Earnings Call: Q1 2017

Apr 28, 2017

Summary

Q1 net profit rose 12% to DKK 5.5bn, with 14.4% ROE and strong fee and trading income. FY net profit guidance remained DKK 17bn–DKK 19bn, while the DKK 10bn buyback continued on plan.

Good day, and welcome to the first quarter 2017 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Thomas Borgen. Please go ahead, sir. Thank you, operator, and thank you all for taking the time to listen in to this call today. Today, I have with me the CFO, Jacob Aarup-Andersen, and head of IR, Claus Ingar Jensen. Slide 1, please. In today's call, we have the pleasure of presenting Danske Bank's financial results for the first quarter of 2017. We aim to keep this presentation to around 50 minutes, and after the presentation, we will open up for Q&A as usual. Afterwards, feel free to contact our IR department if you have any more questions on your mind. Slide 2, please. With a net profit of DKK 5.5 billion for the first quarter of 2017, we had a good start to the year. We continued on the solid path as our earnings came in 12% higher than in the same period the year before. The result for the first quarter represent a return on shareholders' equity of 14.4%. In other words, well above our longer-term financial ambitions of at least 12.5%. Our Nordic universal banking model showed that it's robust, and we are making progress executing on our strategy. During the period, we saw increased customer activity across all our Nordic business units. Loan growth for the group was up 4% from the same period last year. We saw particular good inflow of new business in Norway and Sweden, with positive effects from new and existing partnerships agreements. Improved macroeconomic conditions in the Nordics regions also contributed to the positive trend. Developments in the financial markets in the first quarter also had a positive effect on the customer activity. The rebound in activity we saw in the second half of last year continued, as various geopolitical events continued to favor the Nordic markets. The high activity level had a positive effect on trading income and fee income, which also benefited from good demand in our capital markets division. Expenses rose from an unusually low level in the first quarter of last year as we booked higher activity-based expenses and also increased IT investments because of our focus on a strong compliance organization and digitalization. Credit quality remained strong in the first quarter. As in the preceding quarter, we booked a net reversal, which, of course, had a positive effect on the financial results. Our capital position remained solid. The core capital ratio of 15.5%, which is above our target, is net of the total share buyback program of DKK 10 billion we are currently executing. All in all, a good start to the year, and we are maintaining our guidance for the full year of a net profit in the range of DKK 17 billion-DKK 19 billion. I will now turn the presentation over to Jacob, who will take you through the financial results in greater detail. Slide 3, please. Thank you, Thomas. Let's take a look at the main items of our financial results. Net interest income came in at DKK 5.7 billion. This was a 9% increase over the level in the same period the year before, and it was predominantly driven by lending growth of 4%. in Q1, there were two fewer interest days than in the preceding quarter. Net fee income came in at DKK 3.9 billion, which was 14% higher than last year, when fee income was low because of subdued investment activity. The increase came from all of our business units. Net trading income came in at DKK 2.7 billion. That's up 69% due to strong client activity at C&I, primarily in the beginning of the quarter. Other income fell significantly from the level last year when we benefited from the sale of our domicile property in Copenhagen. Adjusted for the sale, other income was only down slightly. Looking at operating expenses, they were up 8% to DKK 5.7 billion from an unusually low level last year, which saw one-offs and low customer activity. In the first quarter this year, expenses reflect higher activity and investments related to compliance and the regulatory requirements. The cost income ratio came in at 45.3%. That's a decline of one percentage point from the year before. Finally, we saw net reversals of loan impairment charges of DKK 0.2 billion as a result of improved credit quality at business banking in particular. Slide 4, please. In the first quarter, we saw good developments at our two Nordic banking units, personal banking and business banking. The improvement in the results was based on a general rebound in customer activity from the low level last year, and also inflows of new business in both Norway and Sweden in particular. In Northern Ireland, lower U.K. rates and increased expenses had a negative effect on the underlying business. Let's take a closer look at the three units. personal banking delivered good results with profit before loan impairment charges up 9% to DKK 1.3 billion. Total income was 7% higher than last year, owing to improvements in all income lines. In the first quarter last year, both fee and trading income were adversely affected by low customer activity. Expenses were up 6%, owing primarily to regulatory-driven investments and higher customer activity. Impairment charges were low, and I will comment on this later. The return on allocated capital at personal banking was 20.6%. Total lending volume was up 3%, owing to growth in Norway and Sweden, where lending volume measured in local currency rose 13% and 15%, respectively. These strong gains came primarily from our partnership agreements. in Denmark, where volume was almost stable, the trend towards higher mortgage lending and lower lending in conventional loan products continued. in Finland, volume was up 1%. Looking at business banking, we made good progress in all markets. Lending volume measured in local currency was up in all markets, most notably in Sweden, where it rose 11%, followed by Norway and Finland, where it was up 6% and 5%, respectively. in Denmark, excluding Realkredit Danmark, our mortgage bank, lending rose 4%. Overall profit before loan impairment charges were up 9%. Total income at business banking was 4% higher than in 2016, when customer activity in Denmark, in particular, was low. NII and fee income benefited from higher lending and generally improved customer activity. Expenses were down 3%, owing to efficiency measures and despite higher regulatory cost. Impairment charges showed a reversal in the quarter, which I will comment on later in this call. The return on allocated capital was 18.2%. Finally, Northern Ireland, where the result was adversely affected by the depreciation of the British pound after the UK referendum last year. Lower interest rates and restructuring costs also reduced the reported result from the level in the same period last year. Total income fell 10%, but adjusted for the depreciation of the currency, it was down 1%, despite an interest rate cut in the U.K. in August. Expenses were up 8%. Again, adjusting for the exchange rate effect, they were up 19% because of restructuring costs. Underlying costs in Northern Ireland were broadly flat. The return on allocated capital was 15.9%. In comparison with the preceding quarter, however, profit before loan impairment charges was up 26%, reflecting good progress in the underlying business. Slide 5, please. Let's have a look at the units that are more dependent on the capital markets. At Corporates & Institutions, or C&I, profit before impairments rose 84% over the level last year, when challenging market conditions caused client activity to be low. The high activity this year, which came primarily in the beginning of the quarter, was fueled by a number of geopolitical events as in the second half of 2016. All business areas in C&I took advantage of opportunities arising from high client activity, and income exceeded the level in Q4 by 30%. Total income rose 50%, owing to improvements in all income lines. Fee income benefited from intense issuance activity within debt capital markets and good corporate finance fees. Expenses were up 10% because of higher activity and positive one-offs in the first quarter of 2016. Impairments, which by nature fluctuate at C&I, amounted to DKK 0.1 billion. The charges were primarily against exposure to the oil sector. Despite high activity at C&I, capital consumption remained stable and was down slightly from the level in Q4 because of lower market risk. At Wealth Management, profit before tax was up 3% as the unit, like the other business units, benefited from improved market conditions and higher customer activity. Fee income was up 13% from the level last year, mainly because of an increase in assets under management and higher customer activity. Expenses were up 11% because of higher activity and restructuring costs. Assets under management were up 8% from the level at the end of the first quarter last year. In Q1 this year, net sales from asset management and premiums amounted to DKK 21 billion. Slide seven, please. Moving on to expenses. Total expenses for the first quarter amounted to DKK 5.7 billion. That is up 8% from the level last year. The increase reflects an unusually low level in Q1 last year, when we saw positive one-offs and low customer activity. Expenses in the first quarter were affected by higher activity-based expenses. The increase in expenses for IT was predominantly driven by regulatory requirements, compliance and digitalization. The higher run rate in the first quarter is not indicative of a change in trend, and we confirm our outlook for the full year for expenses to be somewhat lower than in 2016. Slide seven, please. The positive trend in credit quality continued in the first quarter. As in the preceding quarter, we had a net reversal for the group. The reversal in the first quarter was DKK 0.2 billion against the net reversal of DKK 0.1 billion in the same period in 2016. The loan loss ratio for the quarter, excluding non-core, was minus five basis points. With a net reversal of DKK 0.3 billion, business banking had the largest decline as the positive effects of increased collateral values in the commercial property segment, mainly in Denmark, continued. Market conditions for the agriculture industry improved slightly, and charges against this industry were unchanged in Q1. At personal banking, charges were very low, but higher than in the preceding quarter, owing to a technical adjustment of individual impairments. The credit quality of the portfolio remains strong and stable. At C&I, we booked impairment charges of DKK 0.1 billion in the first quarter, mainly against oil exposure as we continue to see difficult market conditions for subcontractors in the oil and gas industry. The individual impairments against this industry amounted to DKK 0.2 billion. Collective charges stood at DKK 1.2 billion, broadly unchanged from the preceding quarter. Slide eight, please. Our capital position remains strong, with a reported Common Equity Tier 1 capital ratio of 15.5%, which was above our target range of 14%-15%. The expected decline from 16.3% at the end of last year was caused by a full deduction of the DKK 10 billion share buyback program, which amounted to a 1.2 percentage point decline in core tier one. The total capital ratio was 20.4% net of the share buyback, down from 21.8% at the end of 2016. The REA level fell DKK 16 billion in the first quarter. That is owing mainly to the implementation of a new IRB model for retail exposure in Finland. That effect amounted to DKK 15 billion. The leverage ratio was 4.1% according to transitional rules and 4.0% when the new rules are fully phased in. Finally, the share buyback for DKK 10 billion in 2017 is progressing according to plan. As of the end of week 16, we had bought back close to 10 million shares, representing a gross value of DKK 2.3 billion. Slide nine, please. On the outlook, I will be very short. As Thomas Borgen mentioned in the beginning of the call, we are maintaining our outlook for net profit for 2017 to be in the range of DKK 17 billion-DKK 19 billion. The individual components are all also unchanged. Slide 10, please. 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 emails. Operator, we are ready for the Q&A session. Thank you, sir. Ladies and gentlemen, if you would like to ask a question over the telephone, please press the star or asterisk key followed by the digit 1 on your telephone keypad. Please do ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has been answered, you may remove yourself from the queue by pressing star 2. So once again, please press star 1 to ask a question. We will pause now for just a moment to allow everyone to signal. We will take our first question from Jan Wolter from Credit Suisse. Please go ahead. Your line is open. Yes. Hi, Jan Wolter here, Credit Suisse. Thanks for taking the questions. First, Jacob, on the cost there. I understand that the guidance remains, but still, when we look at the cost run rate in the first quarter, excluding variable compensation severance pay, then that still suggests we could end up close to the 2016 level. If I just annualize the Q1 level without the variable comp, then it is around DKK 21.5, and then adding what could be paid in bonuses over the year, then we get close to the last year's level. If you could just give us what kind of factors we should take into account looking at the Q1 cost base in terms of unusually high costs. That is my first question. The second one is on fees. When we look at the first quarter, again, if we annualize that level, and I know that is not right because there are seasonality every quarter, but then we still would end up 8%-9% above the 2016 level. So it does look like a very conservative guidance when you talk about somewhat higher fees in 2016. Any color on that? Are you just being conservative here? Or is it anything else that we should think about? That is my second question. The third one is just if you could update us on the NII sensitivity now for 25 basis points or higher basis points, 100 basis points higher short rates, please. Thank you. Okay. Thanks, Jan. Good questions, and appreciate your urge to annualize a lot of numbers here. Do appreciate that. You seem faster at annualizing the cost than the fees, though, so we will have a conversation around that. If we start with the cost, it is correct, as I confirmed just a second ago, we are confirming our guidance on cost. The higher run rate for expenses in the first quarter does not change anything in terms of the outlook. The higher IT expenses are expected to somewhat smoothen the Q4 seasonality. Obviously that smoothing is subject to activity levels when we get to Q4, but as you may recall, and as I also alluded to a little bit here, Q1 last year was exceptionally low. So there is a smoothing of seasonality. When we look at the delta from Q1 2016 to Q1 2017, that is around DKK 400 million on the cost side. As you know, around 134 of that was one-offs. The rest can be split relatively evenly between bonus, severance, IT, and rent from the sale and leaseback. What we made very clear is that we have been investing fully here from the beginning of the year, especially on the digitalization agenda and on the regulatory projects. There are many regulatory projects in European banks at the moment, whether it is on the compliance side, the MiFID II side, or GDPR, et cetera. So we will not point to any specific items that were too high and will be going down. But we obviously had a number of measures towards the end of last year, which will be coming through during the year. At the same time, we are saying that we have not had the usual very low seasonality from the beginning of the year, which is definitely on purpose. So there is that confidence, and so we reiterate that guidance, and obviously we are still firm also on the 2018 bridge on the cost side. When we look at the fees, you have a very good point. We have come off to a very good start on the fee side, which is, as I also alluded to, driven by all four business units. We actually see good activity levels across all four units. It is not just the C&I capital markets fees that we mentioned and the wealth fees, it is also both in business banking and personal banking. We will be cautious in terms of just annualizing that effect. It has been a good, very strong customer activity in this beginning of the year. You will have your own view on where customer activity goes, but it is early days in the year, but we are very pleased to come off to a good start. I guess it confirms our decision to be positive on the fees for the year. But beyond that, I think it is very dangerous to start concluding a lot for the full year based on this first quarter. On the NII, I will let Claus answer that one. Yeah. Our sensitivity on NII is based on a 25 basis points move up or down, and their sensitivity for the moment would be around DKK 700 million for 25 basis points up in short-term interest rates, and close to DKK 500 million for 25 basis points down across all the currencies where we are operating in. Many thanks. Just to double-check, that guidance or indication includes any floored loans to the CIBOR, EURIBOR or STIBOR or any other interbank rate or other benchmark rate, please? Yes, that is correct. Okay. Very helpful. Many thanks. We take our next question from Anton Kryachok from UBS. Please go ahead. Thank you so much for the presentation. I have two questions, please. Firstly, can you please shed a little bit more light on the strong fees you had in the C&I division? How sustainable are those and where are the underlying drivers, please? Secondly, just a question on your expansion strategy in the Swedish mortgage market. We've noticed that you've signed a deal with TCO, so if you can guide us a little bit on how you expect the volumes to ramp up in your Swedish business. Also, it would be also very helpful to understand the profitability of the Swedish lending that you're doing in comparison to the Danish spreads that you're seeing, and why do you find the Swedish market attractive? Is it the pricing? Is it just easier to obtain volumes, or is it the return on capital that is more attractive in that business? Thank you so much. Thank you, Anton. Let me start on the fees and C&I. If we look at C&I, when we look at the fees and we go back on a quarterly basis, the fees have been between DKK 500 million and DKK 700 million on a quarterly basis. The Q1 was very strong, as you also allude to. What we said is it's very much capital markets driven. There's been a lot of activity in the first quarter, but we have also taken, you can say, our fair share and in some instances more than our fair share. But it's been a strong performance. DCM is an important part here. So there's been a lot of issuance activity in the Nordic region, and we've had a good DCM flow and market share there. Corporate finance activity has also been good, which is another driver of fees here, and then the general equities business. I would say in general, it's your classic capital markets businesses that have been driving the delta in terms of the fees, then obviously there is all the recurring fees coming out of C&I, such as the transaction banking, et cetera. So it's your classic capital markets businesses. In terms of where that goes from here, this is market activity driven to a large extent. So I think most market participants would say that it looks like there are relatively benign market conditions. But you will probably be as big an expert as we are in terms of, you say, forecasting where activity goes in the coming quarters. But it's obviously a good start. Thank you. Okay. To your second question which is a more strategic character, you need to take a step back and put it in the perspective of that we see ourself as a Nordic universal bank. That means that we have now four very well-functioned divisions working very efficiently in four markets. And of course, we have Northern Ireland somewhat on the side. A couple of comments on that part is that we have a very good platform in personal banking both in Norway, but you allude to Sweden in particular. But also there, we have a relatively low market share in a very well-functioning market. And one of our strategic levers to expand in a healthy fashion, both quality wise and profit wise, is to do it with partnerships. We have done that for several years in Norway. We started that last year in Sweden with Saco. This year we will continue with Saco, but also join TCO. That will commence, or actually has commenced the 1st of April this year. The Swedish market is, in our view, healthy in the sense that there is healthy profit pool. It's a well-functioning market, and we are able to give our customers a very good value proposition, and we can see that by the feedback we get from our customers. Actually, we were, for the second year in a row, voted as the best bank in Sweden. If you look at the relative profitability, that will always move through times. But we can confirm that the profit we are getting in Sweden and personal banking in particular, is good, and it is not any profit which are behind any of the other markets, maybe slightly above, but that could always change over time. But it gives us a good diversification effect and a good growth to utilize our capital in an efficient way. If we didn't find it profitable, we would not grow, and then we would rather redistribute that capital other places or back to the shareholders. Thank you. That's very helpful and very clear. We'll move to our next question from Jakob Brink from ABG. Please go ahead. Hi, and thank you for taking the questions. I have two, please, on net interest income. The first one is actually getting back to Sweden. As you said, Thomas, it's been a month now since you initiated with TCO. Can you say anything about sort of the initial reactions? Of course, it seems like a very big agreement or at least quite a big potential. So it could be interesting to hear a bit more of the small details. Then secondly, one of your competitors yesterday were out with, I guess the conclusion was that they felt more confident in new regulation like MREL, and hence they could keep a lower funding buffer. How are you on the funding buffers going forward, also with taking into consideration that the Danish MREL proposal is out? Those were my questions. Thank you. Thanks, Jakob. I think it's fair to say that the TCO agreement has come off to a good start, as we can see that the platform is working well, and that our customer can onboard themselves digitally, which is very important for the customer ourselves. When it comes to the concrete business volumes, number of clients, I will restrain from comment on that as we are in the quarter. I think we have some experiences from the previous partnerships, which makes us optimistic for the future. Let's now wait to see how it works, but so far so good. Jakob, thanks for the other question as well. I'm pleased to hear that our competitors are feeling confident. That's good. When we look at MREL, yes, we've obviously been in dialogue around the more clarity we've been receiving here in Denmark. We don't have the full clarity yet. As you also know, there are some restrictions in Danish law that are being worked on. We're not in a particular hurry in terms of starting to change our funding strategy until we have the final clarity. You can say, does it make us more confident? We don't think we have been particularly lacking confidence in terms of our funding buffer. The level we have calibrated our funding buffers around will not change materially due to this. There was not a specific uncertainty in our funding buffers due to MREL. We will wait and see if I get the final clarity on this. I would echo the fact that things are moving in the right direction on MREL, but it doesn't really change our strategy on the funding side. Okay. Very clear. Many thanks. Our next question comes from Willis Palermo from Goldman Sachs. Please go ahead. Your line is open. Hello, good afternoon. Thanks for taking my questions. The first one is, when I look at the trading line, which has been quite strong for a few quarters in a row now, even on a clean basis. Could you maybe point to how much of that amount is sustainable going forward, maybe looking at how it was in April? Related to that, I have also a question on costs. As I appreciate that a large part of the year-on-year inflation is related to other expenses and IT expenses, if the trading income remains as strong, is it fair to assume that a large part of the costs will follow and therefore it will be difficult to have them down year-on-year? Thank you for the questions. Let's start on the trading income. I think it's a very fair question, and I can see where you're coming from. If we go back in history, I think we have some years back been trying to guide on the trading income, and I think most of us banks have decided that it's a futile exercise, so we stopped doing it. When you look at our business, obviously the majority of our trading income comes out of our markets business, our FICC business. As we are a business now that does not run proprietary risk but runs a client-driven book, we will fluctuate with market activity. In terms of customer flow, that is what will define our trading income. So I will not sit here and venture into what is the right level. It is correct that we have delivered good results for now a number of quarters in our trading business. We have previously said that we feel that the underlying earnings base of our FICC business has improved. But we will not start venturing into what the normalized level is. It's been a good start to the year, and we're pleased with that. April, I will not comment on. We never comment on the current quarter. In terms of the cost side, you raise a good point in terms of activity-based expenses. You are right that the reason why our expenses are higher in Q1 is predominantly driven by these activity-based expenses. If our trading income continues at the levels of Q1, as was implicit in your question, that will obviously have some sort of spillover effect on our activity-based expenses. That is a natural effect from the way that we also reward people for performance. I think most of you, I hope, would acknowledge that that is a good thing, and therefore you will see some effect from that. As we look into the rest of the year, as we look at the numbers here, we have obviously repeated our cost guidance, and therefore that is firm. But it's a good point you're raising. Thank you. Thanks. Can I just follow up quickly on cost and specifically on the Wealth Management division where I saw there were some changing during the quarter. The cost incomes remain quite high in the division. Do you have any ambition of decreasing it from the cost base, or is it more revenue investment for higher revenues going forward? Thank you. That's a good question. Wealth is driven by two things. It's activity-based expenses there as well, and then there's certain elements of the Wealth organization still being put into place, and therefore, there are some restructuring costs, as we also try to highlight. Going forward, Wealth is not a cost game for us. Wealth is very much a top line and scale game, and therefore, we're not running a specific cost agenda in Wealth. Obviously, all of our businesses have to be efficient, but we are not targeting a certain cost income ratio, et cetera, on Wealth. It has to be good, profitable growth from here. Thank you very much. Very useful. Our next question now is from Yafei Tian from Citibank. Please go ahead. Your line is open. Thank you for taking my questions. I wanted to understand a little bit about the competitive dynamic environment in Sweden and secondly, in Norway. We know that the Swedish banks last year have been very much focused on expanding their mortgage margins. This year in the conference call, increasingly they are talking about they wanted to grow more in line with market after losing market share in the first quarter. My question is that first, who is gaining market share in the first quarter? Are you seeing Sweden to be a very easy market for you to grow into? Then how do you see that dynamic change going forward when the local Swedish banks are getting more competitive in pricing? Secondly, in Norway, do you see further main expansion potential on the retail side from the mortgage repricing that was done early this year? Thank you. Okay. Thank you very much. I think both Norway, Sweden, Denmark, and Finland is characterized by good competition with very competent players in all those markets. In Sweden, there are very good players in that market making good offers to customers every day. Rightly, we have gained some market share during the Q1. Also, as we have re-established the platform basically back in late 2015 into mid-2016. We are cautiously optimistic that we have a very good value proposition towards Swedish private clients, and I think it's been evidenced by the attraction actually, and traction we're getting in the Swedish market. But we are humble on the competition taking place, and it will be the customer choices. But so far it looks good, and I'm pretty confident that we will continue to grow in a healthy pace. When it comes to Norway, basically the same. We had grown very fast the last couple of years. There we have had these partnerships for a longer time. However, the margin has been under some compression during particularly 2016. There seems to be some less compression taking place in Q1. Then we need to see how it looks going forward. But again, Norway is a healthy, competitive market. But I think I would not be surprised if there will be some margin expansions in the personal banking in Norway moving forward. Thank you very much. That's very clear. We'll now take our next question from Daniel Dotoy from JPMorgan. Please go ahead. Hi, good afternoon, and thank you very much. Two questions. The first one is on funding. On slide 27, if I look at the funding plan that you present, and if I just assume you can maintain the Q1 spreads, I get to about a DKK 200 million annualized tailwind in funding costs that you'll carry over into 2018. Just wanted to check if that's the magnitude of the number that you recognize. Secondly, in Sweden personal banking, you're clearly growing your loan book there very nicely. But at the same time, deposits and fee income have not really grown at all over the last, let's say, eight quarters or so. I guess one way to interpret that is that you're struggling to make your customers see you as their primary bank. Is that a fair observation? What's the potential to grow non-NII revenues in Sweden? Thank you. Yeah, I can take the first question on tailwind on the funding side. If we assume that spreads are where they are for the time being, which is at an attractive low level, we believe that we will have a tailwind of between DKK 150 million and DKK 200 million for 2017. I think it is too premature to discuss 2018. You can see the redemption profile in our presentation, but there is a long time until 2018, so that is why we cannot make any comments on how funding levels would be at that time. Then back to your question in Sweden. We can see that the cross-sales are coming on immediately on the basic products when they are on board. Usually to get the full cross-sales potential, it usually takes 6-9 months. Take into account that many of the clients have just been onboarded in Sweden, so we expect the cross-sales to reach the level of the back book. We are very comfortable on that. Cross-sales is, of course, both on the fee side, on the deposit side. However, deposits may go at a slower pace, and that is also why we have applied to establish our funding institutions or mortgage institution in Sweden, and that application is with the Swedish FSA, and we are looking forward to get that approved any time soon now. Then we will start also issuing Swedish covered bonds as is common in the Swedish market. Thanks. Can I just follow up on that? You mentioned the back book, front book in terms of cross-sales. Can you just give us or attach some numbers on that, either the number of products on average for a new customer that you are onboarding versus those that have been with you for some time? Secondly, would you expect the non-NII revenue to pick up to levels that you have in other markets from here or is that just a structural difference in Sweden versus, let us say, Denmark? Thank you. There is no structural differences in Sweden when it comes to, let us use the word additional income, compared to other markets. There are all the structural differences, but not particular something I would point out. So over time, the cross-sales should be as healthy in Sweden as in other markets. When it comes to the number of products, we do not disclose that because that can be very misleading. We are also very cautious on having any particular targets when it comes to cross-sales, because that can force the organization in the wrong direction. So we are always looking at the customer's perspective, what is the customer needing, and then there will be one or several products each customer needs, and then we optimize it how the customer sees it. So we do not run around with particular cross-sales targets in that respect. Okay. Thank you both. Thank you. We will now take our next question from Jacob Kruse from Autonomous. Please go ahead. Hi. Thank you. Just two questions on Sweden and Norway again. If I look at the margins you are making in personal banking in Sweden and Norway, and this is, I guess, 2016, they are not that high. They are about 1.1 or 1% to loans on net interest income, which is below Swedish peers. Is that a funding disadvantage that you have, and does that change with this new covered bond company? Or is there other things that I am missing when I look at that? My second question was on the volume growth. Is there any limitation to how much you can take on given the FSA in Denmark being somewhat sensitive to excess growth in banks? Thank you. Thanks, Jacob. Let me start on the funding question. When you look at the margins of us versus the Swedish peers, that does not reflect a funding disadvantage. When you look at the levels that we, Thomas alluded to a second ago, that we are in the last steps in terms of launching Danske Hypotek, our mortgage credit bank institution in Sweden. We are doing that in terms of the long-term sustainable funding of this bank. We are not doing it to get a funding advantage, as we today fund at the same levels as our Swedish peers. Also when we fund our Swedish mortgages. What you are seeing is a mixed effect, which amongst other things reflect the fact that as you know, we have gone out with this especially focused on this association agreements, especially with Saco over the last year. For us, the focus internally is on The risk-adjusted returns on these mortgages, not on the headline margins. We are adding a strong customer base with low expected losses and good cross-sell opportunities, and that is more important for us than the headline margins. The risk-adjusted returns are good on these clients. To your second question, no, of course, the FSA is not a limitation. What is the limitation is the customer satisfaction that we are able to handle the onboarding in an orderly fashion. Each customer feels they are well taken care of, and that we can get their service, the quality of the cross-sells right. Secondly is that we continue to have a very high quality of our portfolio, as we have built up that so far, we will continue to do that. Finally, that we remain a very solid, balanced, and critical bank. That means that we are very prudent on the capital position. In brackets, I can say that we have a very good dialogue with FSA, and we have the same interest as the FSA to expand in a very good and orderly fashion, and that is happening today, and that will also happen tomorrow. Okay. Thank you. Our next question is now coming from Martin Birk from Carnegie Investment Bank. Please go ahead. Hey, thank you so much for taking my question. I have a question regarding the last partnership agreement you guys have with Keva in Finland. This has now been running for a full quarter, and I cannot really see the pick-up in the lending numbers in personal banking Finland. My second question is maybe a bit more technical. It is regarding REA and these internal ratings-based models. I assume when house prices in the Nordics rise, REA is also supposed to go down because the LGDs go down. Do you guys have any sensitivity to that? Those were my two questions. Thanks, Martin. Let me start with the house prices. First of all, when we run our setup here, we run it through the cycle setup, and therefore we say we are not hypersensitive to house prices as such. You can say the sensitivity you have seen over the last couple of years, one of those sensitivities has been in terms of reversing previous provisions as house prices have gone up. In areas where provisions have been reversed or in particularly client segments where that has happened, further collateral increases are obviously good in terms of increasing the collateral backing the loans, but it does not have a massive effect in terms of releasing additional REA or risk-weighted assets. We do not give sensitivities on REA releases versus house price sensitivity. I will have to disappoint you on that, but obviously there is a positive correlation which is completely correct. On your first question, there's a slight or substantial difference between the agreement we have with Akava in Finland and, for example, the TCO in Sweden. With TCO in Sweden, we are the exclusive partner. In Akava, we are the preferred partner type of agreements. Secondly, the agreement has only started on covering what we call graduating segment. Actually, that is young customers just out of school or out of university. There will be a lower, or let's call lower growth in that market until we expand that agreement further to a more mature segment. But so far, it started good with the youth segment, but you should not expect the same growth in 2017 in Finland as we've seen in Norway or as we expect in Sweden. Also, the underlying growth in Finland is also much lower. Okay. Thank you so much for your question. Just a quick follow-up here now. It seems like almost a proven strategy for you guys to expand your retail books through these union agreements. Would it be unlikely to see any further agreements with new unions? No, it would not be unlikely. Okay. Thank you so much. Then we would like to have the last question, please. Certainly. Our final question now comes from Per Grönberg from SEB. Please go ahead. Your line is open. Yes. Thank you. A couple of questions from me as well. Starting off on the commission's specific portfolio fees from investment products. When you look at that line and take out the performance fees and the risk allowance, which are the fluctuating part, we saw it last year detailing from DKK 1,581 in the first quarter down to underlying DKK 1.4 in the fourth quarter. Now we are back above the Q1 level last year. Any seasonality of what is the driver of this? If I look at assets under management, that does not really explain anything of this one. My second question is on the other income. We are now down to a run rate of some DKK 360 without any one-off items. Is this the new run rate after the property divestment that we should expect? Of course, plus the divestment gains that probably will come down the road. Hi Per. Sorry, we were just on mute. Your first question on the fees, you are right that we are reporting a higher run rate here in Q1 if you compare to last year. There is a technicality which we also highlight in the slide deck around management fees, where one of our changes to one of our insurance products means somewhat higher management fees, which comes out of other income. But beyond that, we have also, as you highlight, we have also increased our margin on the AUM. But not as materially as it would look due to those changes. But beyond that, also in the investment fees, we obviously book when we establish new funds, and one of the things we have highlighted is the fact that we are back to establishing new funds, amongst others in the private banking segment. Generally it is fair to say there is a slightly higher run rate fees here compared to last year. It is a good start for Wealth Management, but I think some of these effects needs to be adjusted for. On the other income in terms of run rate, we never really guided on other income, to be fair. There is a lot of fluctuations here, a lot of things that go through. It is fair to say that we are at a level now that this quarter has not reflected any major disposals or sales or these types of things. It is not far off from a normalized level here in the beginning of the year. But generally, as you know, we do not guide for it. But it is not miles off where it should be on a quarterly basis without any potential one-offs. Okay, perfect. Can I add one small thing more? Your IR department have guided that the Q4 effect on costs should be materially lower this year. Can you give us any hint about what sort of Q4 tick-ups should we expect this year in cost? It is early days sitting here in Q1, but I think what the IR department has been guiding you to is that some of the effect we see here in Q1 is a smoothing out effect, especially on the IT. Whether it is materially lower also depends on how the activity levels are towards the end of the year. But this does not mean that we eliminate the Q4 seasonality. We will always have that, but we are taking some of that off due to the Q1. Okay. Thank you. Thank you all for your keen interest in Danske Bank and for your very good questions. As always, you are all welcome to contact our IR department if you have more questions after you 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 and have a good afternoon. Thank you, sir. Ladies and gentlemen, that will now conclude today's conference call. Thank you for your participation. You may now disconnect.