Hi, everyone. Thank you for joining us on Jyske Bank's conference call for the financial results for the second quarter of 2024 . This is Simon Hagbart from Investor Relations speaking. With me, I have Jyske Bank's CEO, Lars Mørch, and CFO, Birger Nielsen. Lars and Birger will walk you through our prepared remarks. Afterwards, we will open up the questions. I will now hand over to Lars.
Thank you, Simon. And I would also like to welcome you all to this conference call for Q2 2024. And turning to, slide number two, we've had a good first half of the year, and we are now targeting the upper half of our DKK 4.3 billion-DKK 5.1 billion net profit guidance for the year. The net profit of DKK 1.3 billion in the second quarter of 2024 was 12% up year- on- year, and that makes it the strongest underlying performance in a Q2, ever. The positive operating performance is supported by significantly higher assets under management and inflow of funds from clients.
These effects and our resilient business model helped offset the impact from continued low activity in the Danish housing market, as well as the first lowering of the central bank's policy rate in several years. At the same time, we've kept the underlying cost inflation at a manageable level and expect slightly higher cost base for 2024, despite a period of high inflation as we continue to focus on tight cost control. Q2 saw a successful IT migration of PFA Bank to our Bankdata platform, in addition to the first quarter on quarter decrease in the number of FTEs for two years. Our customers continue to navigate well following the dramatic interest rate increases in recent years, and the Danish economy remains robust, with high employment levels and a positive outlook. This has helped us keeping a low level of loan losses.
The DKK 13 million booked in Q2 is equivalent to zero basis point and is single-name driven. We maintained our reservation of DKK 100 million related to the carbon tax on the Danish Ag, and our post-model adjustment is, despite the decrease in Q2, still at a high level of DKK 1.9 billion, equivalent to four times all-time loan impairment charges booked for the last 10 years. Lastly, we've implemented organizational changes in Q2 with the aim of increasing customer orientation of our organization and professionalizing the control setup further. Also, business areas in the group executive board have been given clear mandates across the value chains, and control functions have been consolidated and strengthened in a new, separate remit in the group executive board. Birger?
Okay. Thank you, Lars. Looking at the next slide, Simon, an overview of the situation is obvious that we have performed as we speak, rather decent and well here in the second quarter. Continued good operating performance, despite we've seen decreasing rates, and despite a slow growth environment in the market. Looking at the earnings per share, we're up from DKK 19 to 19.8 DKK from Q1 to Q2. At the volume side, AUM is on the rise. I'll come back to that in just a minute. Looking at the deposits in Q2, of both private individuals as well as corporate deposits growth, and on the bank lending side or bank loan side, we have seen a slight decrease, which is very much like the market development.
On leasing and mortgage, things are stable to slightly positive, and when I look at the mortgage book, I can see that in the first half of this year we've had a 1% growth, slightly higher for corporates, but now we can see early signs of stabilization for mortgages to private individuals, and if you look at the left-hand side of the chart, you can see Q2 overall 48% cost income ratio, which is stable. Zero basis points in loan losses, which is extremely low, and then a 10%+ year-over-year growth in earnings per share. Return on equity 11.6%, more or less stable compared to a year ago, and 16.6% CET1 ratio is also Q- over- Q stable.
We have made a few changes to the outlook, and the most profound is already mentioned by Lars. We are now targeting the upper half net profit of DKK 4.3 billion-DKK 5.1 billion. Apart from that, core expenses, as mentioned, slightly higher in 2024. All-in cost versus previously approximately unchanged. Loan impairment charges, given our experience here in Q2 and the expectation for the rest of the year, we only expect slightly higher impairment charges versus 2023, as opposed to higher mentioned earlier. Net profit, as I said, in the upper half, and that also applies for earnings per share and capital targets are and intervals are unchanged as of now. Net interest income, a focus point for us and the market, naturally, given the development of interest rates in general.
We have seen the first lowering of policy rates now, and we are in a fierce competitive environment. We have also seen migration to savings accounts, and all in all, our Q2 NII is 2% down from Q1, but still 5% in the first half, about, the first half of 2023. And we have also on top of that made an MREL issuance in Q2, and we have seen the full effect from our Tier 2 issuances from Q1.
So adding that together, a 2% drop, and please be aware that the deposit margin will be, and is lower due to lower short-term rates in general, and that we have announced, with effect from the first of August, deposit rates, both for corporate and private individuals, to be lower 25 basis points and also corporate lending rates to be lower 25 basis points by the first of August. Looking ahead from here, we of course, as many others in the market, expect lower central bank rates, another two cuts during the course of the autumn, and that will naturally put pressure on deposit margins. And we will see that partly being mitigated by our hedge portfolio in the coming quarters.
Looking at the market development, deposit margin development, and lending margin development in the market over the last several years, we have given you a slide here, which demonstrates that lending margins is moderately on the rise after a significant decrease in the period with higher interest rates. Whereas on the opposite, deposit margins was on a significant steep increase in 2022, 2023, and now seems to have peaked and is slightly trending downwards. The third thing to focus on is our excess liquidity margin versus the three-month CIBOR rate in the lower end of the graph, which now is very close to the three-month CIBOR rate after a period with negative returns, relative negative returns.
And going forward in the coming quarters, as CIBOR rates will be lowered and there is a lag in our investment portfolio, especially when we talk about fixed-term bonds, we expect to give a better return on liquidity portfolio than the three-month CIBOR rate in the coming quarters, and please be aware that historically, you can see that there's been an excess return in the liquidity portfolio versus the CIBOR rate. Looking at the fee income, a decent performance in this quarter and in the last quarters, actually. In Q2, we were at 9% up year- over- year. We've seen positive markets, we've seen net inflows of new customer funds, and of course, we've taken on board PFA Bank.
Looking at activity, we've also seen decent activity within securities trading and custody fees, whereas on the opposite side, mortgages has been decreasing 4%. Fees for mortgages have been decreasing 4% over the last year due to tax reform and higher interest rates. If you look at the composition of our net fee and commission income, you can see that recurring net fee income is on the rise relative to activity-driven net fees, and we expect in the coming quarters a gradual recovery of also the activity-based fees for the whole group, as we expect activity in general to pick up a bit during the next quarters.
Looking at asset under management, because recurring fees are driven by higher asset under management, you can see in the next slide here that we have had a more than 10% annual growth in AUM since 2016 , and we have, over the last nine years, got the approval for most satisfied private banking customers, according to a Voxmeter survey. And if I look at the performance in our own funds over the last three to four years, we've also performed well. So we've seen a nice intake of new customer business, higher markets, and also, of course, PFA Bank, which has led to this, decent performance in AUM.
And if you take a snapshot and look at the graph, you can see that the downturn in AUM in early 2022, due to the inflation shock and higher interest rates, was actually significantly higher than the drop we saw in the early days of COVID in 2020. We are up 22% year -over- year, and we are up 4% Q- over- Q, and we are very satisfied with the development in AUM. Looking at the cost side, there is an underlying cost inflation in our cost base, naturally, 5% up, exclusive of all one-offs here in Q2, year- over- year, which is driven by the inclusion of PFA Bank, but also employee costs.
The two buckets, PFA Bank, as mentioned, and the other one, employee cost or staff cost, 5%, is consumed by 4.5% sector-wide prescribed salary increases and the removal of Great Prayer Day, another 1/2 percentage point. Looking at other inflation elements in the cost base, you can see that on the right-hand side, that this bucket is actually slightly positive in this environment, and driven by especially synergies from IT platforms after the merger with Handelsbanken, but also lower rental cost in general, and after the merger. Going forward, we expect total cost base to be slightly higher than in 2023. The integration cost, we now announced around DKK 0.1 billion, versus formerly up to DKK 0.2 billion, and we only saw DKK 40 million here in the first half of this year.
Looking at cost synergies, after the merger, we are now at DKK 0.2 billion here by half year, and we expect to be fully on track with DKK 0.4 billion by year end. Inclusive in these numbers is also, apart from the inclusion of PFA Bank, an intake of employees for financial crime prevention, which has been taking place over the last several quarters. Looking at the quality of the book, it is undisputedly still very strong. Zero basis points in impairments this quarter, only two basis points for the first half of this year, and the share of Stage 3 loans is still at a very low level at 1.2%.
Post-model adjustments were slightly down to 1.9, but still a very high level, as mentioned by Lars, and it counteracted a single name, a single name impairments in the second quarter. Be aware that this is a dynamic buffer to cover elements not included in the credit risk modeling, and that will also apply going forward. We expect some fluctuations in the coming quarters as well. For the whole year, we now state that we only see slightly higher loan impairment charges than what we saw in 2023. Finally, from my side, looking at the capital picture, we are very comfortable with the levels we stand at here at end Q2.
The level is stable, 16.6% for the CET1 ratio, which includes the full DKK 1.5 billion buyback program, and also the reservation for 30% dividend. And looking at the ratios versus coming regulation, we have now here by end June included 0.8 percentage points for the CET1 buffer on the Pillar 2, and we will be hit by up to 1.5 percentage points from Basel IV in the first quarter next year. So in total, around 2 percentage points in drag on the buffer, which makes us very comfortable to stay in the upper half of the 15%-17% interval.
The program of buybacks, which we announced in early June and started to execute, is running smoothly by a third party counterpart for us, and expect to be finalized at the latest in January, probably before that could happen. But the capital planning is unaffected by the ongoing program. The board decides the timing of the next program, which of course needs to be fully approved by the FSA. I think that finalizes our comments, Simon.
Yeah. Thank you, Birger, and thank you, Lars. We'll now open up for questions. If you would like to ask a question, please raise your hand and unmute your device. And first question in line come from Asbjørn M ø rk from Danske Bank. Please go ahead.
Yes, good afternoon. Thanks for taking my questions. I have a couple of questions. First, if I may start on the deposit margin slide or the slide in the different margins. Given the forward rate curve and the expected number of rate cuts to come through, let's say that the ECB and the Central Bank would be at around 2% in 12 months+ . How do you see sort of the deposit margin develop? What kind of level would you think you would have as a deposit margin in that scenario going forward?
Yeah, well, I think it's difficult to give a precise guidance. It's fair to say that we still have some headwind from migration, and I think a crude rule of thumb has historically been that a deposit beta of approximately point five is not way off, based on empirical evidence in other countries. Whether that will be the case this time and in Denmark, I'm unaware, but that could give you some indication, at least maybe.
Okay. That is substantially lower than what your peers are communicating at the moment.
Okay.
Why do you think the deposit margin would be so low?
That was not the. That was just based on. I've heard in regards to, I think it was in U.S.A., that there was some research on the subject. It was just to give you some sort of indication. I have no opinion on whether that will be the case this time and for us.
Okay, but then maybe I can ask.
Asbjørn, maybe you could expect us to more or less follow the market on this one also.
I think that would be a fair assumption.
But then if I ask in a different way, so looking at the NII sensitivity that we've seen the last two years, you've had a quite high NII sensitivity because basically your clients haven't acted as rational as you thought. If we then look at rate cuts going forward, is there any reason to expect that your clients will all of a sudden act much more rational? Or is there actually a likelihood that your NII sensitivity will be lower for the first, let's say, four, five rate cuts than what you have as a standard NII sensitivity?
No, I think. I mean, our standard in NII sensitivity, we assume that customers are fully rational, and we are not there yet, but the people have been moving or migrating to savings accounts and time deposits. So we are getting closer to our actual sensitivity. I would more say that the historical sensitivity has been higher than what we have stated, and then we'll have to see, on the way down, whether we also will have a higher sensitivity going down or whether it will be the same. I mean, if we haven't really given customers much in terms of deposit rates compared to our original assumptions on the way up, then maybe we can't take too much on the way down either. But we'll have to see the dynamics. That very much depends on the competitive dynamics.
Okay, fair enough. We'll take that bilaterally. If I then look at the cost side and your synergies and the, I think, Birger, you mentioned also the run rate for synergies. If I look at your FTEs before you bought Handelsbanken, in the fact book, it says 3,266. I add the number of FTEs from Handelsbanken and from PFA Bank and your AML upscaling as well, and then I look at the current number of FTEs, it looks like basically you're down around 1% on FTEs in that period.
I was just wondering, given that you are where you are on synergies, how much do you see the more to come on cost synergies from all of this, that the transformation that Jyske has been through the last, let's say, three years? Is there somewhat more to come here? Any flavor would be interesting. Thanks.
Yeah. Thank you, Asbjørn. The financial crime prevention investment has been ongoing with some quarters, as you referred to, and has been an upside, which of course, was in a normal state, not expected. That's point number one. Point number two is that the PFA case was taken on board recently, and we are harvesting some of the synergies this year and expect to harvest the last part of that acquisition next year. And when it comes to Handelsbanken, we are in the process, of course, of finalizing the leftover activities after the IT migration, and that has led to some resource allocation internally, both in the front line as well as backing up people to be acquainted with new processes, products, and colleagues.
Of course, when that is finalized, there is a slightly further room to move on that side as well.
But slightly more, given that you've only taken out something like 35 FTEs in the period, isn't that sort of an understatement?
I think, Asbjørn, the synergies that we communicated in regards to Handelsbanken, if you look at that isolated, and in terms of cost, we think we'll get there. And we think we are within that case. Then we've done a number of investments in other areas, as Birger was mentioning here. And the communication was that we would, by the end of this year, expect to be with the run rate that we would expect going forward.
Again, isolated, looking at the Handelsbanken case. And that is still our expectation. Then later in the year, we'll probably communicate a bit more about our expectations on cost on the midterm and longer run.
And please be aware, Asbjørn, when we talk about cost synergies with Handelsbanken, we have stated earlier, and we would like to repeat that is severalfold. One is, of course, the FTE as you referred to. Second is the IT streamlining of the cost base, so IT going from one platform to another. And the third one is rental. And if we take the second one, the IT platform, which also is visible now in the numbers, you can see that we have mentioned that we have manageable underlying inflation of other costs on the right-hand side of slide number 10, which actually includes a very positive return of lower costs related to IT platforms than we had and Handelsbanken had formerly. So those are a crucial element in reaping the cost synergies.
Okay, fair enough. Then if I may, on you, I see that you booked DKK 23 million of one-off cost in Q2 related to strategy process. Obviously, that makes me quite interested in the actual strategy process. So, and I also saw, Lars, you were in a quote in the press today saying that it's obviously difficult to have a strategy or a new strategy when you don't know the outcome of the ruling from the Danish Consumer and Competition Authority.
But could you just give us a little bit of a view on what kind of scenario analysis are you looking into when it comes to that ruling in terms of the what we should expect for the future strategy? Is it a s mall tweaks here and there, or is it a complete, potentially a complete transformation of Jyske? Is everything in play, or just a little bit of flavor would be, would be interesting?
Yeah, I think I can give you that. If you look at the Jyske Bank strategy, apart from what we could structurally find was relevant to do after a decision on the mortgage part, then the strategy would be basically about improving in the geography and in the business units that we are in today. Hopefully, you would find, you know, if it's the right segments that we'll be focusing on and the right decisions that we'll be making in terms of investments and cost and capital allocation, and so on. But it will be probably what you call smaller tweaks. And that work we can do no matter if we have a decision from the competition authorities or not.
And that work has been ongoing, and as part of that, we've also changed the organization to support the implementation of what we aim to do and communicate later. Then, the other part of it is what will we do when we know what the competition authorities are gonna decide? And here we've basically outlined a number of different scenarios. And a sub-part of those, we have detailed to a larger extent, but we cannot work in detail with those ideas before we know basically the playing field that we will have going forward. But what we'll be looking at is to find basically the best possible solution within the decision.
And that will be, you know, basing obviously on what is financially attractive, but also what strategically makes sense for the bank and the customers. So we are willing to make the decisions that makes most sense based on the decision from the competition authorities. It's not that we've limited ourselves to one or two small tweaks. If it makes more sense to work structurally on this, we'll do that.
So I guess given that answer, Lars, it's fair to conclude that everything is potentially in play. It depends on what sort of playbook looks like and the world looks like in six months when after we have the ruling.
Yes.
Okay, that's very clear. Thanks a lot.
Thank you, Asbjørn, and next question in line comes from Martin Birk from SEB. Please go ahead.
Thank you so much. Just, continuing along those lines, back to the FTE question. So once synergies from Handelsbanken, also if PFA Bank is fully integrated, what is sort of a normal FTE level for Jyske Bank as you see it right now?
We'll come back with a detailed answer on this, when we have the strategy announced, but what we can tell you now is that the synergies that we aimed at reaping after the integration of Handelsbanken, we still think that we'll be able to do that. We are within where we expected to be by now.
Okay. I guess last time I met you, that was right before the summer break, and you sounded pretty optimistic on a potential ruling after the summer break. What's the latest chatters that you have heard?
Yeah, we don't really know because it's between the competition authorities and Nykredit, so we don't get a lot more information than you do, Martin. I'm afraid, but we have this view that it will only make sense if there's a change to what has been on the table, and the things that has been on the table has not been significant or meaningful changes to what is in place now in the Totalkredit cooperation. We expect, when they've been working on this for quite some time, it's because they do a good job, and we expect rather significant changes in the Totalkredit agreement. That's what we hear basically now.
Okay, and so the rather significant changes to the Totalkredit agreement, is that new info or? Because the second hearing letter did not really suggest that.
No, but, well, we don't know. We will have to see when they get back with this. But our view is that the second hearing letter was not any more positively received than the first one. Maybe quite the contrary. And maybe it has basically worked a little bit away from finding a solution. So let's see.
Is it set in stone that they will have to make a ruling on the back of this, or could they publish a third hearing letter and postpone this process even further?
They have different possibilities here. But in general, there are two, and one of them is that in this case, Nykredit comes up with a solution, and the competition authorities agrees, maybe, and probably after having heard the market participants, or there's a solution that the competition authorities makes a decision.
Yeah. All righty. Okay, and then, perhaps a last question from my side, also switching a topic a little bit. I've been noticing your weekly company announcements on numbers of shares purchased, and I guess last time we talked, it was sort of more that you would wanna buy back shares worth of roughly DKK 10 million per day. I see that number, at least last week, it's more like 20, and you're progressing quite a lot faster on the share buyback program than what I guess we, and probably also yourself, has had anticipated. So why isn't this a share buyback discussion or a chop-up discussion? Why isn't that a Q3 topic?
As mentioned before, point number one, the program is out of our hands. Of course, it's, it's handed over to a third party, Bank of America, which manages this in the market. And, and as you mentioned also, yes, formerly we've seen, and that's the reason why we mentioned it, earlier, DKK 8 million-DKK 10 million daily, relative to the turnover in the market, that would be feasible and expected, but they have been a bit more aggressive, and that's their choice and their decision. And thirdly, as I said, capital planning is actually unaffected of the ongoing program. It's the board who looks at the, the capital ratios and the prospects issues, the risk expectations, et cetera.
And then on the back of that, at a given point in time, launches an application to the FSA that needs to be approved.
But given that you accrue for your dividend, I mean, you're gonna have a pretty nice. Well, the rest of the profits is gonna boost your CET1 ratio pretty nicely from next quarter, and you're probably already gonna be above your 15%-17% target. And I guess in the end of the day, you are Europe, and Lars, you are probably the two guys that are telling the board when it's a good idea to buy back shares or not. So any more thoughts?
I think it's difficult to add more to this topic as of now because it's an internal board decision. But yes, we are fond of the current level of 16.6, where we have included the full DKK 1.5 billion buyback program in the Q2 numbers. And also, if you refer to the risk development in the group in the second quarter, market risk and credit risk was relatively steady going, and also credit risk on the back of moderate loan development. And thirdly, the only thing that actually triggered a change in the risk numbers was operational risk. If you look over the last quarters, simply due to higher income and the replication of a higher income base, this year versus three years ago.
As we see it, we are on a steady footing when it comes to the risk development in the group, and we are on a steady footing when it comes to consolidating further and steadily in the coming quarters as well.
Thanks. I guess we can continue our discussions on Thursday. Thank you.
Thank you, Martin. And next question in line come from Albert Möller from ABG. Please go ahead.
All right. Hello, so switching tracks a little bit to IT cost development. Obviously, you said that you had an IT migration. I just wanted to clarify all of the costs relating to the IT migration, is that in Q2? Because you had quite a rise in IT costs between Q2 and Q1, and also to clarify, you have, you're reaping synergies on the IT cost front, but underlying, you still see a 4% or 5% cost growth as the rest of the sector?
Yes, point number one, there is seasonality in the IT cost, and Q2 is normally a relatively expensive quarter. That also applies for the second quarter of this year. And on top of that, we made the IT migration of PFA Bank in early June, and that, of course, led to some costs, but they were, have been, booked under the integration costs in our accounts.
Yeah, and then we have some other one-off items that impacts the IT cost in Q2. So that is at an elevated level in Q2.
All right. Good. Thank you. And switching tracks totally then to deposit migration. I think last quarter you showed a slide highlighting that, if I remember correctly, there was about 30% transaction deposits, which seems quite low compared to the sector. And now you mentioned that you see continued deposit migration, so how far can this go, or have you seen any slowdown on the deposit migration? Any thoughts on that?
If I look at the last month and quarters overall, yes, there's been a steady migration on a monthly basis from transaction account to savings account for private individuals. And we have seen no significant shift in the momentum in the latest month and quarters. And that's the reason why we also here in Q2 mention the fact that yes, there is a squeeze on the deposit margin due to that activity which seems to be ongoing.
Yeah, both from transaction accounts to savings accounts, but also to an increasing degree towards savings accounts, which are time deposits, basically. So, those are usually with a slightly higher deposit rate. So there is a negative mixed impact on the margin from that.
All right. If I'm going back, yeah, even further, to your slides from earlier, you had a NII sensitivity, where you highlighted the DKK 0.5 billion in from one percentage point change. And I just wanted to clarify, is that assuming an unchanged transaction deposit rate, and is that number even better for you now, since you have had migration out from the transaction deposits? Could it be lower than DKK 0.5 billion now?
No, I definitely wouldn't assume it to be lower. Basically, what we assume is a fully rational behavior and a theoretical deposit beta on transaction accounts. So if we haven't really pushed any significantly higher, I mean, we've pushed 25 basis points+ to deposit rates on transaction accounts, and that leaves very little room to put that down. Maybe you could go to zero eventually, but I think negative territory would be difficult, and that entails that, yeah, the deposit beta could be slightly different from the theoretical.
All right. All right. Good, and the final question from me then. There was a delay of the FRTB models. Does that change your Basel IV impact at all, or is it mainly related to credit risk?
It doesn't overall change our view on the Basel IV implementation here, first of January next year. Of course, the FRTB delay has some implications, but we are internally doing our homework, and we have been actually measuring the FRTB implications in our books for quite some time now because we need to report them to the authorities.
All right. Thank you very much.
Thank you, Albert. And next question comes from Namita Samtani from Barclays. Please go ahead.
Hi. Thanks for taking my questions. Firstly, why have you not taken the opportunity to upgrade 2024 net profit guidance like your peers have done? I just want to understand, like, which P&L items are you most unsure about? Like, is it the net interest income?
Yeah, thanks for your question, Namita. We have made a statement of the other half, as you heard, and didn't upgrade the overall interval. The reason being that if I look at the development of the first half, it seems very much in line with what we expected. There are some positive elements to the financial markets performance and our value adjustments line, especially, but that is an uncertain figure moving into the second half of this year, and on top of that, we have to manage properly the lower policy rates in the second half, as we expect to see.
And thirdly, the cost-to-income ratio, as you see, is slightly higher than what we expected by early days in 2024, and that's the reason why we find it most appropriate, as of now, to focus on the upper half. And of course, it's a focus point, and if we at any point in time during the autumn see things turn for the better than what we expect now, we'll of course have to make an upgrade.
Okay, that's clear. And the second just.
Namita, I could just add, if that's okay?
Sure.
Yeah, I think there's an asset quality element to this that we should also touch upon. I think the asset quality has been even stronger in the first half of the year than we anticipated earlier. And our hesitation to make new expectations for the year is not based on a lack of faith in the asset quality. As far as we can see, the stock is generally as strong at this point in time as it was earlier in the year. So it's not that we see a number of credit issues just around the corner.
Okay, thanks, and then just coming back to the buyback, it's still theoretically possible to do that type of add-on buyback to the current one like you did a couple of years ago, right?
Yeah, that's correct.
Okay, cool, and lastly, you just, y ou mentioned you expect activity fees to pick up. I was just curious why you expect that?
The sentiment in the market, if that return for the better, slower, lower interest rates in general, still very high employment numbers, house prices on the rise, further on the rise, could trigger higher turnover in the housing market and could free up some turnover also in the not frozen, but moderate turnover in the CRE market, and those elements could trigger activity-driven fee income in our books.
Yeah, so, it's basically more of saying that at the moment, activity-driven fees are at a very low level, particularly housing in Denmark is not at where it has been, and we have seen an increased number of properties for sale, a significant increase year- over- year. Hopefully that will turn into some increased activity eventually, and if the long-term rates also come down, maybe a bit more remortgaging activity. But basically it's more of us saying that we are close to all-time low levels in this regard. So the only way seems to be up, but we haven't seen it in the numbers as of yet.
That's very clear. Thank you.
Thank you, Namita. And last question comes from Mathias Nielsen from Nordea. Please go ahead.
Thank you very much. So most of our questions has already been asked, but maybe an additional one on costs, like now you've changed the guidance. How much is that actually driven by higher underlying cost, and how much is driven by some of those one-off costs that you have seen already and you probably will see later this year as well?
I think it's. You could take it as a combination, because we have seen slightly higher one-off costs in the first half of this year as we then expected. And the underlying cost base is hit by the 4.5%, 0.5% as we talked about. But also the fact, as I alluded to before, that we have had some impacted on our resources after the IT migration of Handelsbanken, where the large pool of employees from Handelsbanken needs to get acquainted with our processes, products, colleagues, et cetera, and that is time-consuming. And of course, adds to the need for some FTEs to stay within the group for a longer time period.
The impact, like looking on 25 costs, what it basically says, like there's one-off, there's the IT integration thing, and then, like, there's this underlying 4.5%. But that underlying 4.5%, that was well, I think that was already an expectation at the start of the year, wasn't it?
Yeah, and then we have, of course, true, and we have to add to that, the 3.7 going forward, but that's 25, 26 business. So you're right that the most important new information is, as I said, one, higher one-off costs, and two, the workload that is related to the finalization of the integration with Handelsbanken.
Which will also go away, I assume. So that I think that's, that's pretty clear.
Which is also as we expected, so it's by the end of the year, the run rate at that point in time, that was what we communicated back at the acquisition, at the time of the acquisition.
Sure. Exactly. So on the strategy, like coming up later this year, so, when should we be sitting ready at our PC looking for the strategy update?
By the end of the year, if you've not had your summer vacation, you can go on summer vacation. As long as we're talking about weeks and not, you know, not the quarters.
Okay.
But before the year end.
Okay.
Before you would like to dance around the Christmas tree also.
Sounds good. So and then the last one on NII, maybe if you could put a few words on like what should we expect for the coming quarter? Like, you have already said a bit, but maybe if you can try to sum it up, like what should we actually think about that? You have today's effect, getting, being positive, that you have the positive migration negative, you have lower rates going negative. So, where do we end up?
We can't guide you specifically quarter- by- quarter, but if you look at Q1 to Q2, you saw 2% down, but that was also on top of an MREL issuance in Q2 and the full effect from this Tier 1... Tier 2 issuance in Q1. So we have a clear expectation that there is a downward pressure, yes, but the percentage points decrease will be very modest going forward.
Thank you very much. That was very clear.
Thank you, Mathias, and it seems as if there are no further questions, and we are out of time, so thank you for participating in today's conference call. A recording of the call will be made available on our IR website in the coming days. Please do not hesitate to contact us if you have further questions. We appreciate your interest in Jyske Bank and wish you a nice day.