Earnings Call: Q3 2018

Nov 1, 2018

Summary

9M profit was DKK 11.6bn as the DKK 1.5bn Estonia donation and weak trading weighed on results. Lending and credit quality remained strong, while FY profit guidance stood at DKK 16bn–DKK 17bn amid regulatory and investigation risks.

Good day, and welcome to the Danske Bank Q3 Report 2018 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jesper Nielsen, CEO. Please go ahead, sir. Thank you, operator. Thank you all for taking the time to listen in on this call today. The participants around the table are CFO Christian Baltzer, Chief of Staff Morten Mosegaard, and Head of Investor Relations Claus Ingar Jensen. Slide one, please. In today's call, we have the pleasure of presenting Danske Bank's financial results for the first nine months of 2018. We aim to keep this presentation to around 15 minutes. After the presentation, we will open up for a Q&A session as usual. Afterwards, feel free to contact our investor relations department if you have any more questions. Slide two, please. With a net profit of DKK 11.6 billion, the first nine months of 2018 was a period of mixed financial results for Danske Bank. The result represents a return on shareholders' equity of 10.1%. The result came in lower than in the same period the year before due to our decision to donate the estimated gross income from the closed-down non-resident portfolio in Estonia and difficult conditions for trading income-related activities in particular. The financial results for the period were based on continued stability in the Nordic economies. The positive business momentum led to an increase in the lending of 2% from the same period the year before, based on good customer activity in most markets. However, currency effects and margin pressure had a negative impact on income and net interest income in particular. Banking DK, representing around half of total lending, grew 1% year over year. Banking Nordic, which represents one-third of total lending, grew 4% year over year or 7% in local currency, with growth in all countries. The significant decline in income from trading activities in the financial markets can be attributed- Ladies and gentlemen, please stand by as we are experiencing a temporary interruption in today's conference. We thank you for your patience, and please remain on the line. Please go ahead. The significant decline in income from trading activities in the financial markets can be attributed to uncertainty related to geopolitical events and challenging conditions in some rates markets. We consider the underlying conditions for trading income we have seen most of this year to be of cyclical nature, and we expect to benefit from our solid customer-driven business model in FICC once market conditions become more benign again. The uncertainty in the financial markets also had an impact on our Wealth Management business, with trading income in particular being negatively affected by a low investment result in the health and accident business. Expenses came in significantly higher than in the same period last year as a result of the donation of the estimated gross income of DKK 1.5 billion from the non-resident portfolio in Estonia. Expenses were also affected by the inclusion of SEB Pension Danmark in the cost base and increased costs for regulatory compliance, which were, however, partly offset by lower performance-based compensation. Our capital position remains strong. Common equity Tier 1 capital ratio of 16.4% is well above the minimum regulatory requirement and also above our new target level of around 16%. on October 4, we announced that we had decided to discontinue the share buyback program. The program therefore ended after our having bought back shares for a total of DKK 6.9 billion. The continuation of benign macroeconomic conditions had a positive impact on credit quality and the financial result. The impairments in Q3 were driven by agriculture and single name exposure. The underlying credit quality remains strong. All in all, in the first nine months of 2018, we continued to see a positive underlying trend in our business, characterized by continued lending growth. However, the major focus point for all our stakeholders has been the situation around the Estonia case, which I will comment on when we have the next slide. Finally, we expect net interest income to be slightly lower than in 2017 as volume growth is offset by margin pressure. As we announced on September 19, we have adjusted our net profit outlook to be in the range of DKK 16 billion to DKK 17 billion owing to the DKK 1.5 billion donation and the continuation of the subdued development in trading income. Slide three, please. Before we go into details about the financial results, let me just say a few words about the Estonia case, which has dominated the news flow about Danske Bank in the last couple of months. We are still working tirelessly with the remaining part of the portfolio investigation in order to identify suspicious activity. We continue to use a risk-based approach. This approach means that the customers we have already looked at were the ones with the most risk factors. Now we work our way through the ones with fewer risk factors. Slide 4, please. As I am sure you have noticed, the Estonia case gave rise to considerable attention, as evidenced by intense media coverage and turbulence in the financial markets. We also have a very intense and direct dialogue with all our stakeholders. Let me talk about that and what we are doing. We are being investigated by Danish, Estonian, and U.S. authorities. In Denmark, the Danish FSA and the Danish State Prosecutor for serious economic and international crime are investigating us. In Estonia, the FIU and the Estonian Office of the Prosecutor General are looking into the case. Last but not least, we have had an information request from the U.S. Department of Justice in connection with a criminal investigation in relation to our Estonian branch. We cannot comment on our dialogue with the authorities or speculate regarding any potential fines. However, it is very important for us to stress that we cooperate fully with all authorities. We have made it very clear that we do not wish to benefit financially from suspicious activities. That is why we have decided to donate the estimated 1.5 billion DKK in gross income from the non-resident portfolio to initiatives aimed at combating financial crime. The Danish FSA has ordered us to reassess our solvency need, suggesting a minimum Pillar 2 add-on of 10 billion Danish kroner. We have complied with this, and we have reassessed our total capital and common equity Tier 1 capital targets, increasing them to above 20% and around 16%, respectively. Furthermore, we have discontinued the share buyback program for 2018. This will add 0.4 percentage points to our common equity Tier 1 ratio in the fourth quarter. Our share price, our funding spreads, and our ratings have also suffered from the Estonia case. Not surprisingly, our stakeholders are worried about the long-term impact. Although we cannot say anything about future events, it is extremely important for us that we continue the close dialogue we have with all relevant stakeholders. Furthermore, we spend a lot of time communicating how we have improved and continue to improve our efforts within financial crime compliance. Finally, I would like to make some comments regarding our customers. We fully understand the negative reactions we have had from our customers. Obviously, this is one of our biggest worries, that our customers will no longer trust us and will not want to do business with us. Restoring the trust of our customers and society in us is a key priority for us. So far, we have not seen a significant customer outflow, but there is a lot of negative attention. That is why we reach out to our customers, retail and business alike, to send a very clear message that what happened in Estonia from 2007 to 2015 does not reflect the kind of bank we want to be. It does not reflect our values or the way we work in this bank. The feedback from these meetings has been positive, but given the negative sentiment out there, we cannot rule out a further negative impact on the customer side. Slide 5, please. Now let us look at what we are doing within the bank to combat financial crime. First of all, it is important to underline that the historic setup in Estonia and the setup on the group platform are very different. However, as financial crime continues to evolve, Danske Bank, like all other Nordic banks, is continuously developing our financial crime compliance. Financial crime compliance has been the number 1 focus area for the Executive Board for several years, and the group has anchored the comprehensive transformation in a group-wide AML program, chaired by the Chief Operating Officer and with two other Executive Board members on the steering committee. The work with financial crime compliance is an immense task, touching many different processes and systems across the group. The bank will continue to invest in improving the setup around financial crime compliance and to develop our internal and customer-facing processes. The investments will touch all areas of financial crime compliance, and the bank will seek to apply new technologies as we mature. Christian, please proceed. Thank you. Slide 6, please. Thank you, Jesper. Let's take a look at the main items of our financial result. Net interest income for the first nine months of the year came in at 17.7 billion Danish kroner. This was unchanged from the level seen in the same period last year. Excluding currency effects, NII was up 1%, driven mainly by lending growth of 2%. Net interest income was affected by lower margins, FX effects, and transfer of the Baltic business to non-core units. Issuance of AT1 and non-preferred senior capital in the second quarter had a negative effect in the third quarter numbers. Net fee income came in at 11.3 billion, unchanged from last year. Fee income was adversely affected by seasonally low customer activity in the capital market, mitigated, however, by the inclusion of SEB Pension Danmark in the Wealth Management with full effect from the third quarter. Net trading income came in at 3.7 billion, down 37% from the same period last year when income was high. Income in the period was affected by a challenging market condition in some rate markets in particular. Other income came in at 0.7 billion, down 41% from the same period last year, owing to the sales of Krogsveen and a weaker risk result in the health and accident business at the Wealth Management. Operating expenses came in at 18.8 billion, up 11%, affected by the donation of the estimated gross income from the non-resident portfolio in Estonia of 1.5 billion, and increased cost for regulatory compliance, including the cost of the investigation of the Estonia branch. However, lower activity-related costs and continued focus on efficiency measures had a positive impact. Finally, we saw a net loan impairment reversal of DKK 0.6 billion as a result of credit quality remaining strong, in particular at Banking Denmark. Slide seven, please. In our interim report, we have now started to report under two new business units we announced as part of the Nordic Integrated Strategy launched in May. Banking Denmark includes all retail and commercial activities in Denmark, formerly known as Personal and Business Banking Denmark. Banking Nordic includes the same kinds of activities in Norway, Sweden and Finland. In the first nine months of the year, we continued to see strong business momentum in our Nordic banking unit based on increased lending in almost all segments as a result of higher customer activity than last year and a good inflow of new business. In the Danish banking unit, we continued to see stable lending growth of around 1%, driven by commercial customers. In Northern Ireland, the business momentum was good, with an increase in both volume and income despite continued Brexit uncertainty. Looking more closely at the three business units, we see that in Banking Denmark, they delivered a stable result with profit before loan impairment charges almost unchanged at DKK 5 billion. Lending was up 1%, driven by business customers. Total income was stable due mainly to fee income, which was up 2%. Expenses were up 2%, driven by higher cost for regulatory compliance. Impairment charges showed a net reversal of DKK 0.6 billion from both retail and commercial exposures as credit quality overall remained strong. The return on allocated capital was 21.9% for Banking Denmark. At Banking Nordic, we continued the solid progress in all markets. Overall profit before loan impairment charges was up 4%. Measured in local currency, lending volume was up in all markets, most notably in Sweden, where volumes within retail and commercial rose 13% and 11% respectively. In Norway, growth in lending was up around 6% in both segments. In Finland, lending to commercial customers up 14% from the year before. The total income was unchanged from the same period last year, despite the sales of Krogsveen in first quarter and FX effect. NII was up 6% as lending grew 4%. Expenses were down 4%, impacted by the sales of Krogsveen in Norway. Impairment charges showed a reversal of DKK 0.1 billion as a result of strong credit quality. The result on allocated capital was 17.4%. In Northern Ireland, profit before loan impairment charges rose 13%, measured in local currency, supported by good underlying performance and customer activity despite continuing uncertainty around Brexit. Total income was up 4%. NII was up 8% as loans grew by 10%. Expenses fell 2%, reflecting the effect of restructuring initiatives. Impairment charges showed a small expense owing to a few cases in the first quarter. The return on allocated capital was 10.9% for Northern Ireland. Slide eight, please. Let's have a look at the units that are more dependent on financial markets. At C&I, profit before impairment declined 32% from the level in the same period last year, when income was very high level in FICC in particular. In the first nine months of this year, C&I experienced challenging market conditions due to geopolitical events and lower customer activity. Total income declined 21%, mainly because of lower trading income, whereas NII was up 5%. Expenses were down 5% due to efficiency gains and lower performance-related costs. Impairment showed a charge of DKK 0.1 billion as credit quality of the oil-related exposure continued to stabilize despite increased charges in the third quarter due to single name exposure. At Wealth Management, profit before tax were down 20% from the level in the first nine months of last year. The negative developments were due mainly to an adverse development in the health and accident business. Danica Pension saw a positive development in premiums up 15%. Fee income was up 2%, mainly due to the acquisition of SEB Pension Danmark. Trade income came in lower, adversely affected by a lower investment result in the health and accident business. Other income showed a small negative result due to a lower risk result in the health and accident business. Expenses were up 13%, due mainly to increased regulatory costs and the effect of the acquisition of SEB Pension Danmark. Assets under management were up 10%, helped by the acquisition of SEB Pension Danmark. In the first nine months of this year, net sales at Asset Management amounted to a negative DKK 9.6 billion because of outflow from a few large customers. Premiums in Danica Pension amounted to DKK 33.7 billion against DKK 29.3 billion in the first nine months of last year and included premiums from SEB Pension Danmark. Slide 9, please. Looking on to expenses. Total expenses for the first nine months of the year amounted to DKK 18.8 billion, up 11% from the level last year. Excluding the donations, expenses were up 2%, as regulatory compliance costs remained high. Excluding the donation and consultancy cost, our expenses were broadly flat. This reflects a mix of lower performance-based compensation, the sales of Krogsveen, but also costs related to acquisition of SEB Pension and the cost for the reorganization following the implementation of our new strategy. The increase in staff and consultancy cost includes high expenses for the compliance and the expenses for the investigation of the Estonian branch. We now expect expenses to be significantly higher in 2017, due primarily to the donation of DKK 1.5 billion, as well as the effect of the acquisition of SEB Pension Danmark. Slide 10, please. Credit quality remains strong in the third quarter. Loan impairment charges for our core activities amounted to DKK 0.1 billion. The loan losses ratio for the quarter, excluding non-core activity, was 2 basis points. All business units except C&I showed a net reversal in the third quarter. At C&I, impairment charges amounted to DKK 0.2 billion in the third quarter, driven by single name exposure within our oil-related exposure. At Banking Denmark, impairments were higher than the previous quarter due to single exposure and charges against the agricultural segment. Slide 11, please. As Jesper Nielsen mentioned, our capital position remains strong with the reported common equity Tier 1 ratio of 16.4% at the end of the third quarter. Our CET1 target has been increased to around 16%, following the increase in Pillar 2. The total capital ratio was 20.9%, down 0.7 percentage point from the preceding quarters, due to a lower amount of Tier 2 capital instrument. The total capital target has been increased to above 20%. The REA level came in lower due to a fall in credit risk, counterparty risk, and market risk. The decrease in credit risk follows a technical adjustment to the risk-weighted model for SME and corporate customers. The leverage ratio was 4.3%, according to the transitional rules. Under fully phased-in rules, the leverage ratio is 4.2%. The fully phased-in minimum CET1 requirement increased from 12.6% to 13.9%, due mainly to the additional increase in Pillar 2 of DKK 5 billion for higher compliance and reputational risk as a result of the orders issued to Danske Bank by the Danish FSA on October 4th. The DKK 10 billion, as Jesper Nielsen mentioned, share buyback program was discontinued on October 4th, and a total of DKK 6.9 billion shares were bought back under the program. Slide 12, please. Finally, our outlook for 2017, which has been updated since the second quarter report. You have had some updates since September 19th, and we expect net interest income to be slightly lower than in 2017, as volume growth was offset by margin pressure. This is an update from our previous outlook. The outlook for expenses has been updated. We now expect expenses to be significantly higher in 2017, due primarily to the donation of DKK 1.5 billion, as well as the effect of the acquisition of SEB Pension Danmark. Finally, as announced on September 19th, we expect net profit to be in the range of DKK 16 billion-DKK 17 billion. Slide 13, please, and over to you, Jesper Nielsen. Thank you, Christian Baltzer. Those were our initial comments and messages. We are now ready for your questions. Please limit yourself to two questions. If you are listening to the conference call from our website, you are welcome to ask questions by email. Operator, we are ready for the Q&A session. Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please press star followed by the digit one on your telephone keypad. Please ensure that the mute function is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, it is star one to ask a question. We will pause for just a moment to allow everyone to signal. We will now take our first question from Pawel Dziedzic from Goldman Sachs. Please go ahead. Your line is open. Hi, good afternoon, and thank you for the presentation. Two questions from my side. The first one is on your dividend policy. You reiterated that it remains unchanged in your disclosure. I was wondering if you can give us any indication if you have discussions with Danish FSA after the cancellation of the buyback program, and what gives you confidence that the authorities will not, let's say, impact the way you think about the capital distribution between now and, let's say, March next year. The second question is on cost associated with the AML case, but perhaps outside of the regulatory fines. When you look at your outlook for 2019, I know you haven't disclosed it yet, but when you think about 2019, and you look at incremental things that you might need to do related with these proactive customer meetings, incremental regulatory compliance costs, higher funding spreads, and so on, how much of a difference does it make really to your results going forward? Is it something that we should be aware of and take into consideration, or you think this is something that you can perhaps manage quite well going forward? Thank you. Thank you for the questions. This is Morten here. On your questions on dividend policy and maybe on distribution policy in general, usually our approach here is that we have a discussion with the Danish FSA on buybacks, and we also have a discussion with the Danish FSA upon approving a dividend policy as such. But generally, we do not need the approval to continue paying dividends as a regular part of our business. This is, as of now, our intention to do so with regards to the dividends. On your second question, in terms of the impact of Estonia and AML costs in general, I think what we can say is and what we've said before is that the regulatory costs that this entails in terms of being more diligent on financial crime is a journey that has started several years ago. We've basically been manning up to make sure that we can manage all the regulatory requirements, and this is ongoing work and something that is basically in the numbers as we speak. In terms of any headwind that we might face on funding, obviously, if spreads remain elevated, that will have an effect, and you can sort of try and guesstimate that effect by looking at the amount of funding that we will need. But it would be very difficult for me to speculate on what they will be in 2019. Thank you, and just on perhaps on this initiative to rush through clients to increase number of meetings with retail clients, corporate clients, and so on. Is this something that is, let's say, incremental to your day-to-day activity or within that? That is the first follow-up. If I might have another follow-up as well on the dividend policy. I fully understand that you do not need, in normal circumstances, approval from the Danish FSA to continue paying dividend policy. But these are perhaps, to some extent, exceptional circumstances. I guess, would you be able to tell us if you had these conversations around dividend policy with the Danish FSA already? Or if, for instance, if they indicated that they would have nothing against, let's say, you continuing dividend policy or perhaps hinted that this might need to be reassessed more and more closely in the future. Thank you. You can say that in terms of our elevated number of meetings, et cetera, with customers, that is a thing that we basically do within the resources that we have allocated to that kind of activity today. So that will not impact our numbers going forward. To the other case, we have no discussions regarding dividend policy with the Danish FSA, and we see no problems in this area going forward. Okay. Very clear. Thank you. Thank you. We will now take our next question from Richard Smith from KBW. Please go ahead. Yeah, hi there. Two from me, if that's possible, please. Firstly, I think just in terms of the ongoing investigation that you mentioned, what your expectation was in terms of how much more that would cost, firstly. Then just in terms of the second side of things, you mentioned in response to the previous question around funding costs, noting from the debt presentation that you have somewhere in the region of 65 billion-90 billion Danish kroner of MREL requirements coming through over the next few years. I wondered, given where funding spreads are and given the structural subordination premium that that would carry, if you would consider perhaps back-end loading that, or if there was anything you could do in terms of the phasing of issuance that we would see over the next few years to mitigate or put off some of that headwind coming through into margin. Thanks. Maybe I can take the first question, which is the cost regarding the investigation. I think in terms of the actual investigation costs will be lower into 2019. On the other hand, we see authorities starting up examinations in terms of Danske Bank, so probably we'll see increased litigating costs in that area. Exactly where that will be, we don't know. But we are strongly committed to finalizing analyzing the customer base in the non-resident portfolio in Estonia. Morten, will you take the other question? Yeah. The question as I heard it was whether we're going to back load MREL funding in the event of elevated spreads. I think that we will commit our funding as part of the usual course of business. I'm not going to comment on the exact timing of that, but we will obviously do the funding we need to do in an appropriate, prudent manner. Okay, thanks. Thank you. We will now take our next question from Mads Sindgaard from ABG. Please go ahead. Yes. Hi, this is Mads from ABG. Thank you for taking my questions. The first one is regarding the money laundering. Jesper, I think I saw in Danish media today that you said it could take one to three years to settle things with U.S. authorities. If that is correct, I do not know if you could elaborate a bit on where you get that kind of period length from, and also what you could do to shorten it. The second question is looking into your new segments. There is, I do not know if you would call it a weird picture, but we do have something with lending up, I think, in Sweden by 5%, but with flat NII quarter on quarter. Also, I think the same picture for Northern Ireland, and also a bit on Swedish commercial lending. If you could say a few words, what is behind the uptick here of 4% quarter on quarter? Thanks. Thank you. I will take the first question. It is correct that I am quoted for saying that. I think my first comment, though, was that it was way too early to speculate in terms of a time horizon for this. Then hard-pressed, I said this could take up to one, even two or three years. Whether that will actually take place, I don't know. But obviously we work to settle this as fast as possible, and we fully cooperate with all authorities, making sure they have all the information available to us. Can you do anything to push it or? Sorry. I think though, the authorities are in charge of the investigations themselves, and I think the best we can do is to cooperate and make our information available. In terms of the timing, that's the authorities that makes the call. Okay. Thanks. Morten? Yeah. So in terms of the comment you had on the new segments and on lending. So in terms of lending growth, I think lending growth is pretty much as we've seen over the last few quarters in terms of trend on both corporate and retail, with a slight pick-up over the last few quarters on retail compared to the start of the year. So that is pretty much in line with what we've seen. Do note that there's actually a slight positive on the balance sheet at the closing date from FX, which is not really evident on the average. So there's a little bit of average versus end in terms of the NII. Also, you see that the margin is slightly compressed, and also from a bit of movement in base and interest rates. Okay. Did you do something with the FTP model this quarter, changing how you allocate funding costs, et cetera? No, the FTP model has been unchanged in this quarter. Okay. Thanks. I think just to add on that is, it's important for us that we take some of these costs on top of the house and keep our customers free of potentially elevated funding costs. Okay. What about the commercial lending in Sweden? Could you say what sectors that relate to in Q3, the growth you have there? I think that all industries are represented in the growth. That has been the case over the recent quarters. Okay. Thanks. Thank you. We will now take our next question from Per Grønborg from SEB. Please go ahead. Yes, thank you. It's Per from SEB. Two questions from my side. The first on client retention. I guess the real game is not Q3, the real game is Q4. You state that there have been some client reaction. It seems like you also indicate there have been some client outflow. What have you seen the last month? Can you give any indications on that? My second question, there's Danish news flash out that the Danish Tax Minister has ordered the Danish FSA to look into the dividend wars. To what extent your name has specifically been named that you'll be one of the banks investigated. To what extent have you been engaged in stock lending related to the dividend payments? Yeah, let me take the first question. First, in terms of outflow of customers, it is true that we have seen a slight outflow of customers, especially on the personal banking side in Denmark. That amounts to roughly 1,500 customers at the end of the quarter. I think it is fair to say that we don't think we've seen the end of that, and that there will be a certain undercurrent in especially that segment. On all our segments, it's very limited effects from the Estonia case as we can see it right now. So we expect mainly personal customers, mainly in Denmark, we will see a bit of elevated outflow over the coming period. However, we expect it to be low to moderate. What's your perception? Has it peaked or is it still trending upwards? I think that is too early to say, to be honest. I would refrain from commenting on that because it also depends on the developments in the coming weeks, where there will also be attention around this regarding parliamentary hearings and stuff like that. We will watch out for the undercurrent in these numbers, and we will obviously fight not to lose more customers, but that is going to be a tough situation in the coming months for sure. It sounds like the corporate side, you are not really hugely concerned about that one. Sorry? It sounds like the corporate side, you are not overly concerned about that side. I am not overly concerned, but obviously this does not reflect well on us in that segment either. But in terms of outflow, that is very limited. Okay. Okay, on your other question, in terms of the things just raised by the Danish Tax Minister, I can say that we will make all data available. That is also what we believe we have done so far. We have very strict policies in terms of not participating in any tax speculation. Also, we take it as a question for us to investigate, but we do not expect that we, in any way, are involved in this case. Okay. Thank you. Thank you. We will now take our next question from Sofie Peterzens from J.P. Morgan. Please go ahead. Yeah. Hi, here is Sofie from J.P. Morgan. I have one question regarding the 200 billion DKK of flows that you had in the report that you published a bit over a month ago. The data from the Central Bank of Estonia that we got last week basically suggests that you included all the cross-border payments in the 200 billion DKK flow data that you gave. Is this correct? If so, why do you think all these cross-border payments are suspicious given that many of the other Nordic banks are saying that many of these cross-border payments relate to normal ongoing transactions that you have? Also, is the U.S. looking at these cross-border payment data from the Estonian authorities? So that would be my first question. Second question would be, you had slightly higher losses from agriculture and oil. Could you just elaborate a little bit more on these losses and how we should think about the asset quality in these two segments going forward? Thank you. I think that you had several questions on your first question, but fair enough. Let me try to see if I got you right. We cannot speculate, first of all, in terms of other banks and messages from other banks. You have to talk to the other banks around those statements. It is true that a lot of the payments in the 200 million flow were international transactions. So a big part, obviously, of what we report to authorities around the non-resident portfolio and suspicious activity will also be cross-border. We also see flow to several countries, mainly Cyprus, U.K., and Russia, and also internal in Estonia. Did that answer your question? Well, if I look at the data from the Central Bank of Estonia, basically, that you had payments from abroad of roughly 150 billion EUR. That ties quite nicely with your kind of data that on the ongoing funds, how many of these were basically from abroad. I am just wondering if you included all the cross-border payments, if the data is basically comparable from Bank of Estonia and what you put in your report. I am not sure they are completely comparable. Remember that our examinations run over several years, so that we would have to look further into. Remember, Sophie, that we have made a risk approach to the investigation by which we have screened the customers in the non-resident portfolio. The most suspicious of those customers are those who are mentioned in the report, which is the background for the suspicious activity reports we have sent to the FIU in Estonia. Sophie, to your other question on the impairment, I think exactly as you're mentioning, we have the agriculture and the oil and gas kind of being the areas where we're seeing some impairment. I think when you look at the oil and gas, it's in our mind it's in single exposures. But we're also seeing an improvement in the overall credit quality of the oil and gas kind of exposure that we have. It has been where we've seen a lot of our impairments come from before, but it's actually tailing off. With respect to the agriculture, those are not actually single named. Those are more of an expectation given the drought and given the season that we've had during the summer, that we anticipate some impairments on that book. So that is a precautionary and kind of right time manner of putting those things aside. Thank you very much. Thank you. Ladies and gentlemen, as a reminder, it's star 1 if you wish to ask a question and star 2 if you wish to remove yourself from the queue. We will now take our next question from Adrian Cighi from RBC Capital Markets. Please go ahead. Mr. Cighi, please go ahead. Your line is open. Ensure that the mute function is switched off. Hi there. Apologies for that. I was on mute. This is Adrian Cighi from RBC Capital Markets. Two questions, please. One on margin and one on deposits. On deposits, your deposits declined by 18 billion quarter-on-quarter, versus an increase of 10 billion last year over the same period. Is this driven by the 1,500 customers leaving the bank, or do you see some other customers maybe moving funds but not leaving the bank? Secondly, the margin pressure you flag. A lot of this is self-imposed given your strategy as a price leader in challenger markets like Sweden and Norway. Do you see any potential change in strategy given now that you have significantly lower excess capital than before? Thank you. You want to take the margin one, Jesper Nielsen? Thank you for that. Just to say the situation we have right now has no impact on our strategies in Sweden and Norway. We are continuing to take market share and be the price leader on certain products to make sure we grow in the market. That will not be changed going forward. With respect to deposits, I think that when you do a quarter-on-quarter, there is some seasonality you need to be aware of. If you do more on a year-on-year basis, you actually will see that the deposits are somewhat flattish, whereas in C&I it is coming down. Those are into some kind of institutional large ones, but nothing that is related to the 1,500 customers flowing out. Hopefully that gives you a little bit more of a color on that. And in terms of retail, we can say that our market share is increasing in Denmark in terms of deposits. That is very helpful. Thank you very much. Thank you. We will now take our next question from Martin Birk from Carnegie Investment Bank. Please go ahead. Thank you so much for taking my questions. I have two questions. The first is on SEB Pension and capital optimization. As far as I recall, in your Q2 presentation, you had a little box that indicated a 50 basis points hit on your CET1 ratio from SEB Pension. I also recall that you had a former CFO who said that you guys would do capital optimization and the hit would only be 10 basis points within a couple of quarters. I cannot really see any effect in your CET1 bridge this quarter from capital optimizations on the SEB Pension part of it. So that is my first question. My second question is now that we have seen two quarters in a row with bad health and accident results, I wonder if you could elaborate what we should expect going forward and maybe I'm also lacking a bit of understanding of the true reason why these results are coming out so poorly. Thank you so much. Thank you, Martin, and you're very right. You will not be able to see the effect of the capital optimization in SEB in the numbers for this quarter because that hasn't been done yet and it's something we will complete at some point over the near term. Whether it will be this year or next year, I will not be completely sure of. It may run into 2019 before we execute on that. But you're very right, it's not in the base as of now. In terms of the health and accidents, I think it's a little bit difficult for me to give exact guidance, but what we can do is give a little bit of guidance on the moving parts within that. Obviously, it's an area where the investment results strikes directly into our P&L and affect our results. When you have a poor result in the investment side in health and accident, that will affect the trading line of the bank, and that will be seen in Wealth Management, obviously. Then the other part is that if you have losses or you have change in actuarial assumptions and similar stuff, then you will see a movement in the risk result, which is booked under other income. That is something which is obviously somewhat volatile and therefore a little bit difficult to guide on. Okay, just two follow-ups here. The SEB Pension follow-up. What is the reasoning for not doing this right away and thereby gaining an extra 40 basis points on your CET1 ratio? That was the first follow-up. The second follow-up is on the health and accident results. I don't really understand why are these two quarters so specific on the health and accident results in particular. So in terms of the timing, there are obviously a number of moving parts since this will be a public issuance requiring a rating, and there will be some timings considerations both for internal reasons as well as for market reasons. I think that is as close as I can get to that. In terms of health and accident, what you will see is it has actually been a little bit different moving factors over the different quarters with the investments results moving according to the market and the other being more idiosyncratic reasons that is taking effect. Okay. Thank you so much. Thank you. We will now take our next question from Riccardo Rovere from Mediobanca. Please go ahead. Your line is open. Good afternoon to everybody. Just a couple of questions, if I may. The first one is again on client retention. Just to better understand, if the clients as you are trying to retain have to take decisions whether to continue banking with Danske Bank or not, do you think the vast majority of those clients will take their decisions over the next six months or so? If we do not see a massive outflow of clients over the next couple of quarters, we might be fairly, let us say, sure that what has to come out has gone out. Do you think six months is a kind of reasonable period of time? The second question I have is on credit losses. You have posted DKK 100 million, if I remember correctly, credit losses at group level this quarter after a stream of quarters posting reversals. Do you think that the age of reversals is over? Should I start with the client retention? I think it is obviously hard to say. When we look across the board, we see very limited outflow at this point in time except for our personal banking portfolio in Denmark, which is still at a fairly low level in terms of outflow and nothing that we can see in our volume numbers, for instance. We expect this to be low to moderate. I think you are right that we will see the exact effect within the next six to nine months. That also obviously depends on how big the media attention to this topic will be in the coming time. Christian. Yeah. So you are asking whether the age of reversals is over. I think we do not really guide on that. I think it is really notable that we have a strong book, and I do not know, Claus, if you want to chime in, but we kind of over the cycle see what 15 to 20 basis point is like over the cycle impairments, right? We have had a couple of years with good macroeconomics that has given us reversals. Yeah, that is right. We have had reversals for many quarters in a row. To be completely honest, we have also been surprised to see that we have been able to continue reversals for such a long period. There is no doubt that this is not a stable situation, and at some time we are not able to do more reversals. No doubt that credit quality is strong and impairments will remain at a low level, but exactly guiding on when reversals will stop, that is not possible for the time being. Fair comment. Thanks. Thank you. We will now take our next question from Robin Rane, Kepler Cheuvreux. Please go ahead. Hi, and thank you for taking the questions. Can you please remind us on the accounting rules that Danske Bank is subject to, at what point of clarity do you have to make a provision for potential fines or settlement? Secondly, given the discussion of customer retention, is there any risk of losing partnerships with the unions in Sweden and Norway? Thank you. In terms of the accounting rules for doing provisions, first of all, we have to be in a situation where we can say it is more likely than not that we will actually get a fine. Second, we will have to be in a position where we will need to reliably estimate the size of the fine. Both of those conditions needs to be fulfilled before we can start setting aside any number as an exact provision. That is why we have guided before that we will communicate this in terms of Pillar 2 add-ons, in terms of the language we use in Note 10, and then ultimately, if we get in a situation where we are in a situation where we can reliably estimate a fine, then we will obviously do that. To your second question, we have very strong partnership agreements in both Norway, Sweden, and now also from the start of this year in Finland. We expect that the commitment to those partnerships will remain strong both from us and our partners. Then we would like the last question please, operator. Thank you. We will now take our last question from Bruce Hamilton, Morgan Stanley. Please go ahead. Hi there. Good afternoon, guys. Thank you for taking my questions. First one, just on the progress on the internal investigation. I know that when you reported in September you were 6,200 clients through the 15, and obviously you have dealt with the riskier ones first. Can you give us any sense of timeline to when we might expect the remainder to be completed? I guess importantly, in the- Hello? Can you hear me? Proper, I think. That is, yeah. Now we can hear you. Hello? Yeah, Rose, can you please repeat the question? Sorry. Yeah, sure. First one was just on the timing of the internal investigation, whether you can give us any sense, having worked through the riskier clients first, when you might be able to give the full detail of the investigation, and linked to that, any evidence of sanctions breaches, because obviously the good news, I guess, in the initial release in September was that there wasn't any so far. Secondly, on the trading and fee lines. Obviously, you've talked about some pressure given the macro geopolitics, et cetera. But as we've entered into Q4, has there been any sign of improvement? A number of your peers, albeit in some different geographies, I guess, have been more optimistic on certainly the fee outlook in Q4, although trading more mixed, but any sort of commentary around outlook there would be helpful. Thank you. Let me take the first questions. We are more interested in quality than time when we go through the rest of the portfolio. In terms of sanction breaches, we refer back to the report of 19th of September and say that the picture has not changed from that. You asked in terms of trade and fee outlook. What we can say, obviously, is that Q3 usually is a seasonal low on both those lines, as activity is usually lower over summer. We did see a little bit of a pickup on trading activity towards the end of the quarter. But whether that's going to be a sustainable pickup is something that still remains to be seen, I would say. In terms of fees, I think we have a decent trajectory if you compare to the situation last year. Generally, there was a difference due to the inclusion now of SEB, and then there's some headwinds on FX in terms of fees. But otherwise, we do see a good trajectory on fees overall. Great. Thank you. There are no further questions in the phone queue at this time. I would like to hand the call back over to Mr. Nielsen for any additional or closing remarks. Just a few final words from me. 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 very much. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.