Earnings Call: Q3 2013

Oct 31, 2013

Summary

Q3 profit was DKK 1.5bn as weak trading offset stable core income, while 9M profit rose 45% YoY. Guidance was cut to DKK 6bn–DKK 8bn, with cost reductions accelerated and Irish retail and business operations set to exit.

Welcome to the interim report first nine months 2013 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to your host, CEO, Thomas Borgen. Sir, you may begin. Thank you, operator. Thank you all of you for taking the time. Together with me today, I have the Chief Financial Officer, Henrik Ramlau-Hansen with me, Head of Investor Relationship, Julie Quist, and Chief Investor Relations Officer, Elisabeth Klintholm. Slide 2, please. The scope of today's call is to present Danske Bank's financial results for Q3 2013. We will comment on our strategy, priorities, and the revision of our 2015 targets. We will also provide you with more details in some key topics, including our Irish business and planned cost program. We will also run through our business units results, and then we will wrap up with our outlook for the full year. For practical matters, I will talk about the headline figures, strategy and targets, and afterwards, Henrik will go through the various business units and special topics. After presentation, we will, of course, open up for Q&As as usual. We expect to end this call at no later than 4:00 P.M. Afterwards, you always feel free to give a call to our investor relationship department if you have any more questions. Slide 3, please. This is what we would like you to take away from today's call. We reported a net profit for the group of DKK 1.5 billion for the quarter, and this was clearly unsatisfactory for us. The return on equity declined to 4.3%. Meanwhile, when we look at the various components of our income, our core lines were stable. We also saw strong improvements at Danica, our insurance business over the quarter. Trade income line was the key reason for the decline in total income for the group. Impairments remained low. Our capital ratios remained solid. Core Tier 1 ratio came in at 14.2% and the total capital ratio at 19.1%. We have revised our net profit outlook for the full year to DKK 6 billion-DKK 8 billion on the basis of the profit for the third quarter, but also because of restructuring charges relating to our operation in Ireland and the acceleration of cost initiatives. As we accelerate the execution of our strategy, we plan to cut costs further and aim for cost savings of DKK 1 billion in 2014. We will achieve the savings through firm cost containment and a leaner staff. On the structural side, we have decided to discontinue our Personal Banking and Business Banking activities in the Republic of Ireland, where we now forward will look and focus on Corporates & Institutions. Finally, we maintain our longer-term ROE target of above 12%. However, we have revised our 2015 target to 9%. Slide four, please. We reported a net profit of DKK 1.5 billion for the quarter. The net profit for the first nine months of the year was DKK 5.2 billion, which represents an improvement of 45% over the level in the first nine months of 2012. As we compare the nine months result further, we see that trading income was disappointing. The notable decline year-on-year was caused mainly by erratic market conditions and low customer activity, which hit our market making business, whereas 2012 benefited from extraordinary good market conditions. Insurance income also dropped significantly because of a lower risk allowance this year. The most visible improvement in the nine months result was impairments, which was reduced by 47% over the period. In the quarterly comparison on our P&L, you can see from the index figures for Q3 that we had improvements in both net interest income and net fee income. Net interest income benefited from higher deposit margins as well as one extra day, whereas net fee income was up in C&I and Danske Capital. Trading income was significantly lower owing to erratic market conditions and a deficit at treasury caused by a negative one-off and the cost of high liquidity coverage ratio. Our insurance business improved significantly from Q2 to Q3 as investment returns improved. Expenses came down 8% to DKK 5.5 billion, primarily because of seasonality and loan impairment charges were generally stable. Slide five, please. Clearly, our Q3 results were not satisfactory for a bank of our size and capability. We need to make changes in order to realize Danske Bank's full potential. We remain firmly committed to our vision, which is to be recognized as the most trusted financial partner. We will continue to strive to earn this position and will focus on customer satisfaction and our financial results. Meanwhile, our mission remains to set new standards in financial services. This will happen through a continued focus on providing best-in-class advisory services, continued digitalization, and openness and transparency. Slide six, please. We need to accelerate the implementation of our strategy, however. We will do this through a clear and firm focus on three principles: customer attention, simplicity, efficiency. The most important area is our customers. We are confident that the best way to deliver shareholder value is through strong customer attention. The foundation of our business is our customers, and the prerequisite for our success is their satisfaction. These priorities complement one another. What we mean by customer attention is to take account of the needs of our customers in everything we do. We are operating in a competitive market, and we need to constantly strengthen our position in the marketplace. We have launched a 360-degree review of our service levels across the business. We have empowered our frontline staff to enable them to make quicker decisions and provide a better customer experience. We have continued to expand our already leading digital channels, and we will continue new product development. When we say simplicity, we mean much simpler procedures across the entire business. We need to spend fewer resources on administration and more time with customers. This will not only enable us to become more efficient, but also enhance the customer experience. We are also looking to simplify our performance management structures to ensure that we keep the right focus at all levels. Finally, efficiency signifies a much firmer focus on cost. We are reducing our expenses in several areas, and our internal functions will be made far more efficient. This will also entail a reduction in the number of employees in our non-customer-facing functions. Together, these actions will enable us to reach our ambitions. Slide seven, please. Luckily, we have a solid foundation to build on. Recent developments give us confidence that we have a strong position in the marketplace, and that the initiatives we are taking will help us strengthen that position. Let me run you through just a few examples of successful initiatives launched in 2013. In Personal Banking, we launched MobilePay in the Danish market in May. With more than 650,000 downloads, MobilePay is setting new standards for easy money transfer. Our customer program at Personal Banking Denmark is also a success, with more than 1.1 million customers signed up. That represents around 95% of our volume. In Business Banking, we have strengthened the product offering for both smaller and larger business customers. Examples are originations of corporate bonds for large SMEs, new specialized units for large customers, and RD products outside Denmark. Corporates & Institutions have invested in a stronger equity platform, and this investment is slowly paying off in rising income. Debt capital markets originations on high-yield bonds are also growing business areas. And very importantly, our customers rank us top three in more than three out of four relevant Prospera surveys this year. Danica launched a unique new online health check service in October. It enables customers to test their health and calculate their body age. The aim is to increase awareness of disease prevention measures and to improve the conditions for our customers' general health. Lastly, Danske Capital has been growing assets under management by introducing new funds in Danske Invest, as well as a new and very successful managed portfolio product for personal and private banking customers across the Nordic countries. To sum up, we have launched many successful initiatives that enable us to create value for our customers in an ongoing dialogue. To reach our ambitions, however, we need to work even harder and do more. Slide eight, please. We have announced a new cost program that will accelerate savings and improve profitability. Our target is to reduce costs by DKK 1 billion as early as in 2014. This will take our cost base below DKK 23 billion in 2015. In Q4 this year, we will have some restructuring charges from the discontinuation of our Personal Banking and Business Banking operations in Ireland. Also, there will be additional restructuring charges from the DKK 1 billion cost savings program, partly because of further reductions in the number of employees. The reductions will take place mainly in non-customer-facing functions. Over the next couple of years, our firm focus on costs will entail fewer hirings and continued reductions in the number of employees as our head office functions are made leaner and more efficient. Our restructuring of the branch network and customer contact points will continue, always at a lower pace than previously. Slide nine, please. Our decision to discontinue Personal Banking and Business Banking business in Ireland means that we move credit exposure of around DKK 18 billion to our Non-core unit. Most of the exposure comes from personal mortgages. We expect restructuring costs and a need for further impairments over the next five quarters. We have revised our estimates for the total impairments from Q4 2013 to the end of 2013 to up to DKK 2 billion. This is an increase of around DKK 500 million above our earlier guidance. Slide 10, please. The process of reducing our exposure in Non-core Ireland continues as expected, and we are happy to see that improved economic conditions in Ireland have a positive impact on the process. A significant sign of this is the increased pipelines of properties on the market or under offer or contract. These numbers are now at a much higher level compared with the beginning of 2013. We expect this positive trend to continue throughout the coming quarters. Slide 11, please. In October, most of the Danish political parties agreed on the new regulations for SIFIs in Denmark, and we expect the bill to be passed in Parliament in the beginning of 2014. The agreement is in line with most of the recommendations from the Parliament's SIFI Committee, although the SIFI buffer will be 0.5% lower than the committee's recommendation. On top of the minimum capital requirement of 8%, we will face a SIFI buffer of 3% and a capital conservation buffer of 2.5%, bringing the fully phased-in capital requirements to 13.5% in 2019. We already meet the new requirements for the SIFIs in Denmark with our current capital ratios. We are pleased to see that the additional requirements will await the future joint regulations from EU, since this is important in ensuring a level playing field for banks in Denmark. Slide 12, please. As I mentioned, as part of our key messages, we are maintaining our long-term target for return on equity above 12%. However, we have revised the 2015 target for a return on equity to 9%. For the first nine months of the year, our return on equity was around 5%. This means that we will almost have to double it to reach our 2015 target. Let me talk you through the building blocks. First, we will undertake new income initiatives, including an expansion of certain business units and product areas, and we will look to optimize our price structures. We will extend the duration of the group's loan portfolio in order to increase earnings. Finally, on the income side, we expect the current difficult conditions for trading and insurance to be temporarily. More longer-term, we expect our trading line and insurance business to generate more normalized returns. The new cost program will benefit return on equity as early as in 2014, with additional benefits in 2015. Finally, the loss at Non-core derives primarily from impairments, which we expect to be much lower in 2015. On the negative side, there is a slight headwind from a higher-than-previously expected increase in our equity in 2015. This will be offset by lower funding and capital costs. All in all, our initiatives will bring the return on equity from around 5% for the first nine months of 2013 to 9% in 2015. Slide 13, please. Our 2015 target is no longer based on a change in interest rates, and this is the largest factor in the revision. As we explained at the Capital Markets Day in London last year, we assumed short-term rates of around 2% in 2015. We do not consider this realistic, and we therefore no longer assume a significant increase in the short-term rates in the coming years. This lowers our return on equity by around three percentage points. On the other hand, we expect risk-weighted assets to be higher in 2015 than we previously estimated, mostly because of the IRB audits that we received in June this year. This increase will amount to around DKK 15 billion in 2015, and it costs around one percentage point of the return on our equity. As explained on the previous page, we will undertake several initiatives to increase our return on equity, but we will not be able to compensate fully in the short term. They have got negative effects. Slide 14, please. Along with the revisions of the target for return on equity, we have revised a number of our other financial targets. Let me talk you through our new 2015 targets. For return on equity, our target of 9% in 2015 is clear. Our long-term target remains a return above 12%. We still intend to improve our ratings by at least one notch and are continuing our efforts regarding this. Our capital targets are unchanged with core Tier 1 ratio of at least 13% and a total capital ratio of at least 17%. We meet these targets at the end of 2012. Nominal costs are targeted below DKK 23 billion in 2015. With our DKK 1 billion in cost savings in 2014, we will take an important step in reaching this target. Although we are now targeting lower cost, we have increased our cost-income ratio target slightly. The additional cost reductions will not be able to compensate for the lower income because of the lower short-term rates. We are therefore now aiming for a cost-income ratio of below 50% in 2015. Finally, we maintain our target for dividend payments of around 4% of the annual net profit. Please turn to slide 15, and now Henrik Blomdahl will continue. Thank you, Thomas. I will take you through our five business units and also comment on some special topics towards the end of my part of the presentation. Please, we are now on slide 15, Personal Banking. In Personal Banking, profit before tax was up 47% and the return on equity improved from 7.2% to 9.5%. Total income was in line with Q2 as recent price initiatives compensated for slightly lower volume. It was also satisfactory that expenses declined 5%. Impairments are also further down, and it is positive that impairment, the loss ratio, is now down to 21 basis points in Q3 compared with 23 basis points in Q2. As Thomas explained, some of the digital applications are very popular, and also 1.1 million customers have now signed up for the customer program corresponding to roughly speaking 95% of the potential volume. The MobilePay app is also taking off and being used by a lot of customers that are not even customer in Danske Bank. You can also see from the left part on slide 15 that impairments are gradually over time coming down in Personal Banking. Please go on to slide 16. In Business Banking, total income was in line with the level in Q2. Expenses declined 6% because of seasonality. Impairments were very much in line with Q2, and the loan loss ratio was unchanged at 25 basis points. Also here, profit is up and the return on equity is now 11.5% compared with 10.4%. Also in Business Banking, we have seen a strong interest in our mobile banking solutions as now more than 25,000 customers have downloaded our new app in that area. Please go on to slide 17, Corporates & Institutions. In Corporates & Institutions, profit before tax fell by almost one half in Q3 because of lower trading income. Trading income was negatively affected by very difficult market conditions following the uncertainty on the direction of interest rates after the Fed announcement, but towards the end of the quarter, conditions were much more favorable, and it was especially the income on the fixed income side that was affected. On the positive side, net interest income rose based on higher lending margins, and also our net fee income grew because of higher activity in loan origination and refinancing. Also, loan loss ratio in Q3 was small, 8 basis points, so it is still at a very low level. You can see from the diagram at the bottom to the right that market making has been volatile, but the underlying customer income parts have been moving gradually in the right direction. Please turn to slide 18. Danske Capital, where the net profit was up 7% for the quarter. Taking for the full nine months from 2012 to 2013, actually total income in Danske Capital rose by 26% compared with 2012, and net sales for the first nine months was up DKK 25 billion and actually taken over a full year period, actually assets under management has been increased by DKK 46 billion in Danske Capital, and they have also been quite successful in attracting new funds to their new Nordic corporate fund, and they are also making progress in the hedge fund area. Please go to slide 19, where we have Danica Pension, where there was a swing factor of more than DKK 800 million from Q2 to Q3, due to the fact that in the third quarter, Danica has been able to book risk allowance for three, full for one and partly for two of the risk groups, and that is the reason for the increase in profit to now DKK 479 million for the third quarter in Danica. The underlying business development in terms of premium income was satisfactory both in Denmark, Norway, and Sweden, and the shadow account now stands at the end of Q3 at DKK 1.4 billion in Danica. Please go on to slide 20. On that slide and the following slides, we have some special items for your interest. First of all, our expenses was DKK 5.5 billion for the quarter. There are, as you are used to, some deviations from quarter to quarter, but taken over a full year period, you can actually see that there is a flat or slightly declining tendency in the underlying cost. As a coincidence, our underlying cost in Q3 was actually the same as in 2012, so our costs are gradually moving in the right direction. Please go on to page 21, where we have highlighted some of the developments, especially in our mortgage division, Realkredit Danmark, has reduced over time the amount of what we call FlexLån, F1 and F2s, by DKK 63 billion since the end of 2011. At the end of 2011, almost every third loan outstanding was a FlexLån, F1 or F2. Now we are down to roughly slightly over one fifth of the loans are now F1s or F2s. Realkredit Danmark, our mortgage division, has recently introduced a new mortgage product we call FlexKort or Flex Short, where the underlying loan for the customer is a loan where the interest is reset every six months, but the underlying bonds are three-year bonds. That is contributing to a longer funding profile for Realkredit Danmark and for the group as a whole. Until now, the customer interest in this new product has been very solid, and we have great expectations for that in the coming years. In connection with that, we have a refinancing auction going on, where at the end of Q4 2013 and into this year, DKK 105 billion of FlexLån, that can be one year, two year, three year, five years and so on, are up for refinancing, including DKK 72 billion of the one-year FlexLån, F1. Until now, we have got information that 27 out of the DKK 72 billion loans are up for refinancing, and already 56% of those customers, and that corresponds to, roughly speaking, DKK 15 billion, have already decided that they will move out of the one-year floating loans. That is, from a funding perspective, quite encouraging, and we will wait until the end of the quarter until we have the really final figures in that area. Please go on to slide 22, where we have provided for you a little bit more information on what is actually happening or what happened during the quarter on the trading side in Corporates & Institutions, which was, as we alluded to, affected by the erratic and turbulent market conditions in the fixed income space. That was the reason, first, that also the customer-driven income, which you can see of the dark blue columns, were reduced from 903 in Q2 to 737 in Q3. There was less customer trading going on. Due to the uncertainty in the market, we also lowered the risk we took on the fixed income side, and that is a contributing factor to the result where we have a net market making result of minus 66 for the quarter. In addition to that, I can mention that also the trading income is impacted by our treasury, where we in Q2 had significant gains on some of our private equity investments in Q2, which we do not have in Q3. In Q3, we have had additional expenses to the redemption of our RAC Tier 2 issue and also have had a slight funding deficit in treasury, which are then also contributing to the swing factor between Q2 and Q3 on the treasury line. Which together with the C&I trading income becomes, roughly speaking, our total trading income for the full bank. Please go on to slide 23, where we have shown our capital ratios, where our core tier 1 ratio was 1.4 percentage point lower in Q3, primarily because an increase in our risk-weighted assets after the implementation of the IRB orders we got from the Danish FSA during the summer of 2013. We have implemented order one, which have increased our risk-weighted assets by DKK 96 billion. That, together with the fact that we have repaid the RAC issue, is lowering our Total capital ratio, but bear in mind that we have also issued a Euro Tier 2 issue, which will, going forward, increase our total capital ratio by 0.9 percentage points moving into Q4 2013. Our updated calculation of the full impact of CET1 is a reduction of two percentage points in our core Tier 1 ratio, which will gradually be phased starting the 1st of January 2014. Then please go on to slide 24, where we have elaborated a little bit further on the IRB orders, which have now been implemented in a dialogue with the Danish FSA, where the net effect is an increase of DKK 96 billion here in Q3. DKK 96 billion, and you can see that our corporate risk rates have been increased from 36 percentage points to 44% over the quarter. That has been through a dialogue with the Danish FSA. You should also note that taking from end 2012, the increase in our risk-weighted assets is actually just DKK 49 billion from DKK 819 billion to DKK 868 billion. It has been in the dialogue with the Danish FSA that the net effect, so to say, is not an increase of 10 percentage points, but actually 13 percentage points, as you can see on slide 24. Please go on to slide 25, where we have an overview of our liquidity and funding, where we feel that we are in good standing. We have an LCR at the end of Q3 of 132. We have done almost all our funding for 2013. We expect relatively limited need for funding in 2014, and in order to be prepared for repaying the state hybrid in 2014, we will continue to issue supplementary capital also in the coming quarters. We have a very strong 12-month liquidity, as you can see on slide 25. Then please go on to slide 26, where we have given our full outlook for 2013, which is based on a fact that economic growth remains still subdued, and we do not expect increases in interest rates or demand that would raise our income for the remaining part of the year. Taken all together, we expect our net interest income to be slightly below the level in 2012. Fee income is expected to increase because of all the initiatives we are taking. Trading and insurance, for the reasons we have been through, is expected to be below the 2012 levels. Expenses will probably be around DKK 24 billion for the full year 2013. We have some restructuring charges in connection with Ireland and severance payment that will take it to around DKK 24 billion in 2013. Impairments have developed satisfactory during 2013, so they will be below the 2012 level. Due to the fact that we have had a slightly weak Q3, and also the restructuring charges we have been mentioning, then for the full year, we now expect net profit of DKK 6 billion-DKK 8 billion for the full year. That ends my part of the presentation, and we are, operator, ready for taking questions. I suggest that for making sure that all get an opportunity to ask questions and given some feedback we have gotten from previous calls, I suggest that we start to begin with that everybody ask two questions, and then when everybody has asked two questions, we can take one more round, et cetera, and we have time, as we mentioned, up to 4:00, as Thomas mentioned, to begin. Thank you, operator, and we are ready for questions and answers. Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press the hash key or the pound sign. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Omar Keenan from Deutsche Bank is online with a question. Good afternoon. Thanks very much for taking the questions. Just two questions please, if I may. Firstly, it looks like you've accrued for expected dividend in your Core Tier 1 for what looks to be consistent with a 33% payout ratio in the first nine months of the year. If we assume that's the dividend paid, then on my figures, that would put you on a fully loaded Basel 3 at the end of the year of 12.4% versus your 13% 2015 target, excluding any mitigations. I was wondering if you could give us an update of any discussions that you're having with the regulator with respect to resuming some nominal dividend payment below the 40% target this year. Does your intention to accelerate your plans also means acceleration of reaching your capital target on a fully loaded basis, and will the dividend be a lever there? Then just secondly, I have a broader question for the. How aligned is your current thinking with the strategy laid out in the Capital Markets Day last year? I am wondering if we should take the winding down of Personal Banking and Business Banking customers in Ireland as a signal that you are perhaps willing to be much more discriminating in which businesses it makes sense for you to keep, and which ones to exit that are potentially underperforming. Could we expect any new strategy day soon to lay those plans out? Thank you. Thanks. I will take the last question, and I will ask Henrik to take your first questions. Our strategy remains firm that we will make sure that we can return on capital or return on equity above 12% long-term. Our bridge to 12% is going through 2015 to achieve 9%. We need to make sure that we can make 12% also in a low growth scenario, and that means also a low interest rate scenario. To do that, we will go through 2014 to see how can we optimize our franchise. To your questions, yes, we are closing down Personal Banking and Business Banking in Ireland. As we can see that we cannot optimize the franchise towards the clients, neither to optimize this towards the shareholders. That is why we have taken that difficult but firm decision to unwind it during 2014. Will we need to go through other business units? Absolutely. We are looking at all businesses, but I have nothing firm now to launch. We have so much work we can do internally by focus on clients, make the bank more efficient, and simplify it, that we will come a long way. But you are right, we will look at all issues to make sure that we can return a sustainable return above 12% to our investors and shareholders. Regarding your questions about dividends, it is right that in the report we set aside one-third as a, so to say, standard measurement in calculating our solvency. It is not the same that it has been decided to pay out a dividend of one-third. That is something that will be decided by the board of directors and the general assembly towards the end of the year. But of course, we would like as fast as possible to start paying a dividend. Hopefully we can also do it for this year, 2013. But we have made explicitly that it could be at a lower percentage than the stated 40%. The Danish FSA is aware of that we could consider paying a dividend for 2013. They are, for the time being, comfortable with the capital targets we have mentioned of being above 13% on Core Tier 1, and that is on a reported basis. They also know that on a pro forma basis, as we have illustrated on slide 23, that we are at 12.2, and we are quite comfortable with these levels. Great. Thank you very much. That is very clear. Please, next question. Asbjørn Nicholas Mørk from Carnegie is online with a question. Yes, good afternoon. Two questions from my side. First of all, on your ROE bridge, the 12% to the 9%. I was just wondering the new initiatives you talk about here, the 1%. Could you just explain a little bit the difference here versus the initiatives you talked about on your Capital Markets Day last year, and whether you still see the same potential for those initiatives in the plan going forward? That was my first question. The second question on your fee side. You talked about this new customer program, and if I remember correctly, it was initiated in September. Could you elaborate a little bit on this, and then what we should expect on your fee side from this new program? Also in regards to your MobilePay solution, whether this is something that you expect to make money on going forward. Thank you. Yeah. I will take it from the reverse order. MobilePay has been a great success in Denmark. We have more than 650 downloads. The whole business case now will spring out, how can you really materialize this as the winning concept and as the preferred choice for users? Interesting enough, more than 60% of those downloads are non-clients of the bank. So we see a great potential. We are now working on the merchant side to see how we can integrate that into a natural payment cycle. That is something we work on during the fall and into 2014. On the customer program, it has been a great success. We have had more than 1.1 million sign in, and we actually confined more than 95% of the volume. It shows us clearly that more and more clients are gathering more and more assets under the program because they get the benefit, when they gather assets with us. For the first time in many, many years, we are actually gain market shares on lending in Denmark. So this is clearly paying off. The fee by itself is not going to be the major contributor to the P&L of the bank, but it is a very important customer value proposition to make sure that he can see the value of combining all his business with the bank. Your first question, about from 5% to 9% and 9% to 12%. I think we are very clear on how we are going to bring it from 5% to 9%. Then we will need to look into, in 2014, how do we make sure that we can be sustainable Return on equity above 12% in the low interest rate environment. That we will go through more efficiencies, more simplicity, also more customer launches. However, we may also have to look at structural issues, but that is too early to communicate in more details now. But we will return when we have done some more analysis in that respect. Well, I think if I may add, slide 13 is also an illustration of that we are actually trying to do more on the cost side than originally was anticipated in the 12%, in order to offset, so to say, the headwind we experienced with a higher equity level. Okay, so this means that in the long term, if interest rates stay at those levels that we have today, you think that you will be able to make 12% ROE going forward? Yes, that is our clear ambition, that's our clear target, and that's something we'll work on. Okay, thank you. Thank you. Next question, please. Chintan Joshi from Nomura is online with a question. Hi, good afternoon, and congratulations on the new role. Can I start off again with the new initiatives on slide 12? Are we talking about here of trying to reprice certain segments of your loan book? If so, which segments could that be? Also, what the competitive landscape is for repricing in Denmark. Hitherto you've had a funding cost disadvantage which has now minimized. Also, competition, particularly in corporate space, has been around, so it's not been that easy. Just want to get your sense of how much of these new initiatives are in relation to loan book repricing and the competitive picture there. The second question is around leverage ratio. Could you give us some color on your discussion with the regulator on the leverage ratio? Could this become a constraint for you going forward if they decide to increase it from 3% or have some more hawkish calculation of it in Denmark? Also, where do you stand currently on your leverage ratio? Thank you. I will ask Henrik to do your leverage ratio. I will come back to your first question. Regarding the leverage ratio, we are in a dialogue with the Danish FSA around that. We are planning to start publishing our leverage ratio by the end of this year. We are on the right side of 3%, and we are in a dialogue with the Danish FSA. We have no information that they would start, so to say, from now on or early 2014 to push for a higher leverage ratio than 3%. We are quite comfortable that we also going forward will be able to live up to the requirements from the Danish FSA. Okay. To your first question, there is no doubt that there is good competition in all our markets today. However, we can see that we are very competitive in most of them. We will continue to optimize all the levers at our disposal, both on deposit pricing, on lending pricing, and combination of products. We can see that we are very competitive in certain markets, and we will see how we can adjust to be even more optimal in the balance between making sure that we keep the volume or keep the market share, and at the same time see how we can optimize the bottom line of the group. So far, we have seen that we have been able to balance that very well, and that is also intention to do during 2014, and if needed, also in 2015. In addition, of course, we also see some normalization on the trading side. As it also says on slide 12, it is on cost and non-core losses. Thank you. Next question, please. Claire Kane from Royal Bank of Canada is online with a question. Hi there. Firstly, my first question is on Ireland. I noticed this week you announced you sold some of your commercial real estate portfolio to the Green REIT. Given the majority of your exposure is residential mortgages, and you disclosed that on the core mortgage book there is over 97% average LTV, what is your strategy for running that book down? Is it a sale, or how likely is it do you think that those customers can refinance to other borrowers? Can you give us a kind of guideline on timing of that runoff, please? My second question is on the trading. Clearly that market making activity along with the treasury income is very volatile. Can you talk us through what the one-offs you mentioned in the treasury and how should we think about what a sustainable level is for that, given how much it moves around? Thanks. Yeah. Henrik will then answer your last question. I will comment on your first one. The residential book in core, as it is today, is performing residential mortgages. That we plan then to in an orderly fashion to move over to the non-core starting the first quarter or maybe already this year, but at latest first quarter next year. This will be run down in an orderly fashion. It has an amortization of approximately DKK 1.5 billion a year, and we may, at a certain point, sell it off. But for the time being, it's a fine book. That's why it's been in core, and it's performing, but it will be a tail in a certain point, and then we need to look into that. But that's not a worry we have. As I said, it's performing. The non-performing mortgage portfolio was already moved 18 months ago when we established the non-core business. Regarding the treasury and the one-offs you asked about, which is booked as part of our trading income line. In Q2, we had extraordinary or positive revaluations of some of our infrastructure investments in Denmark and other private equity investments of around DKK 500 million. Here in Q3, we have had extraordinary expenses in connection with our repayment of our RAC Tier 2 issue of DKK 100 million to DKK 200 million. So you could say that the net swing factor here is around DKK 700 million of a one-off nature when you combine Q2 and Q3. Next question, please. Johan Ekblom from Bank of America is online with a question. Thank you. So two questions. Maybe we can just continue on the trading. You highlighted some of the reasons why it changed quarter-on-quarter, but I think it sort of missed the point. You've been, for many years, saying you can do around DKK 2 billion per quarter, and understandably, it's an average over time given volatility and seasonality, et cetera. You are now significantly below that. So even if we adjust for some valuation losses and buyback of the RAC capital, et cetera, it's still a result that is materially weaker. So can you give us some comfort that DKK 2 billion a quarter is still where you see the run rate longer term? If not, what has changed in the environment that makes that valid or not valid? So that's the first question. The second question is just on the cost. I think there's clearly a reported cost number and underlying cost number. When I look at numbers for this year, clearly with the exceptionals that you've taken, DKK 23 billion looks like all you've done now is offset inflation over the next two years, which frankly you already had pretty much in the old plan given the revenue disappointment that we've had. So, DKK 23 billion, is that as low as you think you can go? Or you needed another DKK 1 billion to offset the incremental capital requirement? Or how should we think about the long-term ambition in terms of cost efficiency? Okay. Two good questions. First of all, you can forward assume that through a year, we should be around between DKK 1.5 billion and DKK 2 billion in trading income. We see no reason to change that. It may have a quarterly volatility of various one-off factors as we had in this quarter, but we see no reasons why the business model has changed. We can say that also that we in September are back on track, and October has also started well. So there is no reason to say that the trading of previous guides between DKK 1.5 billion and DKK 2 billion will change. Sorry, can I just interrupt? Because one and a half and two was the guidance 18 months ago, and since then you changed your accounting policies. You introduced a new fee schedule in Realkredit Danmark. If we go back and listen, understandably, it was not your comment, but to your predecessor's comment, that one and a half to two billion DKK range has moved up by 300 million DKK. Yeah. That's correct. Sorry. I just want to make sure I am not reading this as a warning that anything has changed. No. I wanted to allude to the old one, but we are very firm that when we talk about the new one, it's 2 billion DKK, we talk about the same. It can, of course, fluctuate within the quarter, but we see that 8 billion DKK during a year is the right number. If you do 8 divided by 4, you have 2 billion DKK. You can put that into your calculations. Then you were on costs. We will cut costs underlying, adjusted for all extra costs in 2013 with 1 billion DKK going into 2014. We will, in 2014, look into what additional cost measures would we need to do to make sure that we fall below 50% cost income in 2015. We will and shall meet the below 50 basis points or 50% cost income. That's my guidance to you. Sorry, just to understand that. For next year, we are talking about DKK 1 billion underlying, and that might be something different in reported numbers given the restructuring costs, et cetera. Then by 2015, we are talking below 23. Is that how I should understand it? First of all, you can assume that the DKK 1 billion from 2013 is on the underlying number. Yep. In 2013, we will have some restructuring charges, and we may have some restructuring charges in 2014 based on what decisions we take in 2014, which will have effect in 2015. That will be on addition that will be like for like. Yes, always assume that we are taking underlying. When we come into 2015, we should be well below the underlying 13 minus DKK 1 billion. What it will be reported in 2015 depends what decision we take in 2015 based on what eventually further cost we need to do for 2016. Always assume underlying real cost cuts, what we are working on. That is actually why we also have supplemented with a cost income rate of 50%, in order to demonstrate that we are prepared to take the necessary action that is needed depending on how our top line develop. Excellent. That is very clear. Thank you. Next question, please. Jacob Brink from ABG is online with a question. Hi, it is Jacob from ABG. Two questions, please. First one, actually just relating what we just discussed about costs. How should we read the fact that you are guiding for DKK 24 billion this year in costs, and you also want to do restructuring in the fourth quarter? I guess that must mean that underlying cost in Q4 will be significantly lower than normal in Q4, or how should we read this? Then also your underlying cost for 9 months this year is around DKK 17 billion, adjusted for performance-based compensation. Then again, adding a normal Q4, you will be at sort of DKK 23.5 billion for the full year. So I guess you are not at DKK 23 billion underlying or what exactly did you mean? Then my next question is regarding Thomas, who said at some point that you will be looking at all units. Could you maybe give us a bit more detail on what do you mean by this? Thank you. I will take your last question. I will leave Henrik to do your first one, the detail one. What is very natural for us, Jacob, is to make sure that we in a low interest rate environment, in a low growth environment, can assure the investors and shareholders that we can return an equity above 12%. We will need to take some measurements, both to improve the top line and to improve the cost efficiency of Danske Bank. In addition, we will need to see if there is certain business units who is not performing according to our expectations or could not be expected to perform at our expectations. I have no particular things in mind, so it is no need to start speculations, but what you can be making sure of is that we will make sure that we have efficient financial institutions who can make these returns based on a very firm customer attention, that we simplify the operation and become very efficient. If needed, we will look at structural measures. If I can just comment on that, is it not already clear from now if you make 5% return on equity, I know there is some one-offs, et cetera, for the first nine months, but still you make only 5% and you want to go to 12%. So it is a 7 percentage points increase. You cannot do that from increasing pricing a bit in different segments of the market and maybe firing a few people. I mean, more will be needed. Is it not true already? I wouldn't repeat the way you phrased it. But I would rephrase it and say that to increase the return from 5% to 7% long term, we need to work hard. We also need to look at structural measurements, and we will do that. Okay. Regarding your cost question, Jacob, if we need more number crunching, I think we can do it on the side afterwards. But the reason why we have guided DKK 24 billion, that is because if you take the first nine months and annualize that, you may end up where what you mentioned, DKK 23.5 billion. Therefore, we have indicated that we will have some restructuring charges relating to severance payment, Ireland and some other minor items in Q4 leading to around DKK 24 billion. That's why we have guided DKK 24 billion because one could end up with a lower number. But if you want to dig into it more detail, I think I suggest we take it on the side afterwards. Okay. Thank you. Thank you, Jacob. Next question. Mads Thinggaard from Handelsbanken is online with a question. Hi, this is Mads from Handelsbanken. If I may touch upon your new mortgage bonds, then how will these new sites and reference loans, how will they affect your trading line? Could less frequent refinancing mean less trading income? Could there be a structural challenge to your trading income there? My second question, how do you view the possibilities of the raising contribution margins given the newly introduced price competition from Jyske Bank and maybe also other local Danish players? Yeah. I will leave those two very good questions to Elisabeth. I am sorry, Mads, if I did not catch all of your Because the line was breaking up a little bit. As far as I understood, you were asking about the refinancing fees that we get at the annual Flex auctions in December and in March, and how that will affect the P&L and the trading line going forward when we now try to move people out the yield curve so that we will have fewer refinancing. That is true. That will take the refinancing fee, which approximately DKK 400 million to DKK 500 million on an annual basis down gradually. We are not moving everyone at the same time. It is a slow process, but on the other hand, there are very solid benefits from having a smaller refinancing auctions going forward. I think all of us knows that rating agencies like us to have lesser or smaller refinancing auctions. Also, the central bank like it for financial stability reasons. So there are a number of reasons for the benefits of doing this more than outweighs that we could lose 100 million or so in lower refinancing fees going forward. Thank you. Your second question was about, I think the margins in RD going forward with Jyske Bank's new covered bond product, and we still think that we have a very solid RD product, and we believe in that going forward. So we are not worried about that at all. Thank you. Can you raise prices? Pardon? Can you still do you see a scope for raising prices, the contribution margins once again in We will always need to be competitive, and we will always see how we can optimize the balance between making sure that we defend our position and see how we can get paid to take the risk. We have no particular comment otherwise to that today. Okay, that's good. One more question, please. Jan Wolter from Credit Suisse is online with a question. Yes, good afternoon. Jan Wolter here, Credit Suisse. Thanks for taking the questions. The first one is around Ireland. Is it the right way to think about it that when you wind down the retail operations there, the revenue loss will be around DKK 200 million per year or so. Is that the way you think about it, or is there some offsetting factor there? That is the first one. The second question is if you feel that it makes sense to finance your Pillar 2 buffer with additional Tier 1 capital, or how you think about that question. Thank you. I will ask Henrik to do your second question. I will come back to your first question. Okay. Please repeat, Jan Wolter. Please repeat your second question. Yes. I was wondering if you feel that it makes sense to finance your Pillar 2 buffers with additional Tier 1 capital now that you have that opportunity given by the supervisory authorities in Denmark. Okay. Yes. It is on our horizon, so to say, part of our framework to issue Tier 1 capital with a trigger point of 7%, so that it both can be RAC compliant but also can live up to a Pillar 2 buffer requirement from the Danish FSA. To be honest, the simple answer is yes. Okay, thanks. You are right that the income of core with non-core will gradually be phased out. As we said, we have the mortgage book which moved over of about DKK 15 billion, and we have the SME book about DKK 3 billion, a very small one. We will probably move faster on see how we can scale down the SME book, maybe already in 2014, and then we will have a natural amortization of the loan book, or sorry, on the mortgage book. Then of course the income will come down accordingly. However, more importantly, we will actually take out all the costs. So the net benefit will be a substantial gain for the bank and the shareholders. Thanks. Just to follow up there, when you mentioned the mortgage book and the SME book of 15 plus 3 billion, will the funding fall out at the same pace as you wind down the book so there is no mismatch there? No. The mortgage book is in. Sorry. The SME book is insignificant. The rest of it is a tracker book, which is floating. So there's no worries. As Ireland is a branch, we will take it either from the group or the funding we achieve through running continuously our C&I operation in Ireland where we have a very good franchise. We have also some deposits in Ireland, but there we'll help the customers find a new bank. Okay. Many thanks. Very clear. Next question. Sofie Peterzens from JPM is online with a question. Yeah. Hi, here is Sofie Peterzens from JPMorgan. I had a couple of questions. My first one is around your Personal Banking. You had 21 basis points of credit losses and basically nonexistent losses in the other Nordic countries, Northern Ireland and Ireland. But in your comments, you say that you expect impairment levels to continue a downward trend in the coming quarters. What kind of normalized run rate of losses should we expect for the Personal Banking segment? Also, is there an AQR coming up in Denmark? If so, will that have an impact on the asset quality in the Danish book or any of the other books? That's my first question. My second question is about the government guarantee hybrid. You mentioned that you will partly replace part of the government hybrid that matures next year. Have you decided how much you're going to replace of the government hybrid? Okay. I will do the last one, and Henrik will do the first one. It is our clear intention to repay the hybrid in full in April 2014, and we have not changed any views on that point. Henrik will do the first. We are in the adding to the hybrid issue. We are, as you know, in the process of issuing additional capital. We have not made up our mind finally how much additional capital to issue instead of the DKK 24 billion we plan to repay. But I think we have said previous times, it will be less than the DKK 24 billion. Not of the same size at all. It will be less than the DKK 24 billion we will reissue. Then you had a question regarding the development and impairments in Personal Banking. We feel that this level of around 20 basis points is so to say, okay. We do not expect it to be reduced significantly further in the coming quarters. So that is a level that we can live with and do not see it coming significantly down further in the coming quarters. I think you also asked about whether we will be subject to this asset quality study by the ECB. Probably yes, but it is very early days regarding that, so we can come back to that at a later stage. Okay. But what do you have in your Personal Banking in the interim report on page 16, you talk about the impairment levels continued to trend downwards in the coming quarters in Personal Banking. Is there going to be stable? Yes, stable, I would say. Okay, next question, please. Jacob Kruse from Autonomous is online with a question. Hi, thank you. Just two quick questions. Firstly, could you talk at all about when in 2014 or what the timeframe is for giving us the more detailed and fleshed-out plans for your restructuring? Secondly, just you have a new shareholder in Cevian. Could you comment at all about their involvement, if any, on your current strategies and future strategies? Thank you. First of all, I have no comment on any particular shareholders. We are very happy to have every shareholder as a shareholder. We have a board who actually, together with management, lays out the strategy, and I think that's very clear how we run the bank. Again, going back to allude to restructuring, what I'm saying clearly and loudly is that we will do all necessary measures to make sure that this great institution will make a long-term return on equity above 12%. As a part of that, we will review the business units. I have no particular time issue in that, but it's naturally that as a new CEO, I will, together with the board, have a look at that into 2014. When or if we have something, we will report back in due course. In the meantime, we will make sure that we deliver in the 2015 ambition of 9%, and then we will work hard on the next bridge towards 12%. Okay. Thank you. I can perhaps add here that we have got a question online from the web. The question is the following: Do you expect the gradual winding down of the Irish operations to have an impact on the Pillar 2 surcharges you have? The question is, yes, we do expect gradually some of our Pillar 2 surcharges to be winded down. We are in a dialogue with the Danish FSA regarding that. It is also related to the DKK 96 billion we have taken in increase of risk-weighted assets will also have an impact of our Pillar 2 add-ons. If you want more details on that, I think we can take it bilaterally, but we have in our Q3 figures, we have reduced some of our add-ons, but we can elaborate a little bit further on that bilaterally. Next question please. Simon Christensen from Nordea Markets is online with a question. Yes, good afternoon. One question. If I am correct, I think your, let's say, next threshold for reaching a higher notch on capital in the S&P methodology is around 10% on the RAC ratio. Personally, I do not think you will go to an equity level which corresponds to that. Secondly, if I combine that with the fact that your payout ratio should then be more or less rating insensitive, does that mean that you would consider paying up to 40% even if you have not reached a one-notch-higher rating? Thank you. First of all, we are really focused on getting an upgrade from S&P, and you are right that we are at 8-point something on the RAC ratio, and it is not in the immediate future to reach 10% or above that. We would also like to make sure that we have a decent development in our Core Tier 1 ratio. I think the first thing is to start, so to say, paying a modest dividend, and then we will take it from there. The main item in terms of rating upgrade from S&P is to get our earnings up, and we are really focused on that going forward. Next question, please. Alvaro Serrano from Morgan Stanley is online with a question. Hi. Most of my questions have been answered, but maybe if you can comment specifically on Denmark and the provisions in Denmark. I have seen that they have ticked up a bit in the quarter in Q3. It seems, at least my expectation, would be a gradual reduction given the economy is improving. Can you comment a bit about how you see provisions trending and what might have happened in the quarter, in Denmark specifically? Thank you. Yeah. Generally, we see that the Danish economy has stabilized, and we had a growth in Q2 in GDP of 0.6%. We also, from macro perspective, seeing a growth in the economy of 1.5% in 2014. This is not a great growth, but at least is a positive growth story. We can also see that the house prices are stabilizing or even coming slide up, and the consumption is also increasing to some extent. Based on that and being a reflection of the Danish economy, we see no particular worries that either, so that is why we say variation quarter to quarter is well within just a swing factor, and you should not read anything more into that can be small adjustments up and downwards. Thank you very much. Next question, please. Anton Kryachok from UBS is online with a question. Thank you. Two questions from my side, please. Firstly, on Ireland, can you please share with us the assumptions you have used to derive the additional 500 million provisioning needs in Ireland? Have you had any discussions with the regulator locally on the required level of provisioning for your book there? The second question, please, can you please shed a little bit more light on what is driving strong NII in the Corporates & Institutions banking, which has been surprising positively for the last couple of quarters? Thank you. When it comes to Ireland, it is our estimate based on our experience of how we have been able to scale down the non-core business so far. The regulators have no views on this as this is our internal estimates. That is basically what we can say for the time being. When it comes to C&I, yes, you are right, it has been continuous improvements in the NII. It is particularly on the margin side which we have seen a positive development, but also on volumes on the deposit side. So the underlying franchise is in a good esteem towards being a core bank to more and more corporate clients. Thank you. Next question, please. Ronit Ghose from Citi is online with a question. Hi. I had one big picture question and one small question. Mr. Borgen, you've had experience of both Danish and Norwegian banking over many years now. Do you think big picture blue skies, there's any reason why the Danish national champion can't have the same ROE and cost income ratio as the Norwegian national champion, DNB? My second question is a very specific one on income new initiatives. Did you give any timelines or dates as to when we'll find out about those? Maybe I missed that. Thank you. Well, it's a big question you raised, but I would phrase it in the following fashion. We will make sure that our vision of returning to our shareholders at least 12% and be among the three best performing financial institutions in Nordics will remain. If that's a Norwegian bank or a Swedish bank or a Finnish bank we're competing with, I don't know. But I see no reason why we over time should not be able to compete or even beat the Norwegian champion or a Swedish champion. But we have a job to do. It's a big job to do. We're not underestimating the job because we're coming from behind. We're only showing 5% today. We need to do a lot of work, both on top line, on costs, and we are in midst of that, and that's why we're trying to build a credible bridge for you to 2015, and then we need to take from 2015 onwards, so we can come up to 12%. When it comes to income initiatives, they will be continuously done in 2014, as we need to do that to have a credible story and a credible ambition to make sure that we deliver 9% in 2015. Right. Can I just have a quick follow-up? I hear you on the new income initiatives of 2014. Now obviously, long term, you want to be one of the better banks in the Nordic region. So when are you going to give us some more information about more structural changes or the second round of management initiatives you put it, basically the slide 13. Do we have to wait for the end of 2014, 2015, or are we going to get that earlier, do you think? I totally appreciate you've only been on the job about a month now, so it might be too early to comment. Well, thank you very much for that appreciation. I think a previous colleague of you just asked the exact same question, and I will say the exactly same to you, that together with the board, we will look at various alternatives into 2014, and when we're ready to communicate anything or if, then we will do it. Okay. Thank you. Thank you. Next question, please. Chintan Joshi from Nomura is online with a question. Hi, good afternoon. I just wanted to follow up. You've given the funding breakdown on one of your slides where you've got covered bond and then Realkredit Danmark covered bonds as well. On the covered bonds that's not from RD, it's at DKK 166 billion. How much of that is passed through mortgages? Is there any element within that where you can benefit from the repricing downwards that we've seen in funding costs? Yes, we expect gradually our funding costs to come down, both on the traditional funding side, but also due to the fact that we repay the state hybrid and take up supplementary capital at a lower volume and a cheaper cost. But we'd also expect our, so to say, ordinary funding cost covered bonds, senior funding and so on, gradually come in at lower prices and also the funding that we are redeeming will be previously taking up expensive funding. So the simple answer is yes, we will gradually into 2014 and 2015 expect our funding costs to come down. I'll get that you'll benefit from your hybrid capital. You'll benefit from senior unsecured. On covered bonds, because most of it is passed through, there shouldn't necessarily be a benefit coming to the group if those funding costs come down because they are passed through. I wanted to understand how much of that DKK 166 billion of covered bond is in pass through. No, but the only bonds that are, so to say, 100% pass through, that is the RD bonds. The other bonds is part of our general funding. So that is not under pass through. Yes. Understood. That's what I was after. Thank you. Okay. Thank you. Okay, next question, please. Ronnie Wren from KBW is online with a question. Yeah. Hello, it's Ronnie, KBW. A quick question, just a clarification, basically on one of your slides in your slide pack where you show the real estate prices in Ireland, and you basically compare that to the marks that you have taken for your internal assessment. Now it looks like that those assumptions for the peak to trough decline or the internal pricing have changed dramatically compared to the last slide in the second quarter, the same slide in the second quarter. Could you explain what's the difference? This is slide 45. Elisabeth here. Hi, Ronnie. We're talking about slide 45 in the slide deck. And as you can see at the bottom right hand corner, the levels we use for price declines for impairment testing are still between 60% and 65%, whereas the declines that we have seen from the market should be around 50%. I think, to be honest, something has happened with the scale of this chart where actually we haven't seen the peak to trough decline of 60% that we used to draw in. Basically what you should take away from the chart is that the market believes and the CSO index shows that we have a 50% peak to trough decline. But what we are using are market found values with around 60% to 65%. Okay. The dots are just in the wrong place, basically. It's not that things have changed dramatically over the quarter. Excellent. Thank you. You are welcome. Okay. Next question please. Christopher Rasquist from Barclays is online with a question. Hi, this is Christopher from Barclays. Thank you for taking the questions. I would just like to understand the cost program a little bit better. Starting perhaps with the FTE cuts. If you could just confirm if all FTEs that were part of the plan announced in 2012 now have left the organization or dismissal agreements have been negotiated and agreed. Also as part of the new cost reduction for 2014, how many FTEs that you expect to cut the organization by? Also, if you could comment on the phasing of that when we will see progress on those cuts. Perhaps if I may also just understand why the cuts that you now have identified, why they were not part of the plan announced in 2012. Thank you. Well, it comes to the last questions. We have new management. We have a different priority, and we're looking forward. We can see that the top line is not coming as expected, primarily due to very low growth and low interest environment. That is why we need to speed up the cost side and also will make those necessary cuts so we achieve a cost income below 50% in 2015. The second one, Henrik will do the details, we do not now guide on FTE specifically. What we guide on is the cost side. It is in too much detail to go into our guidance forward on FTE, but we can tell you where we are now, and Henrik will do that. Yes, and we will continue to publish our FTE numbers, so it is not in order to change anything materially. The program you are probably referring to was when we communicated that we will be reducing by 2,000 people from 2013, 2014, and 2015. What we are actually doing now is we are taking additional initiatives, whether that will end up exactly at minus 2,000 employees or whatever it will end up, it is too early to say, but you can be pretty sure that we will now do additional initiatives that will have a full-year effect of DKK 1 billion going into 2014. I think it is also quite clear if you dig into the details that you can see also because we are lowering our 2015 guidance to below DKK 23 billion, that this is actually an acceleration of what has already been communicated. Thank you. Just to understand, because you have also written in the presentation that you will focus on the non-customer facing parts of the bank. If the cost reductions that you are now accelerating or additional cost reduction, if they are due to revenues that have not been realized that you thought would be realized back in 2012, that sounds that these would be customer facing and revenue generating parts of the bank and not back office. We have during the last 18 months had quite substantial FTE reductions in the front line, and we have not had to the same extent, FTE reductions at support functions or head office functions. That is where we are taking the majority of the reductions in the short period of time, making sure that it will have full effect in 2014. And by the way, you can also see in our public figures or public, the written words, that we have already made at this point in time, made agreement by more than 300 people expecting to leave the bank within the next quarters. Okay. Thank you very much. Thank you. The final and last question, please. Claire Kane from the Royal Bank of Canada is online with a question. Hi there. Thanks for taking a follow-up question. It is on slide 24 when you talk about the RWA impact from the corporate risk weight increase. How should we look at this? Because clearly you have now taken on lower corporate credit risk, which has lowered the risk weighting from when they judged you before, and now you are having to take an extra DKK 20 billion of RWAs because of the lower risk weight that you have. Should we now consider they actually want you to have a floor for the corporate risk weights going forward, and there would be no incentive for you to decrease the actual risk that you are taking on through corporate? You should read it the way that we have, as you know, we have a dispute with the Danish FSA, which is subject to some kind of arbitration going on. We have this dispute and that is going on, but we have clearly stated that irrespectively of that, we would implement the orders we got from the Danish FSA. In that implementation we need to agree with the Danish FSA. We have had a dialogue with them, and the original 10 percentage points that were communicated earlier based on our end 2012 figures in that dialogue had turned out to be 13 percentage point based on our corporate risk rates at the end of Q3 2013, which is then illustrated on slide 24, where you can see the increase from 30% to 43% or 44%. No, it is not so that we have a floor of 44%, but it is so that we agreed with the Danish FSA how we model the risk weights, and of course, if we take on clients with better credit or take more collateral and so on, our risk weights will then also, of course, go downwards. But we have agreed with the Danish FSA upon, so to say, the model framework, and that leads to these 44% corporate risk weights by the end of Q3 2013. The effects on the total risk weights is illustrated on the left part where we now stand at 868, and that is the implementation of order one for the time being. That is very clear. Thank you very much. Could I maybe just push my luck and ask one last question, which is just on your comment that you wanted to boost the yield on your bond portfolio by increasing the duration. Can you tell us what changes you intend to make, what the duration is currently, and what yield you are getting at the moment? We have not decided that, but it is about increasing the duration slightly and taking a little bit more risk on the bond portfolio, but not in any material way. Okay? All right. Thanks. Thank you. Okay. Time is running, so thank you all for your keen interest in Danske and for all your good questions. As always, you are welcome to contact us through our investor relations department if you have more questions after your time to look at all the accounts in detail. A transcript of this conference call, including Q&A sessions, will be added to our website in the next few days. Thank you all very much. Thank you very much. Thank you. Bye. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for