Welcome to this webcast where Nordea Bank Abp will present its Q1 results for 2019. We will start with a presentation of the Group Chief Executive Officer and President, Casper von Koskull, and then you will have the opportunity to ask a few high-level questions to him before we enter a detailed Q&A session together with the Group CFO, Christopher Rees, and me. Casper, please, the floor is yours.
Thank you, Rodney. Good morning, everybody. Let's dive into the highlights first, and then I'll go into more details. When I look at the Q1, it contains still continued challenges with pressure on particularly household lending margins and tough market-making conditions. Pleasing to me is that I really see now the efforts to improve business momentum starting to show effect. We have improved our volume growth in household. Our corporate volumes have also increased, and asset and wealth management is having net inflows this quarter. All good signs of momentum going in the right direction. We are hosting an increasing number of customer meetings, again, also boding well for the future. The signs of improvement are really there. Income adjusted for structural measures are still down 1.5% year-on-year, but the operating leverage in this quarter is improving.
Adjusted operating profit is actually up by 21% from the previous quarter, and the reported, however, is down by 12%. This is really driven by two one-off items. The fact that we take resolution fees basically full year in the Q1, and the second that we are making a provision for potential fines. The credit quality remains solid with loan loss ratio of seven basis points in the quarter. In line with what we have been expecting. On this front, we do not see in the coming quarters that this would deviate from the average that we had last year. Solid credit quality going forward. The CET1 ratio in the Q1 is at 14.6%. That with 130 basis point management buffer leaves a good comforting buffer going forward. As we have stated previously, we have had weak AML processes and procedures in the past.
We've been very open about that, and we are likely to face fines on this, and we have thus decided to make a provision of EUR 95 million on this. I think it is the right thing to do. It is the prudent thing to do. That's what we've done in this quarter. If we look then, the highlight numbers from the Q1. Reported revenues are largely unchanged compared to the last quarter, but the underlying is actually up 4% compared to the previous quarter. This is really driven by the fee commission line and fair value line, those that we said that we were not happy with in 2018. Improvements on both lines. Costs are impacted by one-offs, which I already said, and are up reported by 4%, but down underlying 7%.
We really see a strong cost growth, and we see the operating leverage actually kicking in. Reported profits down 12%, but underlying result shows that we are moving and we have a better trend going forward. Of course, we want to see further improvements on this side. Looking at income more high-level. We have talked about in the past about our active de-risking, which we have carried out over the last few years, which have lowered the income level. Taking that into effect, we have to also admit that we have been struggling with revenues. Adjusted for structural measures, the Q1 income is still down by 1.5% compared to last year. This is what we have been addressing in our action plan to increase business momentum, really to get it up from there. As I said, the signs at least are positive.
We, of course, need more momentum into it. In the Q1, the underlying income increased by 4%, as I said, at the same time, we lowered our cost by 7%. That operating leverage is kicking in as we had expected in the Q4. The measures that we have undertaken to now start showing effect, of course, I'll come back to that some of these efforts and measures that we are taking when we look at the individual business areas. Net interest income is maybe the line where we see more challenge this quarter. Underlying net interest income was down by 4% compared to the previous quarter and down by 5% since the Q1 of 2018. There is continued pressure on our lending margins, particularly on the household side, even though this is partly offset by increased deposit margins and also volume growth.
Treasury is negatively affected by tighter credit spreads, we also have structural effects in the banking book impacting negatively. Higher regulatory fees are also lowering the net interest income. We will have positive effects from Gjensidige slightly this quarter because Gjensidige was included into the numbers only in March 1st, of this year. Going forward, of course, Gjensidige will contribute positively into our NII line. Looking at lending volumes. Lending volumes are improving, especially in the corporate segment, we have also seen steady improvement in the household volumes, even though we still are not where we want to be. There is improvement in the new market share in Sweden and Denmark. In Finland, we are still lagging behind in volume, whilst in Norway we are steadily growing with the market.
I'll come back to you in a while with more specific actions that we are taking in this area. Our fee and commissions are up 3% Q-on-Q, in local currencies, really from a broad-based improvement. Asset under management increased meaningfully. Corporate finance was impacted with fewer large deals than expected, payments fees are higher both Q-on-Q and year-on-year. A fee commission line developing in the right direction. Asset and wealth management had positive net inflows in the quarter, mainly from private banking and life and pension. This is particularly strong performance in Norway and Sweden. Strong financial markets in the Q1 and investment performance was also strong, helping asset and wealth management. Our Asset under management is now back above EUR 300 billion, that's an increase of over 7% since the previous quarter, driven by the factors I just mentioned.
On the net fair value line, the customer activity is relatively stable at a good level. Derivative valuation adjustments were negative in this quarter, mainly due to falling euro interest rates. Market-making activities have recovered from the very low level in the Q4, driven by significant improvement in fixed income in particular. Fair value also moving in the right direction. Let's look at then the individual business areas. In Personal Banking, there is good underlying trend in customer activity, and we are taking a larger share of the new mortgage volume. There is still very visible negative impact from margin pressure, but we are happy to see that our efforts to improve momentum, in particular, is showing results. Those efforts will of course not stop.
We will continue to have full focus on driving business and improving customer intensity and satisfaction, and hope that trend will also now continue. On this slide, you actually see some of the leading indicators on how we look at the performance of Personal Banking. Lending volumes in Personal Banking have increased by 5% since a year ago, where we include volumes coming from consolidating Gjensidige. We continue to increase our customer interaction, both face-to-face, online, and also with the help of our robotics advisor, Nora. We are striving really to meet our customers anywhere, anytime, and we are really starting to see this in the customer satisfaction. Of course, this takes time, but the signs are clearly there. The capabilities are falling in place.
Especially in Sweden, where we've actually had the biggest issue with satisfaction, we see that our efforts are actually bearing fruit with good momentum, and our customer satisfaction actually has increased, even though we, of course, still need to do more. I think that quarter by quarter over the last five quarters, improvement in Sweden is something that is really pleasing to see, and it is certainly all down to efforts by our employees. In Commercial & Business Banking, we have strong underlying momentum in income. This actually started already last year and has continued into 2019, and total income is up by 3% year-on-year. Customer activity in especially Sweden is high. However, we feel continued margin pressure in Denmark. We now need to focus even more on freeing up time for customer-facing employees, so that they can spend even more time engaging with customers.
This is all about customer intensity, being with customer, and this is where we are putting our biggest effort to make sure that our people can spend and are spending more and more time with customers, existing and new. Lending volumes are up 2% year-on-year, and we have increasing customer satisfaction in all of our four countries. Again, moving here in the right direction. When looking at wholesale banking in the Q4 last year was weak. We were very open about it, and there has been now a recovery since the Q4, which, of course, pleases me. We are seeing continued reversals in net loan losses. Advisory income was somewhat negatively affected, that there were fewer large deals. This is really the nature of the business. Deals do vary from quarter to quarter, but we are actively, of course, building that pipeline.
We will continue to focus on capital efficiency and, of course, driving the fee income line. When we look at wholesale banking, what are we tracking? We are tracking volumes, of course. Volumes is a driver. We're also tracking our position with our customers in the marketplace league tables. It is important that you are one of, if not the leading bank in your marketplaces, which we are. Lending volumes have been in a good trend. At the end of the quarter, volumes were up actually 8% versus Q1 in 2018. We have good support from our lending market position, when we look at debt capital markets, where we are a clear leader, and also number 1 with syndicated loans. League tables are a bit more volatile, as I mentioned, depending on when and where deals are executed.
We are building a pipeline on this front as well. Within asset and wealth management, the asset under management is now back above EUR 300 billion. We have made a comeback in Sweden and Norway with net inflows across private banking, life, and retail funds. Good momentum there. I would like to specially mention European covered bonds have been a blockbuster in this quarter. We have seen net inflows of roughly EUR 3 billion in the past year, if you look at a longer period. Retail and private banking flows in Denmark, however, are somewhat subdued. That's where we see some weakness. That's why to mitigate this, we have established a new centralized SME savings team in Denmark and also sharpened the focus on the high net worth segment. We are taking actions there.
Overall, as I said, the indicators in asset and wealth are good. Customer satisfaction is, of course, key. Across the Nordics, the satisfaction levels are stable. Sweden is actually showing the best, strongest trend, but otherwise stable. The number of investment advisory sessions we are hosting is increasing following the last year, when too much focus has been spent on internal processes. That's something that I've talked about, and now we can actually use really those resources to focus on our customers. Our performance has been strong in the quarter. I think it is important in asset management, you need to deliver returns. 88% of composites are outperforming the benchmark. That's a good number, 88% year to date. As I said earlier, there's net inflows in our asset under management of EUR 1 billion. It is actually a Q1ly inflow since Q3 in 2017.
Looking at cost, performance is not only about income, it's also about cost. I mentioned already earlier that we are taking the resolution fee for the full year, which has an impact on cost in the quarter of EUR 207 million. We're also taking a provision of EUR 95 million related to weak AML processes and procedures of the past, as I mentioned. Actually, as I said, reported costs are up, but I think it's important to remember that underlying costs are down 7%. Staff costs are down 3% also from previous quarter. We are not changing our guidance cost in 2021, expected to be 3% below 2018 levels. In this 2019, this year, we're also expecting costs to be below last year, also including the consolidation of the NCD numbers that we now have.
We are well on track to meet our cost targets both for this year and also for 2021. It's not only about reported cost, it's about cash cost. That's really what matters. The reduction in cash cost also continues, and it's down 3% year-on-year. We have higher capitalizations now because the IBM mainframe deal that we've done, the entire capitalization is actually done for the next 10 years, and that's actually taken up front. That actually increased capitalization. That's the reason that number moves. As I said, cash cost continues to go down. Cash cost, looking at longer trend to 2021, is expected to be down up to 10%, and of course 2019 lower than 2018. Here again, I say on cash cost, we are on track to reach our outlook.
Looking at asset quality continues to be strong, net loan losses at very low levels at EUR 42 million in this quarter, which is roughly seven basis points. Again, in line with what we have been saying, in line with the provisioning level that we saw in 2018. No change here either. Our Common Equity Tier 1 ratio decreased to 14.6 in the Q1 from 15.5 in the Q4. Here, the key drivers are that the risk exposure amount has increased by EUR 7 billion, mainly driven by bringing in Gjensidige again to our numbers, also impact from IFRS 16, then we've also had underlying lending growth. Our capital commitment, which is at EUR 21.7 billion, corresponds to 13.3. We have a good buffer.
We are actually outside, we have not even inside our management buffer level, which to me is comforting. Money laundering has been a topic in media overall, in the last several, I would say months and even quarters. I would like to actually touch upon the topic maybe even more broadly. First of all, factually, Hermitage Capital filed money laundering allegations with all Nordic regulators in October of last year. In December, actually, the Swedish authorities stated that they will not start formal investigation in this. We are yet to hear actually from the other Nordic authorities. I guess Finland has said that they may actually come out with something in the coming weeks.
In March of this year, media published the kind of Troika Laundromat story, which really revolves around a complex set of allegations that has been covered in media before, that we actually have commented also previously before. In that sense, I have said, to me, it was nothing new. We have been fined in the past by Sweden in 2013 and 2015 for insufficient AML processes. Also the Danish FSAs started looking into these processes in 2015 and handed their findings, which is actually the procedure in Denmark, to the Danish Financial Intelligence Unit, in 2016. This, of course, is a case that is still pending. Since 2015, we have made meaningful, significant investments into compliance and risk. When I took the job of CEO of the bank, I put this as my number one priority.
We have invested over EUR 700 million into this area over the last few years. We have now a very strong governance model and are more than 1,500 people, employees working specifically with prevention of financial crime. In addition to that, of course, we have trained and continue to train our frontline staff of 12,000 people in this regard. When the Swedish FSA concluded a review of Nordea AML prevention in the latter part of 2018, that resulted in a satisfactory feedback to the bank. This is an issue we take very seriously. We are a very different bank today than we were just three, four years ago. We will continue this. I have actually called also for much tighter coordination, cooperation, not only between banks or authorities. We also need change probably in legislation. We also need a international European agency body to look into this.
This is something where we need collectively to defend and to make society safer. This is not going to go away, hence, focus will very much continue here. In the Q1, as I already mentioned, because of all this that I have explained, we have made a provision of EUR 95 million related to our historical inadequate AML processes and defenses. I think it is a natural step based on the dialogue that we have with the authorities. Looking at our priorities, we have said that we will continue to drive structural cost efficiency, we actually have. Some of the examples that I would like to take up now is what includes in that structural cost in this quarter.
The robotics universe that we provide to the business units with installed capacity is now equivalent to 1,500 FTEs people, which actually has increased the robotization of 38%. That's a good progress. That means that 75 licenses have been terminated, actually more importantly, it's improved our infrastructure. This is all about driving down structural costs, but also getting a more robust, resilient infrastructure. We continue our nearshoring activity. We have this quarter increased our staff in Poland and the Baltics by almost 10%. We have simplified our product families. In Denmark, out of our 220 products in Personal Banking, we have taken out 30 products, 31 products actually in this quarter. Of course, we'll continue. In Norway, of the 150, we've taken out 28 products this quarter. Again, this work continues. This is all about simplifying, becoming more robust, more efficient, and reducing structural cost.
Operations in our business areas are now fully consolidated. We have changed the organization so that we drive operations and IT as one, again, to drive common capabilities, best practice, but also efficiency and resilience. I mentioned about our mainframe operations that we've had transitioned to IBM as of February one. This included 119 employees from excuse me, Scandinavian countries and Poland. Now services will be delivered by IBM under 8 improved service levels. All steps, and these are, to me, only the highlights, we will, of course, continue on this course. We have also promised to increase business momentum, I also here want to touch on some of the key deliveries, what we have been doing. I already mentioned we have EUR 700 million net inflows in private banking.
This is all the efforts that we said focus on Norway, Sweden, that growth potential that we see there, delivering there. We have now concluded the acquisition of Gjensidige, again, consolidated Gjensidige as of March 1st. We have entered into a partnership with Affiliated Managers Group, AMG, leading European asset manager. This is our asset management business done it, and also we are now granted a broker-dealer license, again, giving opportunity to increase momentum in wholesale banking. We have increased our market share in new net lending in Sweden, I have mentioned already before. All steps where we are doing more, engaging more, increasing efficiency. Engagement with customers, the key is, of course, engage people. This is our key priority, getting our people engaged. And we have done a lot on this in terms of really getting everybody on board.
For instance, I can say that through a quarterly survey, leaders and teams get insights to discuss and take ownership of actions to continuously improve this customer engagement. We have a very positive trend in employee engagement, which of course, I think is really the lead to then also see and translate that into enhanced customer experience. I am proud of what our employees have done. I'm proud of their engagement, and I want to really thank them for great effort in pushing forward the achievements that we have, and I, of course, expect that to continue. With that, I think we conclude and I give back to Rodney. We continue from here, Rodney.
Yes. Thank you, Casper. We now open up for a few high-level questions, and I think we start with Magnus Andersson. Please.
Thank you. Our first question does come from the line of Magnus Andersson. Please go ahead, your line is open.
Okay. Thanks again. Do you hear me?
Magnus.
Hello?
Yes, we can hear you.
Yes, we hear you.
Okay. Yeah. Good. Just on capital, we know that you got the 5% buyback mandate at the AGM, and I would just like to ask you, when would you feel reassured enough to potentially change your payout policy? For example, you could, of course, lower the dividend policy and top up with buybacks instead, et cetera, if your volume growth is good. Would you have to wait the ECB decision about your capital requirements in November, or would you also like to have your new models prove that you're going to supply during 2020?
Not sure.
What do you think about this?
Yeah, not sure I have actually made up my mind, but definitely want to see the first SREP done under the SSM, I think, which is, as you rightly point out, come at the end of this year. Of course, maybe start understanding where the models potentially take us. I think it is a little bit premature yet to discuss it, but I'm sure it's a topic that we will revert to in the not too distant future.
Okay. Thank you.
Next question, please.
Thank you. The next question comes from Mats Franzén of Handelsbanken. Please go ahead, your line is open.
Yes, good morning, and thank you. Thank you for taking the question. Just a question related to the AML expenses you charge in this quarter. Since, as you said, you have investment more than EUR 700 million, should we really see this as a one-off related to potential fines or what will go on in Denmark? Should we believe that you need to invest even further going forward related to AML protection? Thanks.
This provision is not related to efforts in AML protection. That's part of our normal cost that we do, and this is related to, we've been very open about our historical weaknesses. We have been very open in communicating the issues and investigations that are ongoing. We've said that we expect a fine in Denmark. This is really a provision, a qualified estimate related to potential fines. Again, we have not been fined. We have not paid any fine, but it's related to that. It's not for our ongoing AML activity, which I think we have been very clear on, that we have invested and, of course, we will continue to continuously improve.
Thank you. Our next question comes from the line of Peter Kessiakoff of SEB. Please go ahead. Your line is open.
Yes. Hi. Sorry, I feel I need to ask you a follow-up question on the AML things. You mentioned that the Finnish regulator will be out with something in the coming weeks. Could you just elaborate on what you mean there? Is the AML provision solely on the back of an expected fine from Denmark, or is there something else as well?
In Finland, I'm stating just something that is in the public domain. I have no knowledge, but public domain says that Finland will decide, and this is particularly on the Hermitage case. Sweden decided earlier not to open a pre-investigation. Finland is, of course, looking at should they open a pre-investigation. It's not actually a question of even investigating. It's about pre-investigation. I think publicly what we are reading is that they would decide something in the next few weeks. Again, I don't have more knowledge than you would have, so that's public knowledge. I've said that we have issues and investigations ongoing related to AML. Yes, Denmark has said that we expect a fine, we've been very open about that.
That provision is related to these issues, and that's our qualified estimate. A provision by definition is an estimate, and that's our estimate on these issues, and that's as far as I can go.
Okay. It's more than just Denmark, is what you're saying.
I'm saying that it's on issues and investigations that we have been very open in communicating. Of course, we have been very clear that Denmark, we would expect a fine there.
Okay. Thank you.
We have time for one more question. I think it's Matti Ahokas on the line, please.
It is indeed. Please go ahead. Your line is open.
Yes, good morning. My question regarding your dividend policy. Obviously, it seems more and more likely now that in order to increase the dividend sequentially year on year, the payout ratio would have to be clearly above 100%. Is there a problem with the ECB on this? The follow-up question is it still prudent to maintain this dividend policy? Thanks.
I think for now, we maintain that dividend policy, and I think it is prudent. I cannot speculate on the ECB. We've said that I think if we are well capitalized, that should, of course, be the case, but I think it's premature to speculate on that. I think we maintain our policy and maintain, of course, our ambition in how we run the bank.
Thanks.
Okay. Thank you. Thank you, Casper.
Thank you.
Thank you for looking at this webcast. Now journalists will have the opportunities to have individual interviews with Casper. Please call our press department. The rest of you have the opportunity to continue with a conference call with a detailed Q&A together with our Group CFO, Christopher Rees, and me. I will now enter that conference. Please thank you very much for looking, and now you have the opportunity to listening. Thank you.
Thank you.
Okay, now we start the conference call with the opportunity to ask a question to our Group CFO, Christopher Rees. Operator, please open the line and we are ready to take questions.
Okay, bear with me just one moment. Okay, we'll now begin the second Q&A session. If you wish to ask a question, please dial zero one on your telephone keypads now to join the queue. Our first question comes from the line of Magnus Andersson.
Please go ahead, your line is open.
Yes. Thank you. Just a detailed question on the capital.
Received any dividend from the life insurance company that is included in your CET1 capital?
Yes. This quarter we did indeed receive a dividend from the life insurance company, about EUR 375 million, Magnus.
EUR 375 million is included?
Yes.
Okay. Thank you. Secondly, you talk about temporary effects that have boosted your net commission income in this quarter. Can you be a bit more specific on what that is and what kind of sustainability we should expect when looking into Q2?
I think in fees and commission income, there were a couple of good, particularly in CBB, some cash management deals, et cetera, that were very positive for the quarter. I think that there was also an element of one-off in cards, which was an adjustments of about EUR 8 million. They were slightly, I would say, above or temporary as such. I would just, like going forward. However, as you look into the net fee and commission line in total, I would say that, the end of period, AUM is higher than the average for the quarter. We're coming also in with a little bit of tailwind on our AUM business. We have a little bit of, as well as also some seasonality effect on the custody business, which you will see, hopefully, in the Q2.
Then there's a little bit of one-offs in this quarter of about, EUR 18 million or so across payments and cards.
Okay.
Therefore they sort of net each other out. This is a good indication for, subject to market conditions and so on and so forth for the next quarter.
Okay. Thank you. Then on costs, do you have any transformation costs? I haven't been through all the pages in the report, I must admit. It's been a hectic morning. Have you said anything about that?
No, we haven't said anything about that. I don't know if you recall, Magnus, in Q4, we said that we will not report that individually because restructures will continue for quarters on end, and as such is part of our normal operating business. It is included in the costs, in our total cost going forward. We won't report it separately, as such.
Okay. Then finally, you talked about sensitivity to the high rates in Sweden, after the Q4 report and the impact of your subsequent moves. Does that guidance still hold? What would the quarter-on-quarter effect in Q2 versus Q1 be? What was the impact in Q1?
The guidance on interest rate sensitivity holds. I think we said SEK 200 million for a 50 basis points move if everything of that is passed through. If you look at the business, the STIBOR has increased, and that has effectively hurt our lending margins as we have not passed through all of that to customers. On top of that in PeB, there's more demand Or Personal Banking, well, there's more demand for our fixed rate loans, which is slightly tighter margins. Of course, we had an offset on the deposit margins side, but it's not fully in there yet. The guidance in terms of sensitivities remains the same.
Do you think there will be a visible impact quarter-on-quarter in Q2 versus Q1 from this?
Not significant.
Okay. Thank you.
Magnus, sorry, Magnus. What we can add is that the deposit margin improved the NII by EUR 20 million in total. Of course, a meaningful part of that was Sweden.
Okay. Thank you.
Thank you. Our next question comes from the line of Jan Walter. Please go ahead. Your line is open.
Hi, Jan Walter, Just a follow-up question there on lending margins, please. I think you highlighted during the call that Denmark was one region where you saw lending margin pressure. Would you say Denmark is the area where you're seeing the highest pressure, driving the, I think, -EUR 30 million quarter-over-quarter impact? What region would you highlight as seeing the highest pressure? If you can elaborate whether or not that is more retail or corporate, sorry. Going forward, if you see that pressure continue, if you're seeing the competition abate in any way in any of these regions. Thank you.
Thank you. I think the Danish lending margin, yeah, they are under pressure, as said. However, there's nothing really new in that. For us, it has to do with also the lending mix that we particularly have in Denmark. If you look at the consumer finance business, that margin has been coming down steadily, and we've talked about that for a few quarters. I think if you look at the mortgage book in Denmark, that's reasonably stable in margins. It's the mix in Denmark. If you look at the mortgage margins as such, then I would say Finland is more under pressure. There the competition has increased, and there the margins are, of course, at a different level than they are, for example, in Sweden in totality. Finland is asGreater pressure on the mortgage book.
Norway, as known, is pretty much related to NIBOR. Sweden we have indeed talked about. The good news here, of course, is that in Sweden we are now taking a much greater share of the net new lending in the market. We have steadily grown our market share since October last year, and we are now at 10% of new net mortgages, which is positive. In Norway, we continue to grow the book at 6%. In Denmark, we've actually seen an increase in the new mortgages that we take in the market. We are seeing some momentum and volume growth to offset some of the margin pressures that we have seen.
Thank you.
You also made a point on the corporate business, actually. There we've also seen good volume momentum, particularly in Sweden actually, both in the large cap and the mid or SME space. The margin pressures there are a little bit more mixed, and they vary a little bit more quickly from Q on Q. This quarter, we have seen in particular some shipping loans that we did some few years back roll off, and being placed with lower margins. Hence there's a little bit of negative margin mix, let's call it, in the large cap book, which is impacting margins this quarter. I don't expect in any shape or form that corporate margins will increase. They will be stable or remain slightly under pressure.
Thank you. If I could ask you around the trading, I think previously the bank has talked about EUR 275 million-EUR 300 million per quarter in more normalized trading revenues, but guiding towards the bottom end of that. Is that still the way you see the development, that we should expect the revenue from trading at the bottom end of that range, please?
I think it's still correct, we're still not there. I believe I said in Q4 that it will be a challenge to reach the bottom end. As you see to this quarter, we're actually seeing customer business remain very stable from Q4, which is positive as Q4 was from a customer business point of view, a decent quarter. Trading has recovered, which is positive. That needs to continue. The market environment is still, quite frankly, challenged with low volatility, flat yield curves, and very low rates. It is very difficult and uncertain to predict. I would say that's a good estimate, but we have this quarter seen signs, and if you adjust for some of the XVA or the derivative valuations, which were negative this quarter two, summary valuation, they roughly offset each other.
This quarter is a good estimation of what the current underlying business is actually doing.
Okay. Many thanks for that. Thank you.
Thank you. Our next question comes from the line of Peter Kessiakoff from SEB. Please go ahead. Your line is open.
Yes. Hi again. Just a follow-up question on the NII weakness. First of all, the drop in treasury. I think you mentioned or right that there is some temporary weakness and that it could abate into the coming quarters. That's the first question. The second part, just on Danish NII and where you, for quite some time now, mentioned the shift from consumer finance to mortgage lending. When we look at the loan book there, how much more is there to go in this margin, or in this mix shift? Consumer lending is down 8% year-on-year. How much more is there to go?
Firstly, I think there's not necessarily a shift, it's more the lending mix that we currently have. The fact is that we still want to grow consumer finance as such, but that is obviously happening at very different levels from what our current book has. I suspect this margin pressure in Denmark will persist definitely throughout this year. If you look at the treasury, that was mainly driven by the spreads tightening in our liquidity buffer. There are some structural effects in the banking book that has impacted that. Of course, there is some shifts between the lines. This overall will be a little bit of a volatile line as we go forward in the next few quarters, given it is also supporting the business areas in many respects.
I would say that the temporary here, this line should be about EUR 0-EUR 10 million or so on an ongoing basis or average basis.
Okay. There's no number to give us on how much consumer lending in Denmark should come down over time, or how big this mix change is for the potential magnitude. Because it's surprised negatively for quite some time now.
Okay.
Yes. It's Rodney here. Yes. If you remember that this is Flex loans that we launched in the global financial crisis some 10, 12 years ago. They are now being repaid simply because the fact that the LTVs are coming down in Denmark due to higher house prices. We do expect that this trend will continue for at least the rest of 2019.
If you recall that what we've also done, Dan, we've come out with new products there as well, which is also sort of driving the business there to position ourselves better. That is, of course, at lower margin levels.
Okay. Thank you.
Thank you. Our next question comes from the line of Jakob Kruse from Autonomous. Please go ahead. Your line is open.
Hi. Thank you, Jakob Kruse from Autonomous Research. First question was just, do you feel that with all the changes to your business mix in terms of sales disposal and acquisitions and FX movements, that you need a new kind of capital markets event or something like that to reset where we should have our expectations and what the baselines are, and where you are in the processes of the restructuring program? I guess my second question, just going back to the dividend discussion. It sounds to me on this call like you're getting a bit more constructive on growth. Do you feel that there is any contradiction between the growth ambitions and delivery and the payout ratio and the progressive dividend target that you have?
Thank you.
Thank you. Yes, we will consider whether or not an investor update is possible, we'll come back to you on that. What I would like to say, though, is that if you look at 2018, a lot of the big structural deals were actually done then. They impacted many or all of the lines effectively. I would say, as we sort of said in Q4, with the divestment of the Baltics, with Luxembourg, with NLP Denmark, with most of the de-risking in Russia, as well as repositioning the shipping oil and offshore book. A lot of that has been done. Some of those triggers will sort of come a little bit in 2019 with respect to, in particular, the sale of Luminor and the Gjensidige acquisition. If you look at those big restructurings, a lot of that has actually been done.
From a business point of view, take that out, Of course, given the transition this quarter, we have these one-offs plus the provision, that makes it slightly more challenging for comparative purposes. We take that out, income is up 4%, cost is down 7%, That's a positive jaw. If you look at where AUM is and where NII is and where effectively net fair value is, that is a good starting point for us to grow what is in our core and a much, much more Nordic focused, simpler bank and business. That is what we want to focus on.
As such, in terms of capital, we still have a management buffer 130 basis points, We really first want to ensure that we are compliant on capital, Then we want to grow our business in our core markets, That is what we are focused on. Then it is the dividend. That is how we look at things.
Okay. Thank you.
Thank you. Our next question comes from the line of Matti Ahokas of Danske. Please go ahead. Your line is open.
Yes, good morning. Question on the Personal Banking business. Obviously, you comment that you're seeing margin pressure, in almost every single place. Just kind of wondering, is there anything you can do about this, and is this raising any kind of management actions, either in the form of increased cost-cutting or then increasing some payment fees, et cetera? Is this just something which is a pain we just have to live with and there's nothing you can do about it?
Of course, we are taking action. This is not just about the margin pressure. Mortgages gives a lot of other income, ancillary income as well. Our core strategy is to really get the homeowners, and win more of them as we go forward. We are winning more and more of those new homeowners. As such, if we do that, we also manage to focus on our cars and payments cars businesses. We also manage to sell and work with them on their savings as well. Getting this volume in and driving that momentum creates a lot of other opportunities and relationships with our clients, and that is what we have historically, as Casper talked about, maybe lost a little bit with all the changes going on. Now we are really focusing on that.
We're focusing on homeowners, we're focusing on making sure that we get the savings products discussed. If you actually then look at what's happening in our retail funds, for example, apart from Denmark, which is an element of seasonality, we've actually increased net inflows in our retail funds in many of these countries. We are seeing some effect of some of the actions that we're taking. Of course, we are focusing on ensuring that we have more availability to our customers. We have in Q4 last year increased the people available for online meetings from 100- 400 people. Availability. New products. We just issued a green housing loan in Finland, that is also to combat some of these challenges that we have and also speed up our responses in the market.
This is about just being back in front of the client and doing work. The mortgages is an indicator of how we drive the business, and that gives ancillary business as well. Margins is not the only thing to drive a business.
Okay. A follow-up question or a second question. You're disclosing that you're responding to inquiries from Europe's governmental agencies with sanctions during 2008, 2014. Is this related to Mossack Fonseca?
No. This is related to sanctions. There is no change to our notes in our annual report on that. There has the same text there, been there for a long time. There's nothing new there.
That was actually a voluntarily disclosure from our side about this.
All right. Thank you.
Thank you.
Just to be clear also from our definition, sanctions is not AML per se.
Thank you. Our next question comes from the line of Riccardo Rovere of Mediobanca. Please go ahead. Your line is open.
Morning to everybody. One question, sorry if I had to connect a little bit late. In all this set of numbers, what do you think it is, aside from the EUR 95 million cost related to AML, which should be somehow one-off, maybe. What else do you see as not recurrent? Now, the NII drops by almost EUR 90 million in a quarter, which I think the explanations you gave, it's a bit weaker if I have to say. I just wonder, what do you think is really one-off in this set of numbers? If you can explain us like we were children of five years. Thanks.
Yeah, that's difficult sometimes to do. I think I give you the trends here. Firstly, on the NII drop. Yes, of course, there's some day count effects, there's some FX effects, and of course, if you look compared to Q4, there were some improvement in regulatory fees there. This quarter, of course, there is a resolution fee that is somewhat higher than we had estimated back in Q4. That is, of course, a one-off. I think our payments account business, as said earlier, were positive in this quarter, and then treasury as well. I would say those are sort of the challenging one-offs. That is balanced by the fact that we have seen a positive development in net fair value. We see a positive development in our fees and commissions, in particular from our savings products.
We need to continue to grow the volume in NII line. There are smaller one-offs. Treasury is about EUR 20 million too weak . Payments, there was about EUR 15 million-EUR 20 million one-offs. Of course, you have your derivative valuations of EUR 42 million negative. Those are the, you could say one-offs, although derivative valuations do reoccur.
If I may add to that also, as you know, we have divested a non-performing loan book, and in this quarter we made a gain of EUR 31, and we do expect to get more gains during the rest of the year, but that level is probably a bit lower than the Q1. If you look in the Net Interest Income and go into the five-year-old details, you can say that we had a negative margin of -10 and a positive volume of 4, so that's -6. The rest actually relates to treasury, higher deposit guarantee fees, day count, and FX. The underlying trend in NII is down a bit, but not a lot.
Okay. Now, on the AML provisions, the 95, are those one-off? The one-off. Will the 95 disappear going forward or they will just maybe half or reduce by a third or two-thirds or whatever?
Sorry, the line broke a little bit. Would you mind repeating the question?
The AML provisions.
Yes.
The EUR 95 million. Are they one-off by nature, meaning they will disappear or just by magnitude, say that you will continue to have something like that, but maybe for a smaller amount, half of that, a third of that, two-thirds of that, whatever.
This is a provision, that we provision for in the eventuality we have a fine we have said that there is a likelihood or we expect to have a fine, say in Denmark. It is a management judgment to take this provision. We think it's prudent to do so and take the responsibility for some of our weak historical processes or procedures. Then, of course, they will depend, be almost like a loan. If you have a loss, you will take a loss. If you have a gain, you will release the provision. Basically, we will see what happens, and we won't comment on any ongoing investigations here. If a fine is lower, then this provision or parts of it could be released. If it's high, then that's another difference.
This is a management judgment, and it's a provision, just like we take provisions sometimes for credit, you could always say, we take a provision for these eventualities in terms of AML related matters. We have taken this as a management judgment, as a provision. Remember, we have no fine as of yet.
All right.