Hello all, and a warm welcome to today's call on the acquisition of Handelsbanken Danmark. My name is Lydia, and I'll be your operator today. If you'd like to ask a question during today's call, you can do so by using the raise hand button. Alternatively, you can type your question in the Q&A chat box. If you've joined us on the telephone today and want to ask a question, hit star followed by the number one on your telephone keypad. It's my pleasure to now hand you over to your host, Lars Mørch, Group Strategy Director to begin. Please go ahead when you're ready.
Thank you, Lydia, and thank you to everybody for joining the call here today. We are very pleased and excited to present this acquisition that we just announced today of Svenska Handelsbanken's activities in Denmark. We think it's one of those occasions where it's possible to do a deal that makes sense strategically for the clients, for the employees and also financially. We're excited to present this to you today. Next to me, I have our Group CFO, Birger Krøgh Nielsen, who'll be the main man here on the majority of the presentation today. If we take a brief look at the acquisition that we just announced. We have announced that we've reached an agreement to buy the business activities in Denmark of Svenska Handelsbanken.
We've also announced that would be done by paying three billion total goodwill for the business. Also in terms of financing, we have communicated that we have a very strong capital base today, and we'll be issuing AT1 and Tier 2 instruments of approximately DKK 2.5 billion, as well as senior debt. The timeline for this acquisition would be that we expect a closing, subject, obviously, to the needed acceptances in terms of antitrust clearing and so on, by the end of this year. Then we expect to have a full migration by the end of 2023, and then synergies will be fully realized during 2024. 2025 will be the first full financial year with full effect.
If we then take a look at what we have chosen to call a unique opportunity here to strengthen our market position further. There are a number of things in relation to strategy. There are a number of things to the capabilities in the organization, and there's a number of things in relation to both customers and employees that we think is very attractive in this deal. If we take the first one, which is predominantly a strategic point. Jyske Bank will gain important scale advantages by this acquisition. We'll get new strong talent in and we'll get a critical mass within existing business and geographies. There'll be good opportunities for strong people coming in from Svenska Handelsbanken with strong track records. This is a deal that we are doing in-country, in the only country where we operate.
It's a deal that we do within business units and products that we already have on the shelves. In that sense, it's gaining scale from a quality asset onto the platform that we're operating today. Moving on to the next one. I think it's fair to say that we had a fairly clear picture that when we started looking into this possible acquisition that the corporate cultures were compatible, and that picture has been strengthened throughout the process here. There's no doubt that the corporate cultures is underpinned by decades of stable, professional and sustainable banking in both organizations. In terms of the clients, we see this as a potential strength of the value proposition that the Svenska Handelsbanken customers have already today.
We can service the clients with the products that they have now. We have them generally on the shelf here. On top of that, we have product areas and service offerings outside what is available today. We do not need to develop a lot of new products or services. We generally do not need to develop any new services from scratch to Handelsbanken clients and to accommodate that business, which makes the integration also that much simpler, and which from a customer value perspective, means that the customers know that we can handle the businesses that they are doing today. We have experience in the bank. The bank itself has been doing a number of different integrations and migrations in the past.
There's a number of people around the senior management who has been part of this in the past. The data platforms have been doing similar migrations a number of times also recently. It's fair to say that we believe that we have the experience and the competencies in-house and at the data centers to do this. In terms of the financial part, we have a strong capital and funding position and that allows us for an all-cash deal and no need for an equity raise. The transaction is as a consequence of this expected to increase the EPS, but it's also expected to increase the EPS by more than what we could have done with a standalone business plan, i.e. including buying own shares.
To take a look at the business that we are adding to the existing Jyske Bank is a business that is headquartered in Copenhagen with 43 branches and approximately 600 employees. It's a full-service bank. It has a larger share of personal clients than business clients, but is a strong bank in both areas and have the necessary products and capabilities. Our view is, and I think the market will share that view, that Handelsbanken has shown a remarkable track record in terms of asset quality. We have had obviously a chance throughout this process to get a deeper understanding of the portfolio, which to us looks very attractive also from a credit risk perspective.
The performance of Handelsbanken in Denmark has been strong, and they've delivered very good results. It's not a business that have you know remarkably outgrown the market. It has been rather stable instead, and growing at rates that are not extremely high. Instead, there's been a clear focus on building quality, which is one of the key things that we've been looking for. They've had a profit before tax of DKK 0.7 billion, cost-income high 50s%, and non-performing loans at 0.5%. Altogether, a market share of approximately 2%. When we are adding the 80 branches that the Jyske Bank has today with the 43 branches in Svenska Handelsbanken in Denmark, we'll have by far the largest network of branches in Denmark.
Obviously, that gives very good possibilities for integrating some of the branches here, and it also gives good opportunities for getting critical scale in important areas, in important parts of the country, i.e. northern Zealand is important, and a part where Svenska Handelsbanken is very strong. If we're looking at the portfolio, well-diversified. If we look at the country with the branches, we'd basically be covering all of the country even with a slight reduction or a reduction in the branches that we are planning. Theo, would you take the next slide?
Thank you, Lars. Yes, I'll be happy to do that. Looking at the next slide, it's very important for us to stress that this transaction adds critical scale to Jyske Bank in several areas. One, if we look at the financials, we will approximately add one-fifth to the profit. We will approximately add one-fifth to the volumes, and we'll approximately add between one-fifth and one-sixth of the employees of the existing group. If we look at the right-hand side at the bottom, you can see that it actually also adds to diversifying the portfolio of Jyske Bank, since there is a higher concentration of private customers with the acquired entity. 70% is retail, 30% is corporate. That adds to the stability of the cash flow in the new entity going forward.
From day one, this transaction will have a positive impact on our financials. Even in the transition year, 2023, we'll deliver expectedly an add-on to pre-tax profit of DKK 0.3 billion. If you look at the composition of that calculation, you can see that from a standpoint of a normalized provision year, provisioned year or impairment year, we expect a profit from Svenska Handelsbanken Danmark of DKK 0.6 billion. We expect to see cost synergies of DKK 0.2 billion, which primarily relates to replacing costs paid for the group services. We start the integration and restructuring, which will cost us expectedly DKK 0.4 billion in 2023, mainly driven by IT costs. Be aware that the exit costs from leaving BEC will be paid by Handelsbanken.
On the income side, there will be a slight negative from customer churn and higher funding costs in the year of 2023, adding that together to DKK 0.3 billion on pre-tax profit. If we then move ahead and look longer-term, 2024 onwards, we expect pre-tax profit to be lifted by approximately 25% in the long run. Approximately DKK 1 billion pre-tax from 2025 onwards. If we again look at the projections here and the composition, you can see that in the third column, the cost synergies will now be expectedly DKK 0.4. Again, replacement of group services is one element to it. A second element is a common IT platform and common platform for products.
Finally, we expect to see some FTE reduction in the years ahead via natural attrition in the whole group. In 2024, we expect to spend the last DKK 100 million in integrating restructuring costs, i.e. one-offs that will then be finalized by the end of 2024. Looking at the income synergies, we haven't yet spelled out any specific numbers here, but it's obvious that there are upsides to the income synergies from higher interest rates, from different deposit margins, and maybe also from increased repatriation of existing loans from Totalkredit. We see potential and upsides to the numbers that we present here in the very long run. If we then look at the capital side of things, Lars has mentioned that this transaction will take place without need for an equity raise.
We are at 17.2% as of now here in Q1 in the existing group. We pay DKK 3 billion in a fixed goodwill payment. Further to that, we estimate DKK 25 billion of risk transferred via this transaction. Finally, we will see and have seen some retained earnings from the end-Q1 numbers that will add to the capital levels. Summing that together gives us expectedly a CET1 level well above 14% at the time of closing. Slightly below our interval, management interval, which we have stated in the market of 15%-17% long-term. It's also, despite slightly below the 15%, it's well above the regulatory requirements which as of now is around 10%.
We will spend the coming quarters after the closure to rebuild capital, bringing it back into the interval between 15%-17%. We will also during the course of 2023, reconsider starting buying back shares again, depending on the development in the market and our actually ability to grow the capital levels. When we look at the funding overview, as you can see on the slide, we have a very strong funding position, and the consideration here is expectedly a net asset value number of around DKK 30 billion, which will be precise at the day of closing. We can add the DKK 3 billion in goodwill, amounting to all in DKK 33 billion. On the sources from the top, we will deliver retained earnings.
Adding to that, we will issue AT1 in the very short term and also tier two shortly, probably after the summer break, of approximately DKK 2.5 billion. We will issue unsecured debt to some extent, and then the largest part of the funding vehicle will stem from covered bonds funding out of Jyske Realkredit. Finally, in the bottom, you can see we have excess liquidity simply because our liquidity metrics as of today is very strong. The transaction, if we should sum it up with some milestone, is announced today, the twentieth of June, and we will between signing and closing manage the funding need. AT1 and tier two instruments will be issued in the market and a smaller degree of senior debt as well.
We expect the closure of this deal to happen in the fourth quarter of this year. The completion of the transaction with migration of data from BEC to Bankdata will take place in the second half of next year, expectedly. Finally, the full realization of synergies will be in place during the year 2024, i.e., with full financial impact from 2025.
Thanks a lot, Birger. Then just to sum it up, we feel that this is a highly compelling transaction for basically all stakeholders involved. I think during the day, the view that we get from customers and employees supports that strongly. The customers of Handelsbanken are strong clients. They'll still be able to deal with many of the same employees going forward. They'll still be able to get the main offerings that they are happy about that will not add any extra cost to Jyske Bank. And on top of that, they'll get the benefit of Jyske Bank's stronger platform, i.e., also in terms of digital solutions. It's also highly attractive to employees because that will give good career opportunities and strong people will find a good place and home in Jyske Bank.
For the shareholders, this is, we believe, a very unique value-enhancing opportunity. It has been a possibility for us to add extra volume to the bank for the last couple of years. We've been looking for the right quality, and we think that we have found the best quality in the market by going together here with Handelsbanken Danmark's Danish activities. Thank you.
Thank you. If you'd like to ask a question, please use the raise hand button located at the bottom of your screen. Alternatively, you can type your question in the Q&A chat box. If you joined us on the telephone today and want to ask a question, it's Star followed by the number one on your telephone keypad. Our first question today comes from Sofie Peterzens of J organ. Your line is open. Please go ahead.
Hi, here is Sophie from JPM organ. I hope you can hear me. My question would be on the risk-weighted assets or the RWA. You're going for around DKK 25 billion of RWA, but and that's Danish kroner, whereas Handelsbanken is saying that the RWA benefit for them will be around SEK 22 billion. If I convert Swedish krona into Danish krona, it's only around DKK 15 billion. Twenty-five billion Danish krona versus DKK 16 billion is a quite big difference. Could you just explain why the RWA is so much higher at Jyske compared to Handelsbanken? Should we expect over time that there is some RWA benefit? I don't know if you can ask for model approvals or anything that we should kind of take into consideration.
That would be my first question. My second question would be on the payout. You mentioned that you will consider starting the buybacks in 2023. How should we think about buyback levels? If you could give us some guidance that I don't know is correct with Tier 1 is within a certain bucket, but this means that you will consider a certain payout. Lastly, could you just comment on the rate sensitivity of Handelsbanken Danmark and how much upside we should potentially expect from higher interest rates in terms of the income synergies? Thank you.
Thank you, Sofie, for the very good questions. If I should take them one by one. The RWA DKK 25 billion is based on our assessment given our internal risk weights in the portfolio today. It is so that we are able until their customer data is available to use our internal risk weights on this portfolio, and that adds around DKK 25 billion in RWA. The difference between our calculation and the ones in Sweden, I'm not able to answer, but this is our assessment. Number two, the payouts. We will, as I said, reconsider buybacks during the course of 2023 when capital levels, CET1 levels is again reassured in the interval between 15%-17%.
The number or the amounts being paid back of course very much depends on the retained earnings and the market situation as of at that point in time. Finally, the risk sensitivity of the new entity. We are not able to provide you with specific numbers, but it's our ambition that they will not deviate very much from what you expect Jyske Bank to have of sensitivity in our group.
Thank you. That's very clear.
Thank you. Our next question today comes from Jacob Brink of Nordea. Please go ahead. Your line is open. Hello, Jacob, your line is open. Unfortunately, we're not receiving any audio from that line. But as a reminder, if you would like to ask a question and you've joined via Zoom, please raise your hand or type in the Q&A chat box. While we wait for the questions to come through over Zoom, we'll move to the conference call. We have a question on the line from Asbjørn Mørk from Danske Bank. Your line is open. Please go ahead.
Yes. Hi. Thanks for taking my questions. Asbjørn from Danske Bank here. Congratulations on the deal as well. A couple of questions on my side. First, on your assumptions for normalized profits in Handelsbanken going forward, the DKK 600 million versus the DKK 735 million that was delivered last year. Could you just give me a little bit of guidance on how do you get to the DKK 600 million level? I guess loan losses were eight basis points last year, so maybe that's one of the reasons, and fee income as well, but just a little bit of clarity on that one would be quite nice. Then on the negative synergies, the DKK 100 million.
Just to make sure I got it right. The total lending book is DKK 66 billion. The total consideration is DKK 33 billion, of which DKK 3 billion is goodwill. I guess there's something like DKK 36 billion of loans that are not on the balance sheet. Is that correct, Anders? That would be to take credit loans that you could risk losing income on going forward. Just a little bit on the assumptions on the funding side as well. What are you assuming? It's just a struggle to get to only DKK 100 million negative on the synergy side there. Thanks.
Thank you very much, Asbjørn. I'll be happy to answer them. The normalized profit in 2024, as you state, is normalized given the long-term average of impairments around DKK 600 ± million, but that's our rough estimate as of now. The 735 in 2021 was their strongest year ever. Of course, that entails very strong performance on all the lines in their P&L. What we now sense is that the DKK 600 million in a normalized year of impairments would be an appropriate starting point for looking at this case. You talk about the synergies and the DKK 66 billion in loans. We have DKK 66 billion loans, DKK 36 billion in deposits.
That's a gap of DKK 30 billion, plus the DKK 3 billion in goodwill, which will be paid to Handelsbanken. I think that adds to the equation very well. Please correct me if I didn't understand your question.
I think there was a part to the question here, which was about what is the total credit amount.
Yeah.
I think just to add a little bit of flavor to that one, Asbjørn, the total credit amount is roughly DKK 9 billion. That's not the DKK 36 billion. That's approximately DKK 9 billion.
Yeah. Thank you, Lars.
Only DKK 9 billion of total credit lending.
Correct. You asked about the funding side and the negative implications of that. We will issue a AT 1 and Tier 2 at the amount around DKK 2.5 billion. We will probably also issue some senior debt. The estimate is, of course, based on the market conditions, and we are also incorporating in our calculations, slightly higher spreads than what we have seen formerly due to the market situation as of now. We believe in the calculations, we calculate and incorporate also some uncertainty as to the development in issuing debt, capital instruments as well as debt.
Okay. If I then could just a follow-up question, but based on the last, you mentioned that this will be fully factored in by 2025, and then you say that the EPS boost will be 10% by 2024. If I look at the slide seven in your presentation, I'm trying to extrapolate that to 2025. I guess cost synergies could be higher, but I guess the moving factor here would be the integration cost that will come off by 2025. Is it sort of fair to assume that the 10% boost for 2024, it will be all things equal around 11%+ for 2025? Is that how you think about it?
Yeah. It's based. If you do it on a capital neutral, sensible level, we will see it slightly lower. The main difference here is based on the fact that we, at the outset, bring our capital levels slightly below our long-term levels, and also the levels that we initially will or will keep if we were running Jyske Bank as a standalone entity.
Okay. Final question from my side will be on the SIFI status. Do you think this acquisition will have any impacts on your SIFI surcharge going forward?
Well, if you look at the calculation of a SIFI today, we add, I believe, 12 different triggers, and adding a 2% market share well-run bank to Jyske Bank will not jeopardize any stability on SIFI. The 1.5 uplift is still solid and valid after the inclusion of Svenska Handelsbanken.
Okay. That was very clear. Thanks a lot.
Thank you. The next question from the telephone line is from Martin Gregers Birk of SEB. Please go ahead, Martin.
Thank you so much. Just a couple of questions. Now, I assume you don't wanna tell us your 2024 business plan. If you look at Jyske Bank as a standalone, I mean, this is a bank that is going to buy roughly 10%-15% annually of your market cap in share buybacks in the market. Why wasn't that a more attractive value proposition for your shareholders rather than buying someone else's shares?
Well, I can start. Maybe you can comment further, Lars. If I look at the acquisition, it is very crucial what Lars said at the outset, that it adds critical mass to the group's possibilities to deploy resources, competencies, IT systems, setups, et cetera. This is the strategic view on this transaction, point number one. As we also alluded to, adding a strong bank at a decent price actually also lifts the EPS relative to a standalone comparison, which you also referred to here. We think these elements in common makes very good sense, compared to where we stand at present.
Yeah. I agree to your comment here, Bjørn Lundgaard-Madsen. If I should just add one thing, that is that, with the bigger frame that the bank will have going forward, driving efficiencies will also be easier.
I feel like this is a story that we have heard before from your CEO. I mean, he's been talking about achieving critical mass. He's been talking about achieving a market share of 15% for years now. What does it actually mean for you guys to have critical mass? Because it's not like the synergies, at least the cost synergies, measure them as a function of Handelsbanken's running cost base are flattering.
Yeah. I think if you look at the Jyske Bank, we have all the head office functions of a fairly large bank, but the volumes is not that large. And I think that's an important point to efficiencies with a 15% market share will be a lot better than half the size. I think in terms of practical terms, we are running a business which is a mix of physical presence and digital solutions. We are running a bank across the totality of Denmark.
In order to be able to do that, you need to have also critical mass locally. That will be difficult also with a lower market share than the one that we have now.
Okay. Maybe just a final question. When we move into 2023, and you guys are potentially looking at returning to share buybacks, Bjørn Lundgaard-Madsen, what's gonna be your guiding rod here? I mean, previously we have talked a lot about the RAC ratios. Is that gonna come back into play?
Yeah, well, I think there are several triggers as to when we start buying back shares. Of course, as we well know, the board today decides on a quarterly basis, and that also applies going forward. One thing which is crucial is of course the levels that we stay within the guided levels longer term, point number one. Point number two is the ability of retained earnings in the group, which has been very strong and steady for some quarters now, and hopefully can continue. That's the second trigger. As you said and alluded to, the RAC ratio is the third one.
We are quite reassured that, with these metrics we provide here and the way to manage this transaction, that the RAC will stay in a safe and sound territory, as to the stability of our rating.
You haven't had any comments from the S&P yet? I mean, I assume that this is gonna be a slightly credit negative event as more of your capital base will be based on non-equity instruments.
S&P is fully aware of what is going on, and we expect them to give some message to the market in the near future.
Okay, thank you. That's it.
Thank you. We'll move back to questions that come through via Zoom. We have a question from Maria Semikhatova of Citi. Please go ahead. Your line is open.
Yes. Thank you. I hope you can hear me. A couple of questions. First of all, you mentioned that you are in dialogue with Handelsbanken on a selected large corporate portfolio. Just wanted to get a sense, what is the potential size of this portfolio, and what is the return on equity on this specific operations? Second, on cost synergies, you mentioned expected natural attrition from 2024. What is the natural FTE attrition for Jyske or combined? If you can disclose that. Is there any differential on salary levels for both entities? Just one final question from me. You mentioned the option to issue equity of up to DKK 1.5 billion.
Just wanted to get a sense under which circumstances you would consider this option?
Yes, thank you very much, Maria. We have stated yes there can be and will probably be dialogues regarding large corporates. It's the fact that the very large Nordic corporations which they have in their portfolio today is excluded from this transaction, simply due to some special terms and conditions they have in the agreements with Svenska Handelsbanken. Going forward, if some of those customers want to engage with Jyske Bank, we would be happy to have a dialogue with them, and that could potentially lead, of course, to higher volumes and higher engagement with that segment as well. Jens Juul?
Yeah. I think I can add to this, that if you look into this portfolio, it's a very immature portfolio in terms of numbers of clients. What they have in their contracts is very normal in terms of clauses. We expect that a number of these clients will be happy to see Jyske Bank as a bank going forward, where some of them would have special specific needs that is better handled by other banks. Some of them will be less attractive also from a return perspective from Jyske. We expect it to add-
Some extra volume, based on these dialogues that is starting now.
Yes, to your point, Maria, cost synergies via natural attrition, that is our clear expectations going forward. I believe that the notion of natural attrition in Jyske Bank is very much aligned with market conformity or market levels, i.e., in the high single-digit percentages. Point number three you alluded to, there is an option to raising equity up to DKK 1.5 billion. The reason for that is that we in the process here and the project has assessed the possibility or the option of going to issue equity. As you know, this is not the case because the transaction is fully aligned with the existing capital levels. As of now, yes, we maintain that option.
The transaction itself doesn't need it.
Okay. Thank you very much.
Thank you. Our next question today comes from Jacob Brink again of Nordea. Please go ahead.
Good morning. I hope you hear me now.
Yeah.
Yeah. Thanks a lot. Zoom is not my best friend, apparently. On just coming back to page, was it 5 and 6, Bjørn, on the old Handelsbanken profit of DKK 735 million down to 600. Is the difference, I mean, how much of that sort of normalization is due to the roughly DKK 15 billion of lower lending from those larger customers, and how much of it is due to loan loss normalization?
Yeah. Well, first of all, the 600 is the new perimeter, so to speak, the customers involved in the transaction that will add to 600. The main difference still lies within the difference between the impairments in 2021 and the impairments in a normalized year.
In that difference also lies the fact that some of the customers, roughly DKK 14 billion, will not come along in the agreement.
Yeah. Just one second, Simon. Do you have a comment here?
Yeah, just to clarify quickly. All the numbers stated in the material is on the parameters are excluding the few selected Danish large corporates. That would also entail the 735 is excluding those. The main difference moving from the 735 down to DKK 0.6 billion is from normalization of credit quality, where you should note that they had reversals of DKK 51 million in 2021.
Okay. The large customers are already out of the
Yeah.
Okay. Fair enough. On the FTE reduction or cost synergies of DKK 400 million, potentially higher later on. How is it with Bankdata? When you take over, I think they have had around DKK 200 million in IT cost in on BEC platform. What will that number be in the Bankdata set up? I guess some of your fees are fixed fee and some of it is activity-driven fees.
Mm-hmm.
How much do you expect to save from IT?
As we said, in 2023, the main difference is the payment for group services. Going forward, the difference between BEC and a new entity with Jyske Bank and Bankdata, we expect and have estimated slightly lower numbers due to the fact that we make synergies in the coming years bring down the total number of FTEs in the two entities. Bringing those together will add to or bring down the total cost relative to what we pay in separately today.
Okay. A small saving from IT, you say when everything is.
A decent saving from IT because some of it, as you said, is driven by transactions and amounts, and some of it is driven simply by the number of FTEs that we attach-
Mm.
from each group at Bankdata.
How much does that leave of the DKK 400 million to come from FTEs?
We haven't yet spelled out that number. Please accept that this is the full number that we can provide today.
It's just when you say 10% or high single-digit natural attrition, is that then on the whole new group? Because otherwise I guess it doesn't quite add up to a number large enough if it's only on the Handelsbanken platform that you expose.
Jacob, it's on the total group. You have 2,300 employees in Jyske, and you have a churn of approximately 10%, and fairly high during the next couple of years because it's larger generations who are leaving for pensions right now. You would have approximately also 10% from Handelsbanken. That actually adds to more than half of their organization in one year.
Okay. Thank you. Just last question from my side. Why is Handelsbanken paying the exit fee and BEC? Is there any sort of tax reasons or any sort of fees that will be lower if you do it this way? Or why isn't it just added on top of what you have to pay, reducing the DKK 3 billion instead?
Well, it's straightforward. They are a member at BEC today, so they have to pay the exit cost. What we deliver to them is a goodwill that is an all-in number for the premium on the book, as well as other costs that are related to the transaction from their side.
Okay. Fair enough. Makes sense. Thanks a lot.
Thank you. Next, we move on to Jacob Kruse of Autonomous Research. Your line is open. Please go ahead. Hello, Jacob, your line is open. Unfortunately, the audio doesn't seem to be working, but Jacob did submit four questions orally, so I'll read those out for you. These were, "On the cost synergies, does this include branch closures and staff reductions? And is it more on the acquired entity or is this an opportunity to review efficiency in the existing Jyske business? I believe Handelsbanken has issued via Nykredit. Are there any complications with transferring this back to Jyske Bank? On the consideration, what do you view as the PE multiple you pay for the acquired entity?
Thank you very much, Jacob. Cost synergies, yes, they include all the cost synergies that we expect going forward. That actually covers the whole group. Yes, as Lars also said, we can grow the scale, and we can grow the efficiency in many areas of the group going forward. The transferring of Totalkredit is. If I just fully understood the question, please rephrase it. Can you do that? Okay. I'll just jump to the PE ratio, where the PE ratio is a difficult task. If you talk about price-to-book or PE ratios, they all rely on an equity in a subsidiary or in a company.
Since we buy activities, we are not able to provide you with a specific equity in this case. We will not be able to provide you with any PE multiples as of now. Then the question from Totalkredit. Yeah. Okay. Thank you very much. We will, of course, do our utmost to repatriate as many loans as possible from Totalkredit/Nykredit. We see no complications in approaching the customers when we are allowed to and ask them to look at the Totalkredit portfolio and see whether this would be suitable in Jyske Bank. Be aware that we, if I look at the pricing along the curve of Totalkredit products as opposed to Jyske Realkredit, we seem to be completely competitive.
Thank you. Jacob's final question was, what do you use for AT1 and T2 costs?
It depends on the market situation, but it's obvious that prices and spreads have gone out to some extent over the last few weeks and months. We incorporate that into the issuances that we are making. The exact numbers is not for us to state now because it depends on the actual day that we do the issuance. It's obvious that prices have gone up, both in terms of AT1 issuance as well as T2 issuances.
Thank you. As a reminder, if you'd like to ask a question, please raise your hand on Zoom or press star followed by one on the telephone. We do have a question from Asbjørn Mørk again on the telephone. Your line is open.
Yes. Thank you. Two follow-up questions from my side. If I go back to slide number five, so basically the DKK 51 million of loan loss reversals last year is 8 basis points. If I just apply 10 basis points of sort of normalized loan losses, that's around DKK 120 million of headwinds. So that brings us 735 to close to the DKK 600 million you guide for. Then if I look at fee income, which has been growing DKK 150 million in two years, I guess normalizing that line could provide some sort of headwinds as well.
I'm just trying to understand why DKK 600 million is a fair through the cycle number and not a little bit ambitious numbers for the business standalone?
Well, through the cycle, you're right. When we normalize impairments, we come to these around DKK 600 million. Looking at the fee income, yes, it has grown simply because asset management has been a significantly growing business for all banks, including Handelsbanken over the last few years. We have a clear ambition in the field of private banking to grow the new united entity even further. As you may know, we have been approved seven years in a row now as the best one to provide service for private banking clients, which we are very proud of, and we want to actually merge the competencies in this field to grow that book even stronger. We don't see that this is a too ambitious starting point for the new entity.
Wouldn't your asset management ambitions be under your potential synergies of the deal? I guess asset management volumes are down around 10%, so far this year. I guess that's a tough comp if compared to last year.
Well, it's of course a long-term haul we're talking about here, two, three years ahead. We certainly expect markets to come back, but of course, timing is uncertain. When it comes to growth, we believe that we can deliver the same growth in Handelsbanken as we expect for Jyske Bank, and we have ambitions to outgrow the market in this field in the coming years.
Okay, fair enough. Final question on my side. I mean, on my numbers, you do make quite a decent return on investment on today's deal. That's despite the fact that you were of course. You had some disadvantages on the IT side versus some of your competitors that at least on a rumor basis were interested in this deal. Maybe some reflections from your side on what was sort of your competitive edge in this transaction that sort of made you seal the deal.
Yeah. Thank you, Asbjørn. This is obviously a question that's better suited for Svenska Handelsbanken. I'll try to portray the view that we have had in terms of our position here. I think Handelsbanken have communicated that they wanted to exit Denmark, and they wanted to exit Denmark in the best possible way. I think in terms of that, the simplicity and the way that they could exit has been important for Handelsbanken. That has been our view. We do not think that this has been a price competition predominantly.
We think that they've been looking for a buyer with the right quality, competencies and size to take over the clients in a good way and to take over the responsibility for the employees also, and a client that has been able to provide a structure for the deal that's not too complex to execute. I think these have been, that's our view at least, very important for striking this deal.
Okay, thanks a lot. That's all from my side.
Thank you. Moving back to Zoom, we have a follow-up question from Jacob Brink of Nordea. Your line is open again.
Thanks a lot. Just one follow-up from my side. On asset quality, I think at least historically, I think even you might have said that, but at least someone has speculated whether Danish sort of FSA guidelines on provisions has maybe been a bit tougher than what we're seeing in the Swedish market. What kind of, when looking through Handelsbanken Danmark's book, what have you found? Do you think it is the same rules that has been applied, or do you maybe feel that there's a need for some upfront provisioning?
It's correct. We've done a thorough due diligence in all fields, of course, surrounding this transaction. The FSA guidelines could potentially differ between Denmark and Sweden, but we are very reassured that what we have seen and spoken with experts about is quality, both when it comes to retail customers, when it comes to corporate, and also the split between bank and mortgage loans. We are very reassured that what we are taking on board is a top quality portfolio. The adjustments to be made relative to Swedish versus Danish guidelines will be managed properly in the coming quarters. We see no need whatsoever of making significant changes at the outset because it is a quality book that we are looking at.
Okay. Thank you.
Thank you. As a final reminder, if you'd like to ask a question, please raise your hand or press star followed by one on your telephone keypad. We have a question from Adia Berju. Could you please state your company name and proceed with your question?
Hello, you can hear me?
Yes, we can hear you.
Yes, this is Adia Berju from AllianceBernstein. Two questions on my side. The cost-income ratio of the business you are acquiring is 58%. I wonder if you have an idea of the level you want to achieve in terms of cost-income ratio for the business you are acquiring. My second question is about the engagement rate of the clients you are acquiring. Just to have an idea of the cross-selling potential.
If I take them one by one, the cost-income was, yes, 58% last year. Very much aligned with a very strong bank in Denmark. We have in Jyske Bank a level in the mid-fifties, well, 53, so to speak. Close, mid-fifties for last year, which was also due to the fact that we have synergies and scale synergies on the mortgage side. Looking at the new entity going forward, we will very much focus on the whole group and not just the separate solutions or metrics for the acquired entity. Going forward, we have an ambition, of course, to keep the group's cost-income ratio in the mid-fifties.
Talking about cross-selling elements, we haven't spelled out in the investment material any specifics about cross-selling potential. We will be very happy to dig into it in further detail when we can get access and are allowed to do so. We have some potential fields where we can see cross-selling possibilities, but as of now, this is kind of an income upside as you can see, as stated on the slide.
Okay, thanks.
Sorry. Maybe just to clarify, to make it very clear that the 58%, as a standalone entity, will of course be lower, but when we calculate it going forward, we very much focus on the group's total cost-income ratio, which we expect to keep low or lower than they were, as we talked about in 2021.
Okay.
Thank you. We have no further questions on Zoom or on the telephone line, so I will hand back for any closing remarks.
Thank you. Thanks to everybody for listening in. You know, that was difficult to get unmuted here. Thanks a lot to everybody for listening in. Don't hesitate to come back, if we can help with answers on some of the questions or if we need to be more clear on some of the answers also. Thanks a lot for listening in. We hope that this transaction makes almost as much sense to you as it does for us. Thank you, and have a nice day.
This concludes today's call. Thank you for joining. Your line will now be disconnected.