So welcome to this webcast where Nordea Bank, ABP, will present its Q1 results for 2019. We will start with the presentation of the Group CEO and President, Casper von Kostgaard, and then you will have the opportunity to ask a few high level questions to him before we enter a detailed Q and A session together with the group CFO, Christopher Rees and me. So Casper, please, the floor is yours.
Thank you, Rodney, and good morning, everybody. Let's dive into the highlights first and then I'll go into more details. First of all, when I look at the Q1, we it contains still continued challenges with pressure on particularly household lending margins and tough market making conditions. But pleasing to me is that I really see now effort 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. So 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%.
And this is really driven by 2 one off items, the fact that we take resolution fees basically for 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 7 basis points in the quarter, so in line with what we have been expecting. And on this front, we do not see in the coming quarters that this would deviate from the average that we had last year. So solid credit quality going forward. The CET1 ratio in the Q1 is at 14.6%.
That leaves 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 €95,000,000 on this. I think it is the right thing to do. It is the prudent thing to do and that's what we've done in this quarter.
If we look then kind of the highlighted 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. And 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, so improvements on both lines. Costs are impacted by 1 offs, which I already said, and are up reported by 4%, but down underlying 7%. So we really see strong cost of growth and we see the operating leverage actually kicking in. So reported profit is 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've talked about in the past about our active derisking, which we have carried out over the last few years, which have lowered the income level. But taking that into effect, we have to also admit that we have been struggling with revenues. So adjusted for structural measures, the Q1 income is still down 1 point 5 percent compared to last year. And this is what we have been addressing in our action plan to increase business momentum really to get it up from there.
And 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. And at the same time, we lowered our cost by 7%, so that operating leverage is kicking in as we had expected in the Q4. The measures that we have undertaken to now start showing effect and 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 first quarter 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 and we also have structural FX in the banking book impacting negatively. Also higher regulatory fees are also lowering the net interest income.
We will have positive effects from Jensidige slightly this quarter because Jensidige was included into the numbers only in March 1 of this year. But going forward, of course, Jensidige will contribute positively into our NII line. Looking at lending volumes. Lending volumes are improving, especially in the corporate segment, but we have also seen steady improvement in the household volumes even though we still are not where we want to be. There's 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 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 and really from a broad based improvement. Asset under management increased meaningfully. Corporate finance was impacted with fewer large deals than expected, but payment fees are higher both Q on Q and year on year.
So a fee commission line developing in the right direction. Asset and Wealth Management had a positive net inflows in the quarter, mainly from private banking and life and pension. This is a 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 management is now asset under management is now back above €300,000,000,000 and 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. The relative valuation adjustments were negative in this quarter mainly due to falling euro interest rates, But market making activities have recovered from the very low level in the 4th quarter, driven by significant improvement in fixed income in particular. So 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 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 Banking have increased by 5% since a year ago when we include volumes coming from consolidating ENCDIG Bank.
We continue to increase our customer interaction both face to face online and also with the help of our robotics adviser 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, we have had the biggest 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. But I think that quarter by quarter over the last 5 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 and 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 increased increasing customer satisfaction in all of our 4 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. And we're also tracking our position with our customers in the marketplace, lead tables. It is important that you are one of the or if not the leading bank in your marketplaces, which we are. Lending volumes have been in a good trend. And 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 a number one with syndicated loans. League tables are a bit more volatile, as I mentioned, depending on where deals are and when and where deals are executed, but we are building a pipeline on this front as well. Within asset and wealth management, the asset under management is now back above €300,000,000,000 We have made a comeback in Sweden and Norway with net inflows across private banking, life and retail funds, so good momentum there. I would like to especially mention European covered bonds have been a blockbuster in this quarter.
We have seen net inflows of roughly €3,000,000,000 in the past year, if you look at a longer period. And retail and private banking flows in Denmark, however, are somewhat subdued. That's where we see some weakness and that's why to mitigate this we have established a new centralized SME savings team in Denmark and also sharpened the focus on high net worth the high net worth segment. So 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 kind of the best and strongest trend, but otherwise stable. The number of investment advisory 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.
And as I said earlier, there's net inflows in our asset under management of €1,000,000,000 It is actually an inflow 1st inflow since quarterly 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 €207,000,000 We're also taking a provision of €95,000,000 related to weak AML processes and procedures of the past, as I mentioned. So underlying or 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. I expect it to be 3% below 2018 levels. And in this 2019 this year, we're also expecting cost to be below last year also including the consolidation of the E and CDG numbers that we now have. So 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. So 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 have done, the entire capitalization for is actually done for the kind of the next 10 years and that's actually taken upfront. So that actually increased capitalization.
That's the reason that number moves. But 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 and net loan losses at very low levels at €42,000,000 in this quarter, which is roughly 7 basis points and again in line with what we have been saying, in line with provisioning level that we saw in 2018.
Our expectation for the coming quarters is that we'll remain low around the average level of 2018. So no change here either. Our common equity Tier 1 ratio decreased to 14.6 percent in the 1st quarter from 15.5 percent in the 4th quarter. Here the key drivers are that the risk exposure amount has increased by €7,000,000,000 mainly driven by bringing in Janssen again to our numbers, also impact from IFRS 16. And then we've also had underlying lending growth.
Our capital commitment, which is €21,700,000,000 corresponds to €13,300,000,000 So we have a good buffer. We are actually outside, so 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. And 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 Sweden or Swedish authorities stated that they will not start formal investigation in this. And 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 and that we actually have commented also previously before. So in that sense, I have said to me it was nothing new.
We have been fined in the past by Sweden in 20132015 for insufficient AML processes. Also in also the Danish FSAs started looking into these processes in 2015 and handed their findings to the which is actually the procedure in Denmark to the Danish Financial Police in 2016. And 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 CHF 700,000,000 into this area over the last few years. We have now a very strong governance model and are more than 1500 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 3, 4 years ago. We will continue this. I have actually called also for much tighter coordination cooperation not only between banks or authorities.
We need also change probably legislation. We also need an 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 and 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 €95,000,000 related to our historical inadequate AML processes and defenses.
And 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 and 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 1500 FT feet
feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet
feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet
feet feet feet feet feet
feet feet feet feet feet
feet feet feet feet feet feet feet feet feet Es people,
which actually has increased kind of the robotization of 38%. That's a good progress. That means that 75 licenses have been terminated. And actually more importantly, it's improved our infrastructure. This is all about driving down structural cost, but also getting a more robust, resilient infrastructure.
We continue our near shoring 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 2 20 products in personal banking, we have taken out 30 products 31 products actually in this quarter. And of course, we'll continue.
And in Norway, of the 150, we've taken out 28 products this quarter. And 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 where we have transitioned that we have transitioned to IBM as of February 1. This included 119 employees from Scandinavian countries and Poland. And now services will be delivered by IBM under 8 improved service levels. So all steps and these are to me only the highlights and we will of course continue on this course. We have also promised to increase business momentum and I also here want to touch on some of the key deliveries what we have been doing.
I already mentioned we have SEK 700,000,000 net inflows in private We
have
now concluded the We have now concluded the acquisition of Gjensidige and consolidated Gjensidige as the 1st March. We have entered into a partnership with affiliated management group AMG, leading European asset manager. This is our asset management business that has done it. And also we have 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.
So 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 that 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. So 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. So please.
Thank you. Our first question does come from the line of Magnus Anderson. Please go ahead. Your line is open.
Okay. Thanks again. Do you hear me? Hello?
Yes, we
can hear you. Yes, we hear you.
Okay. Yes, good. Just on capital, we know that you got a 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, I. E, for example, you could, of course, lower the dividend policy and top up with buybacks instead, etcetera, if your volume growth is good.
Would such a decision would you have to wait the ECB decision about your capital requirement in November? Or would you also like to have your new models approved that you're going to supply during 2020?
Not sure I have
How do
you think about this?
Yes. Not sure I have actually made that my mind, but definitely want to see first the first rep done under the SSM, I think, which is as you rightly point outcome at the end of this year. And of course, maybe start understanding where the models potentially take us. So 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 Matt Flavourite of Handelsbanken. Please go ahead. Your line is open.
Yes. Good morning. Thank you for taking the question. Just a question related to the AML expenses you charged in this quarter. Since, as you said, you have invested more than EUR 700,000,000, should we see really see this as a one off related to potential fines?
Or what will go on in Denmark? Or 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. I mean, that's part of our kind of 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.
So this is really a provision, a qualified estimate on related to potential fines. Again, we have not been fined. We have not paid any fines, 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 will continue to continuously improve.
Okay. Thank you.
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 an 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?
And is the AML provision solely on the back of an expected fine in the from Denmark? Or is there something else as well?
Finland, I mean, 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. So it's not actually a question of even investigating, it's about pre investigation.
And I think publicly what I 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 been we have issues and investigations ongoing related to AML. We've yes, Denmark has said that they we expect to find. We've been very open about that.
It is that provisioning related to these issues and that's our qualified 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. So it's more than just the Denmark then is what you're saying?
I'm saying that it's on issues and investigations that we have been very open in communicating. And of course, we have been very clear that Denmark, we would expect the fine there.
Okay. Thank you.
So we
have time for one more question. I think it's Matti Ahokas online, 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? And the follow-up question is then that 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, Kasper.
Thank you.
And thank you for looking at this webcast. Now journalists will have the opportunities to have individual interviews with Kasper. Please call our press department. And the rest of you have the opportunity to continue with a conference call with a detailed Q and A together with our group CFO, Christoph Rees and me. So I will now enter that conference.
So please thank you very much for looking and now you have the opportunity to listening. Thank
you. Thank you.
Okay. So now we start the conference call with opportunities to ask a question to our Group CFO, Christopher Rees. So operator, please open the line and we are ready to take questions.
Okay. So we'll now begin the second Q and A session. Our first question comes from the line of Magnus Andersson.
Yes. Thank you. Just a detailed question on the capital. Do you have any 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 SEK 375,000,000 Magnus.
€375,000,000 is included? Okay. And secondly, you talk about temporary effects that have boosted your net commission income in quarter. Can you be a bit more specific on what that is? And how what kind of sustainability we should expect from looking into Q2?
I think in fees and commission income, there were a couple of good, particularly CBB, some cash management deals, etcetera, that were very positive for the quarter. I think that there was also an element of 1 off in cards, which was an adjustment of about €8,000,000 So they were slightly, I would say, above or temporary as such. So I would just like going forward. However, as you look into the NFE and commission line in total, I would say that the end of period AUM is higher than the average for the quarter. So we're coming also in with a little bit of tailwind on our AUM business, but 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.
And then there's a little bit of one offs in this quarter of about €18,000,000 or so across payments and cards. So therefore, they sort of net each other out. So this is a good indication for subject to market conditions and so on and so forth for the next quarter.
Okay. And 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. But are there have you said anything about that?
We haven't said anything about that. And I don't know if you recall, Magnus, in Q4, we said that we will not report that individually because we are I mean, this bank, this will restructures will continue for quarters on end and such is part of our normal operating business. So it is included in the costs in our total costs going forward. So we won't report it separately as such.
Okay. So now okay. And then finally, you talked about sensitivity to the higher rates in Sweden after the Q4 report and the impact of your subsequent moves. Does that guidance still hold? So what would the quarter on quarter effect in Q2 versus Q1 be?
And what was the impact in Q1?
The guidance on interest rate sensitivity holds, I think we said €200,000,000 in for Swedish krona for a 50 basis points move if everything of that is passed through. However, 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. And on top of that in PEM, there's a more demand for 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 deposits margin side, but it's not fully in there yet. So 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. We'll not significant.
Okay. Thank you.
Magnus, sorry, Magnus. What we can add is that the deposit margin improved the MII by €20,000,000 in total. And then of course, a meaningful part of that was Sweden.
Our next question comes from the line of Jan Please go ahead. Your line is open.
Jan Wolter, good morning. So just a follow-up question there on lending margins placed. I think you've highlighted during the call that Denmark was one region where you saw margin lending margin pressure. So would you say Denmark is the area where you've seen the highest pressure driving the, I think, minus $30,000,000 Q on Q impact? Or what region would you highlight as seeing the highest pressure?
And if you can elaborate whether or not that is more retail or corporate? Sorry. And going forward, if you see that pressure continue or if you've seen the competition abate in any way and in any of these regions? Thank you.
Thank you. I think the Danish lending market, yes, they are under a 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 talked about that for a few quarters.
So I think if you look at the mortgage book in Denmark that's reasonably stable in margins. So it's the mix in Denmark. So if you look at the mortgage margins as such then I would say Finland is more under pressure. There has been some 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. So Finland is under has greater pressure on the mortgage book.
Norway, as known, is pretty much related to LIBOR. And in Sweden, we have indeed talked about. But 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. And in Norway, we continue to grow the book at 6%.
And in Denmark, we've actually seen an increase in the new mortgages that we take in the market. So we are seeing some momentum and volume growth to offset some of the margin pressures that we have seen.
And then
you also made a point on the corporate business actually. So there we've also seen good volume momentum, particularly in Sweden actually, both in the large cap and the mid 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 faced with lower margins and hence there's a little bit of negative lending margin mix, let's call it, in the large cap book, which is impacting margins this quarter. But I don't expect any shape or form that corporate margins will increase.
They will be stable or remain slightly under pressure.
Thank you. And if I could ask around the trading, I think previously the bank has talked about €275,000,000 to €300,000,000 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 end at the bottom end of that range, please?
I think it's still correct, but we're still not And I believe I said in Q4 that we might it will be a challenge to reach the bottom end. And as you see to this quarter, we've actually seen 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 charged with low volatility, flat year calls and very low rates.
So it is very difficult and uncertain to predict. So I would say that's a good estimate, but we are we have this quarter seen signs. And if you adjust for some of the sort of the XCA's or the derivative valuations which were negative this quarter, quarter 2, some summary valuation, they roughly offset each other. So this quarter is a good estimation of what the current underlying business is actually doing.
Okay. Many thanks for that. Thank you.
Thank you. And our next question comes from the line of Peter Kiesikov from SEB.
So just a follow-up question on the NII weakness. First of all, the drop in treasury, I think you mentioned all right that there is some temporary kind of weakness and that should it could abate into the coming quarters. So that's the first question. And then the second part, just on Danish NII and where you for quite some time never mentioned the shift from consumer finance to kind of mortgage lending. And when we look at the loan book there, how much more is there to go in this margin or in this mix shift?
I mean, it's consumer lending is down 8% year on year. How much more is there to go?
I think the I mean, firstly, I think this is not necessarily a shift. It's more of a lending mix that we currently have. And the fact is that we still want to grow with consumer finance as such, but that is obviously happening at very different levels from what our current book has. So I suspect this margin pressure in Denmark will persist definitely throughout this year. And then if you look at the treasury that was mainly driven by the spreads tightening in our liquidity buffer.
There are some structural FX in the banking book that has impacted that. And then of course there is some shifts between the lines. So 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. But I would say that the temporary this line should be about €10,000,000 or so on an ongoing basis or average basis.
Okay. And but there's no number to give us on kind of 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.
Yes. The thing is it's Roden here. Yes, we do expect if you remember that this is flex loans that we launched in the global financial crisis from 10, 12 years ago, and they are now being repaid simply because the fact that the LTVs are coming down in Denmark due to higher house prices. And we do expect that this trend will continue for at least the rest of 2019.
And if you recall, what we've also done, Denmark, we've come out with new products there as well, which is also sort of driving business there to position ourselves better. But that is, of course, at lower margin levels.
Okay.
And our next question comes from the line of Jacob Cruz from Autonomous.
Jacob from Autonomous. So 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 programs? So could we expect some kind of more structured event to look at where we're heading in terms of 2021 and potentially beyond? And then 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 will is possible, but we will come back to you on that. But 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, and they impacted many or all of the lines effectively. So I would say, as we sort of said in Q4, with the divestment of the Baltics, with Luxembourg, with Luxembourg, with NLP Denmark, with most of the derisking 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, say, Luminor and the Yancey acquisition.
So if you look at those big Uniti acquisition. So if you look at those big restructurings, a lot of that has actually been done. So from a business point of view, take that out. And of course, this given the transition this quarter, we have these one offs plus the provision that makes it slightly more challenging for competitive purposes. But if you take that out, income is up 4%, cost is down 7%, and that's a positive draw.
And if you look at where AUM is and where NII is and where effectively Netfair 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. And that is what we want to focus on. And as such, in terms of capital, we still have a management buffer 130 basis points and we really first want to make ensure that we are compliant on capital And then we want to grow our business in our core markets, and that is what we are focused on. And then it is the dividend. And that is how we look at things.
Okay. Thank you.
Thank you. And our next question comes from the line of Marty Ohokos of Danske. Please go ahead. Your line is open.
Yes. Good morning. A question on the Personal Banking business. Obviously, you commented that you're seeing margin pressure in almost every single place. And just kind of wondering that 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, etcetera? Or is this just something which will is a pain which just has to live with and there's nothing you can do about it?
Of course, we are taking action. I mean, this is not just about the margin pressure. Mortgages gives a lot of other income, ancillary income as well. And our core strategy is to really get the homeowners and win more of them as we go forward. And we are winning more and more of those new homeowners.
And as such, if we do that, then we also manage to focus on our cars and payments cars businesses. We also then managed to sell and work with them on their savings as well. So 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.
So we're focusing on homeowners. We're focusing on making sure that we get the savings products discussed. And if you actually then look at what's happening on 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. And that so we are seeing some effect of some of the actions that we're taking. And then 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 to 400 people. So availability, new products, we just issued a green mortgage loan in Finland and that is also to combat some of these challenges that we have and also speed up our responses in the market. And this is about just being back in front of the client and doing work. But 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. Then a follow-up question or second question. You're disclosing that you're responding to inquiries from your governmental agencies with sanctions during 2008, 2014. Is this related to Mossack Fonseca?
No. This is related to sanctions, and 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. So there's nothing new there.
And that was actually a voluntary disclosure from our side about this. Thank you. Just to
be clear also from our definition, Sanchez 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.
Good morning to everybody. One question, I'm sorry if I had to connect a little bit late. In all these uncertain numbers, what do you think it is aside from the €95,000,000 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 €90,000,000 in a quarter, which is which I think the expirations you gave is not I mean, it's a bit weaker, if I have to say.
So I just wonder how what is what do you think is really one off in these set of numbers? If you can explain us like we were children of 5 years.
Yes. That's difficult to do. I think I'll 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 the regulatory fees there.
This quarter, of course, there is a resolution fee that is somewhat higher than we had estimated back in Q4. So that is, of course, a one off. I think our payments account business, as said earlier, was more positive in this quarter and then treasury as well. I would say those are sort of the challenging one offs. And then 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. And then we need to continue to grow the volume in NII line. So there are smaller one offs. Treasury is about £20,000,000 too weak. Payments there was about £15,000,000 to £20,000,000 1 offs.
And then of course you have your derivative valuations of €42,000,000 negative. Those are the, you could say, 1 offs, although derivative valuations do reoccur.
And if I may add to that also, as you know, we have divested a nonperforming loan book. And in this quarter, we made a gain of €31,000,000 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. But if you look in the net interest income and go into the 5 year old details, you can say that we had a negative margin of minus 10% and a positive volume of 4%, so that's minus 6%. And the rest actually relates to treasury, higher deposit guarantee fees, day count and FX. So the underlying trend in NII is down a bit, but not a lot.
Okay. And then on the AML provisions, the 95,000,000 are those one offs of the one off. So will the $95,000,000 disappear going forward? Or they will just maybe half or reduce by a third or 2 thirds or whatever?
Sorry, the line broke a little bit. Would you mind repeating the question?
The AML provisions, the €95,000,000 are they one off by nature, so 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, a 2 third of that, whatever?
This is a provision
that we provision for in the eventuality we have a fine and we have said that there is a likelihood or we expect to have a fine say in Denmark. So it is a management judgment to take this provision. And we think it's prudent to do so and take the responsibility for some of our weak historical processes and procedures. And 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. So basically, we will see what happens and we won't comment on any ongoing investigations here. But if a fine is lower then this provision or parts of it could be released. And if it's higher then that's another difference. So this is a management judgment and it's a provision.
Just like we take provision sometimes for credit, you could always say, we take a provision for these eventualities in terms of AML related matters. So we have taken this as a management's government as a provision. But remember, we have no fine as of yet.