income that we see here on Q1. Is that something that is sustainable? Is this around a bit below DKK 1 billion in FICC income Q1? Is that what we could expect going through 2019 per quarter, or do you think it will move a bit down from here? Thanks. Thanks, Mads. Let me take question number one. In terms of NII, I think when we look back, we have increased the amount of funding we got in the markets, probably more than we had expected from the start. We have issued around DKK 51 billion. That is one of the primary change drivers here. It was hard to see at the time the full effect of exactly what was going on in Norway and Sweden. There we have the structural issue that Christian Baltzer explained about. I think to your point as well, margin pressure is really fierce, and that goes across the markets. A lot of competition across the board, which is probably higher than we would have anticipated. Yes. Would it be fair just to add a little bit? Yes, because I think when you look at Denmark, if you go back a quarter, we have actually tightened up on some of our lending guidelines because we find ourselves to be a little bit more hesitant on the Danish cycle, where we are in the cycle. That is also a change in our actions. We think it is the right thing to do from a long-term perspective, but it does hit short-term our NII. Sure. On your question on the FICC income, of course, we were satisfied to see that there was a rebound from the very low level we saw in Q4. That was based on a more favorable development in the market which made it more easy for us to generate an income on the customer flow we have seen. There is no doubt that some of the underlying conditions in the market, as we described them in connection with the annual report, is still out there. Relatively low volatility and negative rates. Whether we can maintain the same level is not something we can comment on. It is exactly why we find it difficult to guide on trading income. We will just have to wait and see whether this can be maintained. So far, we have been pleased to see that business conditions improved. But as we also have described in our messaging, we saw business conditions as being less challenging in Q1. Okay. Thanks for that. Thank you. Our next question comes from the line of Jacob Kruse from Autonomous Research. Please go ahead. Your line is now open. Hi. Thank you. Could I just go back a little bit to the funding impact? So could you just go through how much of this other move was related to issues of non-preferred senior in the quarter? And also, when I look at the next three quarters of this year, should I assume that there will be continuous roles of funding that will put further pressure on net interest income? Thank you. Just to take your last question first. I think that we have been very front-loaded in our issuing. We are having some issuing here in Q2 rolling off, so to speak, or not issuing, but funding. We also see ourselves actually going to be exiting the market here in Q2. When it comes to the other line, I think there are several movements in here, and Claus, please chime in here if you have. There is definitely some of this that is due to the fact that we have not allocated this additional out to the business areas. We have said there is around a third of that that is not being allocated out to the business. We also have some movement in our hold-to-maturity portfolio. So there are other things in our NII composition. In here you will also find the IFRS 16 effect on our NII. There is a couple of components in here that are giving us headwinds, and unfortunately, they all have the same directions in the changes that we have seen. Now, do you have anything more to add, Claus? No, I think that is a fair description. Yeah. Just those other headwinds, are any of those temporary or is that a persistent effect? The IFRS, you could argue, is a move between lines or in the balance sheet. It's not really changing the net profit. You could say there are some of the funding which is impacted more long-term. Then there are the area that's more volatile in nature. If we have interest going back up, it might change our hold-to-maturity portfolio as we reinvest some of our off-balance sheet stuff. I think it is not all one-off. It's not all going to stay there. It's a little bit of a mix. I'm sorry to be somewhat blurry around this, but it is a bucket of a lot of smaller parts. You can say, Jakob, that in respect to the funding that we took up in Q1, there is an additional effect from that going into Q2, which is around DKK 80 million to DKK 90 million. Then it's, of course, subject to how the funding activity will be for the remaining part of the year. Even though that we have taken up a lot of funding, there will still be some funding. Also note that there hasn't been any effect from the redemptions we are going to see this year. We had redemptions of DKK 6 billion out of a total number of DKK 59 billion for the full year. The effect from the redemptions we are seeing, especially on the covered bond side, which was extremely expensive, compared to today's levels, will kick in the second half of the year. From DNB Markets. Please go ahead. Your line is now open. Good afternoon, Hakan Ostrup from DNB Markets. One question on Norway, please. Since Q1 2018, your Norwegian lending book has increased by around 11%. At the same time, the net interest income of the Norwegian operation is down by 8%. Given this context, are you focusing too much on growth in Norway over profitability? Thank you. We would say no to that question. We think we have a short-term item in terms of rebalancing on the back of interest rate hikes. If we look at the growth in Norway, for the last period of time and also when we look a little bit into the future, we are pretty confident that we will improve profitability again. We do not grow just to grow. We grow obviously to run a profitable business, and we still think we can do that. Okay. Just one question on the agreements that you have with the unions in the Nordics. Is it anything that prohibits you here to increase list prices and margins if you want? Is the pricing linked to interbank rates or other participants in the markets? I think without going too much into detail, we have obviously a premium towards market rates that we are obliged to do, but otherwise we have relatively free hands in our agreements. Thank you. Very helpful. Thank you. Ladies and gentlemen, just to remind you that if you wish to ask a question, please press 01 on your telephone keypad. There will be a further pause while questions are being registered. Okay, our next question comes from the line of Adrian Cighi from RBC. Please go ahead. Your line is now open. Hi there. Thank you for taking my questions. Two questions, one on impairments and one on capital. On impairments, should we consider Q1 as a sort of a one-off higher than what you would expect the run rate for the rest of the year to be? Or should we expect this run rate going forward? On capital, you have previously mentioned, particularly around the SEB Pension acquisition, that you are planning some sort of optimization to offset some of the impact on capital. Is that something you could maybe guide us on the timing of? Is this something we can expect this year? Thank you. Thank you. Let me just start touching on the impairments. I think we have a number of one-offs in Q1. We do not see any deterioration in our credit quality. When we look at the impairments, it is basically related to non-core and the Baltic portfolio. It is related to agriculture in Denmark, where we have now gotten accounts in on the back of the drought in 2018, and we have just adjusted our credit models, and are a little bit more cautious now in that segment. Then we see single name cases in C&I and Banking Denmark, mainly within oil and gas and retail. So nothing structurally here or as we see it. With respect to your capital question, you are absolutely right that in our acquisition with SEB, there is a potential for some capital increases. We are not guiding on a timing, but it is definitely something that is still on the table for us to be looking at in the near future. So it is still on the table. Thank you. Thank you. Our next question comes from the line of Jakob Brink from Nordea. Please go ahead. Your line is now open. Sorry, I just have one follow-up. Your answer to the question previously about investment fees. Isn't it true that margins in the asset management business are actually quite healthy this quarter, and it's the non-asset management driven income that is weak, or do I misunderstand something? No, I think if you are making a reference to the management fees that we have in Wealth Management, which is down Q over Q, there was very high number coming into Q4 of last year, based on a couple of one-offs in the Wealth Management. That's why when you make a comparison to Q4 of last year, it looks quite odd. But I actually think more than if we compare to the Q1 of last year, it's a significant increase, and now it's for the second quarter in row that we are seeing much better margins in management fees. Well, our management fees are up from the first quarter of last year. But we could take that bilaterally afterwards, if that's better. Okay. And then just actually on capital as well, the dividend, it seems like you have changed, instead of deducting 60% of net profit after AT1 cost, it seems like you have changed it to 60% of net profit. Is that correct and why? Well, we are always deducting 60% of net profit. That's an obligation we have due to the rules from the Danish FSA. Okay. We have a couple of questions coming in on the website. The first one is from Harold Haven, from Kahn Capital. You state in your report, we do see signs that we are now at a late stage in the economic cycle. Could you provide some more color to this per Nordic country? What levels of impairment charges should we expect going forward? Thanks. Should I start? I can take, then you just kick in, Christian. I think when we are cautious, we refer mainly to Denmark, where we see especially price falls on apartments in the larger cities. That is also where we have a big market share. We do not necessarily see that as something that will create impairments, but it might be something that impacts our ambition to grow in exactly those places. The same goes for property in general, where we are a little bit more cautious also on the corporate side. This is not in any way a hard stop or anything like that. It is merely a cautionary thing where we adjust just a little bit in our appetite. So we do not see this as driving higher impairments for the remainder of the year. I think there is a more stable picture if you look to the three other countries. If I were to add, it is definitely where we are seeing a lot of the late cycle stuff is also the terms. We are seeing much more loosening of terms, which we are not really thinking is the right time in the cycle to actually have looser terms on our loans. Then we have the second question from the website is calling from Karl Storvik from Sentra Gruppen. In Norway, your current mortgage rate is currently some 10 basis points lower than peers. With limited cross-sales, this is obviously not producing an attractive return on equity. Is there really a need to be a clear market leader on price in this particular market when NII is under pressure? I think as I said before, we need to look at this over the cycle. We still have an ambition to grow, not at any cost. It's a fair point that we need more cross-sales, but we're very comfortable with the profitability in our Norwegian portfolio. Then we would like to have the last question, please. Thank you. Our next question comes from Per Grønborg from SEB. Please go ahead. Your line is now open. Yes, thank you. A couple of follow-up from me. On the one-off items, Danica Sweden, what is the tax situation on that gain? LR Realkredit and Re:Lånefond, is that still a 2020 closing? That was the first question. The second question, if I read the accounts of your mortgage company, they write that the delta on their loan losses is largely due to model changes and updates. Can you put a number on that? Is that the charts they have in the first quarter? Is it the full delta versus last year, in which case it would be almost DKK 200 billion. Well, I can take the first one, and the gain is tax-free on the sale of Danica Pension Sweden. I had difficulties hearing you, Per. Can you re- So it was about the R- The sale of the LR, is that still a 2020 closing? The sale of LR is something we anticipate that we have not set a 2020 closing. I think we have said it is in the process. So whether it comes in 2019 or 2020, we have not guided for, Per. That would also be a tax-free gain, I assume. Yes. Yes. Okay, then to what the mortgage company is writing in their accounting on changed models and model updates. What is the impact of that? I think we can say that the impact from the adjustment of the LGD model that we have done in Q1 is approximately DKK 100 million. It is fully charged in Q1, Per, so it is not something that is flattened out over the year. It is something we are taking up front as a one-off in Q1 2019. I think that was a little bit into your question also, right? Exactly. Perfect. Thank you. Thank you all for your interest in Danske Bank and for your questions. As always, you are welcome to contact our investor relations department if you have more questions after you have had time to look at the financial results in detail. A transcript of this conference call will be added to our website and the IR app within the next few days. Thank you.