Hey. Welcome to this historic event. This is the first time where Nordea will present its quarter result here in Finland. [Foreign language]. My name is Rodney Alfvén. I'm Head of Investor Relations, and we will start with a presentation by the President and Group CEO, Mr. Casper von Koskull. There will be a short Q&A with him as well, and that will be followed by individual interviews for you who would like to have that with Casper. The rest are welcome to stay in the room where there will be a Q&A session with me and our Group CFO, Mr. Christopher Rees. Casper, welcome.
Yep, welcome to Helsinki. Good to see you all here. I can see some old familiar faces and some new faces as well. It's good to be here. Rodney said something about historical. Historical, the fact that we are making the Q announcement in Helsinki, yes. This is also a historical quarter because it's a quarter that culminated with the bank moving into the Banking Union and moving its head office to Finland. A very historic moment. By moving to the Banking Union, the bank gets a stable, predictable environment to develop its business going forward and a level playing field with our biggest European peers, which is very important. This move to the Banking Union is in the interest of our customers, our employees, and also our shareholders, and I'm very pleased that we have now concluded that successfully without any major hiccups.
I emphasize, of course, that the move does not change our operating model being a Nordic bank, a leading Nordic bank in each of our home markets, Norway, Sweden, Denmark, and Finland. We are a leader in each of those markets in all of our businesses, and that will not change. What is changing is the fact that we are now in the Banking Union and supervised by the European regulators. We should also remember the heritage of Nordea. Our uniqueness actually comes, and our strength comes from more than 300 banks that ultimately form Nordea. Understanding our history, that we have a history going back 180 years, for example, in Denmark. H.C. Andersen was actually one of our first clients, and no, I'm not telling any stories.
We have a legacy history that goes way back in all of our home countries, and this actually explains our unique operating model, our unique structure, and our strength. Getting this bank now into the middle of the Banking Union is, I think, a major achievement. Another thing we have done very successfully over the last 5, but I would actually say particularly over the last 3 years, is actually becoming even more focused on our 4 home markets, the Nordic markets. Really making sure that we serve our customers in the best possible way and address the big structural changes that are taking place in the banking sector by focusing. That has also meant that we have actually withdrawn from, for example, 5 years away from Poland. We have, in Russia, reduced our exposures meaningfully, actually dramatically.
We actually sold also our Russian retail business back in time. We have recently announced the divestment and concluded our divestment of our Luxembourg private bank. We have announced the divestment of our Baltic operations. On the more offensive side, we have actually announced an acquisition of the Gjensidige Bank in Norway, strengthening our position really as the number 2 leading bank in Norway. We have become more focused. Why have we done it? We have done it to reduce operational risk and/or financial risk, and we've done it to become more focused because with focus you deliver better value to your customers. Now we are truly Nordic focused in the heart of the Banking Union. This structure, simplified structure, which actually is also a result of a major shift that we did in 2016 to branchify our bank, makes us a simple focused bank.
It also makes us and gives us a position to structurally take down cost, become more efficient, and really drive through the digital transformation that we have been talking about. A focused, simple bank in terms of structure, and we've done a lot over the last three years to actually get here. That's why I'm super pleased with all the achievements we've done. Before I will actually go to the results, I'd like to address a topic that has been discussed, particularly in the media in the last, yeah, weeks or months. Also, a topic that I took as my main number 1 priority three years ago when I was appointed to this job.
I said risk and compliance and particularly financial crime prevention is our number 1 objective, and we have worked heavily and hard over the last three years on that. Financial crime prevention is something that is part of our daily operation. It's not something that you do on the side. We monitor customer activities every day, millions of transactions. When we see something suspicious, we report it. That's the way you should do it. We have very close, very good cooperation with all the authorities related to this. Of course, we do not, and we're not allowed to talk on individual cases that come out, however much somebody would like to. We do not accept, and that's why we have put this as our number 1 priority already some time ago, that our platform is used for money laundering. That's why we actually have this very close collaboration.
Over the last several years, particularly the last three years, we have invested heavily into this area. We have more than 1,500 people dedicated only to work on this. We have 12,000 frontline employees that are in direct contact with our customers and have been trained really to deal with these issues. Just to give some numbers, as I said, we deal with millions, we actually on an annual basis, we deal with almost 2 billion transactions. Of those, we can see maybe in really in the hundreds of thousands of transactions that we dig deeper and we make actually in the thousands of reports to the authorities when we see suspicious activity. That's the way we combine and combat this. I've always said that this is complex, and I think the industry underestimated the complexity in the past.
That's why we need to be humble from the past. As an industry, underestimated this complexity. I'm very determined to do our part, but I've also urged that this is a societal issue. It's not a bank issue. Banks, authorities, police need to work close together to combat financial crime because crime and criminals, they will always try to stay ahead of whatever we do. This is something that we are very dedicated to do and have been doing, and I'm very comfortable where we stand on this. On Baltics, because I get the Baltic question. Yes, we have an ownership in Luminor. It was our Baltic business that we merged with that of DNB, their Baltic business, creating Luminor, one of the leading banks in the Baltics.
When we've done it, and we did it, I just want to emphasize, when we did it, we did a very thorough due diligence using external experts on naturally all financial aspects, but also financial crime. When we now sold it to Blackstone, we have done it again. This bank has really gone through a very thorough assessment on where it stands on these issues. When we look at non-resident deposit volumes in the bank, they are at a very low level. That's not the nature of this bank. The bank has not been subject to any fines, investigations in the past. There has been no whistleblowing that we have done. There are no mirror trades. As far as I'm aware, there is nothing going on now as well. I just want to put that out there and behind us. Going to the results.
My own view, third quarter typically for a bank like Nordea with a lot of fee commission and fair value income is a seasonally low quarter. Seasonally low quarter because it actually is a quarter where we have the summer months where particularly customer transaction activity is low. That has actually been the case this time. I'm not happy with the income development. It is a soft quarter as far as I'm concerned, and I know there's nothing structural there. I know that we can improve that. This is really When I look at the net interest income, I look at lending volumes stable. This is mostly fee commission, and I would say fair value that comes from a tougher trading environment and maybe seasonally less transactions. Pleasingly, we are delivering on cost.
I said we would deliver on cost, we have delivered on cost, and we will continue to deliver on cost. Our costs are down. As we said, when we look at also coming in the fourth quarter, fourth quarter seasonally cost usually are higher, so you should expect that, but our cost trend overall is down. We will continue to go down also in 2019, and we have a very clear target in 2021 as well. Our credit quality is stronger than in many, many years. We have loan loss provisioning at a very low level, meaningfully below our long-term average, and I see no change in this. I see no change really in the credit quality nor the loan loss levels in certainly the coming quarters.
Again, and I think I've done it every time I've stood here, I can report that we have never had capital levels of the level we have today. We are now more than 20% Core Tier 1 ratio. I will say already now, you will not see this at this level in the future. That has nothing to do with that we will have less capital, it's just because we will start calculating, or mathematically this calculation will be done differently. Anyway, we have higher capital levels than we've ever had before. Maybe looking at specifically numbers, as I mentioned, NII flat, so stable net interest income. Volumes are actually growing, but there are some pressure on margins, particularly on the household side. Then as I said already, fee commission, fair value really affected by the environment, not structural in my mind.
Total expenses year-on-year down 3%, and even on the quarter down as well. Net profit, yes, down 7% from last quarter. I've already mentioned the loan loss levels and the capital levels. Overall, weaker than I had wanted, but not alarming for me. NII, I have mentioned flat. You can see that we have stabilized that. Given that we have in the past de-risked the bank, actually we've taken out almost 10% of areas which we don't do anymore, which have had higher margins, but actually we have taken down those volumes in a very orderly and very planned way. We have now stabilized that line and we, as I said, see lending growth, while if yes, we do see pressure on margin, particularly on the household side. Overall, no drama. Fee commission, really as I say, seasonally lower corporate advisory fees.
We had an extraordinary high level in the Q2. When you look at particularly this line, you need to look at it as somewhat longer timeline. We had Q1 was somewhat softer, Q2 was very strong. Now Q3 is somewhat softer and of course I would hope then that we can reverse that going forward. There's also some other fee seasonality issues like custody fees we don't actually report, or not accrued in Q3. Pleasingly asset under management, which we have now stabilized, actually grew in the quarter by EUR 4.5 billion. Mostly driven by performance, but it actually grew because we've had historically very strong asset management growth. In the latest quarters we had a kind of a leveling off before we actually expect to see further growth coming in again.
I want to emphasize this when we talk fee and commission, I get the question, is that something structural, particularly when you say corporate transactions? We have never had a stronger position in our corporate investment bank before. When I look at your position, you look at really four segments, advisory, equities, bonds, and loans. Nordea is actually the leader in all four key segments. Actually how you actually measure the position of your corporate investment bank. This is, as you see, is not vis-à-vis our Nordic peers, it's vis-à-vis all of our peers, be it international or domestic. The franchise is in place and I've always said this is very important that you are a leader in order for you over time also to continue generating revenue in those income lines that I have just mentioned.
Fair value, again, a seasonally lower volume, but most importantly it is actually the environment. In the last month of course we've seen volatility go up, uncertainty go up. We will see what impact that will have on the business, but that this business of course is driven by more volatility, more uncertainty, because we are there to help our customers manage risk. I would expect and hope to see that come through on the line, but that's probably too early to make any major promises yet. Fair value. Cost. We are taking down cost across the board. The three-year period really from end 2015, 2016, 2017, and 2018 was about building a much more solid foundation for this bank as it comes to risk compliance, IT, et cetera.
We've done that and we now can structurally start taking down cost, and we have delivered and will continue to deliver also going forward. Staff numbers are down 3%. We have, of course, taken predominantly first out consultants, but also our own staff levels are down. This is also cost down despite the fact that depreciation and amortization is actually going up. The underlying like for like cost of course is coming down. Again, I emphasize when you then do to start drawing a kind of linear line, you shouldn't do it particularly on the fourth quarter, that's seasonally a somewhat higher cost, but trend wise our costs will continue going down. It's not only about reporting cost. I think for a bank it is about actually a real cash spend. Cash cost is the thing that actually matters when you think about a bank.
The cash cost is the one that actually builds capital. Cash cost is the one that you can use for dividends, but cash cost is the capital build. We continue on the cash side, cash cost side actually delivering also on our target with cash cost actually coming down by 9%. Shows what we have done in the past, shows that we are heading where we are heading. Credit quality mentioned already. Loan loss levels at eight basis points. Even the eight basis points is actually driven by a collective provision related to potential impact of this dry summer particularly in Danish agriculture. So it's a collective provision. Loan losses, as I mentioned, also in the coming quarters, I don't see a trend change. If anything, I see these levels at least in the coming quarters. You cannot look too far out.
The gross impairments are also down, and this is mainly related to a decrease in our oil and offshore-related exposures. Something that again, was part of, as I said earlier, that de-risking that we have done over the last three years. That all actually is playing through, showing that we are actually delivering those in our numbers. Core Tier 1 equity, show it just so you see that number a last time because you're not going to see that in the future. Mostly driven by lower RWA, also because of credit quality, i.e., again, emphasizing the quality of the credit book improving and being on a very solid basis. Here is now what I have already mentioned twice.
You're not going to see 20% Core Tier 1 anymore, is the fact that we are now migrating from a Swedish framework into the harmonized ECB framework in terms of calculating capital. This migration or this journey is not ended here. It actually will end, if it never ends, but when will be, it will really be end of next year when we see the first SREP, i.e., the determination of our capital requirement by the ECB or the supervisor, which is SSM. This migration, we will see the end result of it end of next year. In this transition period, we have committed to maintain our capital levels unchanged.
When you then make that translation from Swedish to European in the transition period, remembering that we will get the final one end of next year, we will have a requirement of 13.7, and our forecasted ratio is 15.4. Those are the new numbers, but those are with the same capital. This is mathematics, if anything, and now we need to just start to get used to new numbers, but otherwise it's the same. To me, the important thing, to our employees, but mostly to our customers, is customer satisfaction. I've talked about customer satisfaction, putting the customer in the center of everything we do, and we have now seen and continue to see improving customer satisfaction. Particularly in the segment which has been mostly hit in terms of at least image and satisfaction has been the Swedish mass market household sector.
I take that as an example because it is the one that has been publicized the most. We have now, in the last three quarters, meaningfully improved that, both in our internal measurements, but also external, which shows that we are doing the right things. We are doing the right things to be in front of our customers. The same trend, i.e., improvement trend, is in all our markets, in all our segments, and I of course expect that to continue. At the same time, humble because we are not where we want to be, where I want us to be. We will continue that hard work. Everything we actually do now in terms of transforming the bank, making it easier to use, more available to our customers, will approach and tackle this issue of customer satisfaction.
This is our number one measurement of our success, and I think it's going in the right direction. Being, again, humble that we need to do more, and we will do more. Another area which is close to me personally, but it's also close to all of the employees at Nordea, and I think this is something that will be increasingly important for all of us, for our societies, and that's sustainability. Sustainability, everything it entails, but particularly climate change. We aim to continue, we have already taken a leadership position in sustainability, sustainable finance, and actually having and helping our customers create a more sustainable future society. We are very committed to this. We are very committed to have that with our customers, but also making sure that these products, these services, these solutions are available in the market.
You need to want to be a pioneer on this side. In this quarter alone, we have, again, a number of milestones that we've done on sustainability. Only in this quarter, we have in Nordea Life and Pension cut our carbon footprint by changing the portfolio composition to more sustainable underlying companies by 70%. This is something that has been recognized also internationally and received accolades because this is a way where we can show and lead the way on what can be done on this front. We have been also selected most sustainable assurance company here in Finland. We have launched our first green mortgage. Mortgages this quarter. Early in the year, we were one of the first banks in Europe that actually launched Green Loans.
Certainly, we were the first Nordic bank that launched European loans, and the pipeline for these loans, I think we've given out about EUR 150 million of Green Loans, and the pipeline is actually growing. We actually have in every segment in our businesses, we have green products. And maybe on a personal note, I think I'm very proud I will be later this year, no, actually in this month even, in Paris when we launch the new Principles for Responsible Banking. This is actually a new principle that we would like to see adapted in the whole banking industry. We are one of 28 leading international banks, the only Nordic bank, being invited by the UN to really create these Principles, and we will launch these later in November in Paris. This is something that we all need to take seriously.
We take it seriously, and we will do our share and more on sustainability. It's part of our DNA and part of who we want to be. I have maybe the ones that are for the first time in these sessions, we want to finish with something interesting. We want to actually show what's happening in our daily banking lives. We talk a lot about digitalization. What does that mean? What we want to do with digital solutions, smart, simply use digital solutions, make everyday banking simple to our customers, so they can do things in a way they want, wherever they want, in a way with a few pushes of buttons digitally, either online or on their mobile. One of the things that we have launched, which I think is exciting, is a digital investment robot, or actually a digital savings robot. Its or her name is Nora.
We've launched Nora in Denmark, Sweden, and Finland, will be launched in Norway as well. It is where you can, in a very simple way, start saving. I just want to relook at the numbers, and this is early days. 10% of people who actually use and test Nora actually start saving immediately. Of those that actually do it, 90% decide to do it on a regular basis. We actually encourage people to save, think about their wealth creation, think about their future. 10%, 90%. 60%, which I think is the remarkable number, 60% of these people that are now using Nora have never saved before. It is actually something. I have to admit, that was not what we expected. We expected this would be to the ones that had been saving before.
These are people who have never saved before actually now decided that this is an easy, simple way to save and realize that, hey, maybe I need to do this. Then you may say, "Okay, but this is digital." Of the people who have used Nora, they are from 18 years old to 98 years old. We have the whole range of people. I don't know if our technical people here, there will be a video intro on Nora, I think, but will it start when I press this? Does anybody know? Please help. What?
Meet Carl. He's a regular guy with a nice job, family, and friends. He has a steady economy. When it comes to investments and savings, his eyes kind of drift off into space because it sounds so complicated. Carl is not alone. There are millions of people just like him, people that have no savings and investments. People that thus are less likely to fulfill their dreams. How can we help Carl and others like him to reach their dreams? What if we made it easier to save, more interesting and less complicated to invest? We did, because that is the thinking behind Nora, a digital investment advisor that helps you create a profile based on your personality and your financial situation. You can start small. You can change the amount whenever you want, and you can follow how you get closer to reaching your dreams.
This way, Nora creates a personal and easy-to-use environment that helps people like Carl to start investing. Back to Carl and his dreams. Every once in a while, he checks his investment, and as he discovers his dreams come closer, he feels motivated to raise the amount he invests with us. In other words, Nora is a great tool to help people start investing. In the old days, we would call that a win-win. Today, we just call it Nora.
That was a little bit of a clip of not the future. That was a clip of today, and just an example of many new ideas, many new things that we want to bring to make everyday life easier, a bank easier to deal with, where you can deal with it anywhere, anytime, and more available.
Thank you, Casper, and thank you, Nora. We have time for a few high-level questions to Casper before he moves to individual interviews. Please, Matti, please. We have a microphone here as well. Yes.
Matti Ahokas, Danske Bank. You mentioned, Casper, that you think the revenue weakness is mainly seasonal and not structural. Could you elaborate a bit more on that? Is the reason why you believe so that Q4 has actually started on a more normal level compared to the previous quarter?
Good. Trick question at the end. Maybe some signs of it. When you look at just the items that we are looking, fee commission line and particularly the decline actually comes from transactions that we do, particularly in corporate investment bank. The large part of is that. Then of course, when you look at the fair value line, it is all about really both customer activity trading and then the trading environment in general. There, I don't see that that has changed structurally. Our market position, our position vis-a-vis customer hasn't changed. That's why I'm actually quite confident. I would be more concerned if the other lines would, or the composition of that change in even the fee commission would have been different. No, given that composition, I'm pretty comfortable.
If I may have a quick follow-up also, looking at the cyclical development recently, clearly there's been signs that the cycle is weakening globally. Is this a concern to you, and how do you see the development going forward?
As a bank, no. Of course, we all like an upcycle rather than a down cycle. As a bank, when you look at what we have done, particularly in the last three years in terms of repositioning the bank, de-risking the bank, putting it on the platform that we have done, I feel very comfortable. Of course, I'm not sure we're there yet. There are signs that we've had one of the longest upcycles in history, and maybe not in Finland, but certainly in the U.S., and at some point that will turn. It depends on where that leads. I don't see a recessionary element anytime soon. I think having to say that peak cycle might be behind us, I think is a fair comment. The bank hasn't been in a better position to be there in an environment like that.
We are in a very good shape to actually support our customers when or if that would happen.
Mm-hmm. We have room for one more question here from the audience. Any more? Please.
Yes. Hello, Anne Korhonen for Reuters News. We've met in the past few months a few times. On those occasions we've asked about this Danske Bank's money laundering case. On those two occasions, you told us that you didn't see the money laundering probe affecting Nordea in any way. Now this has changed. Just a second. What kind of action is Nordea now planning on taking within the company to verify and to inspect the claims that have been made by the Hermitage report? Did this really come in a complete surprise to you?
I don't think there's anything new here. I would stick to what I've said before. I see nothing new. I see accusations being put to authorities. I've always said I'd like to see We react to information internally. I said we do deal with this every single day. When we see it internally, we react to it. If we get it from external sources, we react to it. We work with authorities, and I wish I could do it again. On this particular case, this is an allegation. The authorities haven't taken a stance. There's nothing new.
Antti, please take the final question here.
Antti from OP Group. Yes, I would like to ask how you see margin pressures developing going forward, especially in mortgage side.
It's a very technical question. I think you look at the four markets. There is margin pressure particularly in Sweden, where I think the margins are structurally higher than in the other Nordic markets. There's been particularly pressure in Finland. I think Norway, if anything, I think is healthier. We've seen margin relatively stable in Denmark as well. Finland, too early to say where that will lead. Will it continue? I don't know. I can't say, but I think the market probably where you see it mostly is in Sweden, but this is in the mortgage side. When we look at corporate margins, of course there's always pressure, but they're relatively stable actually on the corporate side.
Okay.
Is that
This end this session.
Thank you. As I said, it's been a historical quarter. It's been a first here in Helsinki, and I look forward to seeing you all here also in the future. Have a great day and a great continuation of the fall. Thank you.
Thank you. Those of you who would like to have individual interviews with Casper, please follow Katie and her team, and move out there. Then the rest of you are very welcome to stay. We also have people from the telephone conference here. We have heard that it's bad sound at the telephone conference, but the technicians are working intensively with that. Hopefully that will be solved. Otherwise, you're more than welcome to join us here in Finland next time. I would like to welcome Chris, our CFO, on stage.
Thank you. Glad to be here now that microphone works. I guess before we start, I just would like to say [Foreign language] Anyway, welcome to Finland. That means if I pronounce that in any shape or form. Good to be here, well, let's kick off.
Yes, let's kick off with questions. Those of you who are in the audience, please start, then we will invite the telephone conference within short. Do we have any more questions from the audience here?
We take the sound of the conference.
Yes. We welcome the telephone conference. Operator, please.
Thank you, ladies and gentlemen. To ask a question over the phone, please press star one on your telephone keypad. It's star one for questions. Thank you. We'll pause for a moment to allow everyone an opportunity to signal for a question. We'll now take our first question from Magnus Andersson from ABG. Please go ahead. Your line is open.
Yes. Hello. I hope that you hear me because I hardly hear anything. There's a lot of sounds in the background. Do you hear me okay?
We hear you loud and clear.
Hello? Okay, good. Just getting back to net fee and commission income. The message here that nothing is wrong, it's normal seasonality, Q3 is always weak, et cetera. The way I see it is the weakest number since Q3 2014, there's been some small structure this but it doesn't really impact that. You have a couple of items which were at the all-time lows, at least in recent history, brokerage, securities issues, corporate finance, lending products, et cetera. I just want to ask, is there nothing in here that is out of the ordinary? If this is kind of normal seasonality, should it be the normal Q4 seasonality as well? If this the new starting point for the investment bank in particular, but also when I look through the whole net commission income, because it can have a huge impact on the expectations going forward.
Just related to that topic that was also up. On trading income, we talked about the normalized monthly level of EUR 275 million-EUR 325 million per quarter after Q2. That consensus expectations look at EUR 1.2 billion, EUR 1.3 billion for 2019, and now we were at EUR 216 million Q2, and then EUR 205 million, and there was a one-off. Nevertheless, why could it not be EUR 1 billion in 2019? Are there some temporary negative effects in here as well that will recover in 2019? I will stop there. Thanks.
Thank you, Magnus. I hope you can hear us. I have to say the line cracked up a little bit towards the end, but I think we got the main questions. First to go to net fee and commission income. Yes, we always know that there is a seasonal effect in Q3, but this is a, as you point out, a lower than normal seasonal effect. This is a weak revenue quarter. Let us be blunt about that. Why is that? Let us take the components themselves separately. Let us comment a bit on the seasonality. Clearly, as Casper pointed out, there is custody fees, there was some card seasonality, and there are some accounting effects as well.
There are some specific key points that I do expect to come back in Q4 because the seasonality will be booked more in the second half or the Q4 compared to the first, compared to Q3. Yes. However, if you look at what the underlying business is. You got the, let us call it the corporate and brokerage fees. Q2 was a record quarter for them. There were very few transactions booked in January, August, and September compared to history. Therefore, that comparison is quite significant. It was a low quarter for that fee and commissions. I have challenged the business quite hard to see what the outlook is.
Given the position that Kasper showed in terms of the league tables, especially that we are number one in the M&A league tables for the first time in the Nordics for a very long time, if ever. The positioning is really strong going into Q4. When I challenge the business, the pipeline is looking solid as well. Franchise-wise, this is strong. It was a weak activity in some of those transactions. It was, of course, a very strong Q2. You look at the other element of it, which I think is worthwhile pointing to. It is our wealth business. We have over 2017 and 2018, you know the story there. We have had enormous growth. Quite frankly, we have been somewhat a victim of our own success. The first half of this year, we have seen some outflows.
We're starting the Q3 at a slightly lower level. As Casper said, due to performance, we actually have an increasing AUM. We have also seen an improvement in our flows. We see inflows in private banking. We see inflows in retail in every single country bar Sweden at the moment. We have inflows in Life, and we have in institutional sales in one of the core products where we have had challenges in Wholesale Banking distribution, we have now seen net inflows. However, we have had some institutional who have insourced some mandates. There is net outflows in the quarter, but it is significantly lower than before. If you look at the asset management business, there are fewer fund days this quarter, which is one of the seasonal effects, and that's really the driver of that performance.
The other real revenue here is broadly flat. As you look into Q4, I would say probably the average over the three quarters is a good estimate of where we end up. The second part of your questions was net fair value. We have guided, as you said, between EUR 275 and EUR 325, which I think is under normal circumstances. I think this market has been under structural change this year. We have a lot of introduction on our regulation, and we have proactively repositioned this business to really leverage the Nordea and the Nordic platform across all of the Nordics. Given where volatility has been, we've had a flat yield curve. There has been less customer activity this quarter than in the previous quarter. However, volatility is picking up, and activity has been picked up.
We'll see where that leads to, but it is a challenging one to predict. Market environment is challenging. I would say as we go forward, we're probably lower end of that range, if not even slightly below, at least in the short term, until market comes slightly more to normality and activity picks up. I think we'll come back more towards the range that you mentioned, Magnus. Is that helpful?
Yeah. Sure. Definitely. Just to be clear, your last comment on net commission income, were you alluding to the average of the first three quarters, that it should be a good projection for Q4, i.e., around EUR 760 now?
That's a fair way to look at it.
Again, it depends on market conditions and of course, on activity. What I think Casper wanted to say is that the business that has the net fee and commission, the biggest chunk of it, that is what is a volatile number. It is going to go up and down based on activity, and we have to be looking at this over a period of time.
Thank you. Just a tiny one on this transformation costs. You booked EUR 40 million in the first three quarters of the year, and you talked about reaching EUR 150 million in connection with the Q4 2017 report. Any new projection for the full year there?
I think we will continue our cost plan and reduce costs on a local currency to 2019. That means we are getting those plans in motion now. We all saw what happened in Q4 2017. We took a greater provision because we will likely do that in Q4 as well. Hence, our restructuring charges will likely go up in Q4. Over the course of the year, I think it would be slightly lower than EUR 150 million. I think it would be around EUR 120 million.
Just to be clear, Magnus, the first three quarters, we took EUR 50 million, five, zero. We took EUR 8 million in Q3 isolated.
It was EUR 1,823 plus eight.
That was actually slightly up from.
Okay, that's 49. Yeah, sure. Sorry, I was EUR 10 million wrong. Then another EUR 120 for the year. Finally, I got some questions on this paper from the Central Bank, the press release Central Bank sent out on market shares of cross-border payments, relative to balance sheet size, where it looks like you had quite large market shares in 2009, in particular, relative to your balance sheet size. Have you any comment to that?
I can say that data for those years is actually slightly erroneous. This is actually payments between Nordea Bank Eesti and Nordea Bank Finland that has been booked as offshore transactions. This has been communicated, and this will be corrected. When you correct for that, you will see a very much more stable payments line and market share for those periods in line with the rest.
Okay. Thank you very much.
Okay. Thank you. Any more questions from the telephone conference?
Yes, sir. We'll now take our next question from Andreas Håkansson from Exane. Please go ahead. Your line is open.
Hi, good morning, everyone. Magnus covered most of the P&L questions, let's not go back to that. Just on the AML issues again, Kasper said that there is nothing new. Does that mean that whatever has been reported and by Bill Browder, you recognize it and this is stuff that the regulator has been discussing with you before? Or have you not seen what he's saying and you therefore haven't seen anything new?
We have not actually seen the report. There's obviously a lot of speculation in what's in it. We will always cooperate and work with authorities, and we will work with authorities and have the authority on the topic, and not speculate on some report that we have not seen. In that respect, there's nothing new.
Okay. Just we are seeing, apparently there's a list of names that have been involved in the Danske Bank money laundering scandal. Have you double-checked that list against your own client list, and have you had any overlapping clients?
Given that the list is not public, we have not been able to compare notes, no.
No. Okay. Thanks.
Take our next question from Sofie Peterzens from J.P. Morgan. Please go ahead.
Yes. Hi, here is Sofie from J.P. Morgan. On the due diligence that you did on Luminor together with DNB, did you find any suspicious customers or activity, and would you consider publishing this report?
I didn't hear the question.
I didn't hear the question. Do you hear the question?
Okay. Can you hear me now? Basically, the due diligence report you did on Luminor, did you find any suspicious customers or activity, and would you consider publishing the report?
We've actually done two sets of due diligence. Firstly, when we set up the JV, we did due diligence, and we had external parties, look doing case file reviews. As part of the sale of Luminor, there has also been due diligence by an external counterpart doing case file reviews. At the moment, they are part of these transactions, and hence for now, we are not willing to share them publicly.
No. We will not publish that. No.
Okay. Did you find any suspicious activity or customers when you did these reports?
Obviously, the deal went through. I think that's the best answer I can give.
Okay. What about your competitors and also Luminor is reasonably high profitability . Your competitors are all saying Baltics is a low risk, or if you focus purely on residents in the region, it's a low-risk business. Why are you still exiting this business?
The Luminor, I don't know if you saw the presentation in terms of the journey that Nordea has taken. We have been focusing our business on our core markets, which is the Nordic regions. The transaction with Luminor started, and the joint venture with DNB was several years before any of these AML issues in the Baltics came up. This has always been a strategic choice, a business choice for us to focus on our core Nordic markets. Hence, this is just a part of that journey. This has nothing to do with AML. This is a business decision. That was done before.
Why is it not core? Because it's so close to the Nordics. From where you are now, you can take a helicopter in 10 minutes to Tallinn. Why is it not core given that it's so close in proximity?
I don't hear the question.
Sorry. It's a very bad sound quality. Could you please repeat?
I was just wondering why is the Baltics not core? I understand that the Nordics are core, but what are the drivers for the Baltics not being core given that it's high profitability, it's close proximity, you have a lot of overlap between corporates having operations in Baltics. Why is it not core?
When we did the joint venture with DNB, one of the key reasons was to create scale and be a significant player in the Baltics. To create those efficiencies and scale to drive the profitability even better than actually Nordea could do on its own. This was an opportunity to create a core Baltic bank. That is why we did that by participating in that joint venture. Consequently, as that developed, we had now the opportunity to actually divest it, and really have a standalone entity that is independent over time, and so on. It was to create a more significant bank in the Baltics.
Unfortunately, Sofie, this is not a profitable business, which is the key reason why it was not core. The normalized ROE is still around mid-single digit, around 5%-6%, the normalized. Now they have a much better profitability because they do write-backs. If you take a normalized loan loss level, they are at around 5%-5.5%. That's very important reason why we sell it.
Okay. Just a final question. How should we think about future M&A and, yeah, future M&A?
We don't have any big transformational M&A on the pipeline at all. We are here to focus on our business and drive it both organically, but clearly, we want to invest in the Nordics. If something tactical, like we saw earlier this year with the Gjensidige comes up, where we can expand in our core markets with our core products, with businesses that are complementary, then we have an opportunity, and we'll evaluate each opportunity individually as they come. On top of that, it is worth saying that in terms of our digital development and in terms of certain developments as a management business, we are looking at small partnerships, ventures, and/or small bolt-ons to drive some of the product development. Those are not necessarily what you would classify as M&A.
It is very, very important in this environment that we're in, that we do drive some of the new businesses with partnerships, given the changes in the digital world.
Thank you, Sofie. Next question, please.
Thank you. Next question is from Bruce Hamilton from Morgan Stanley. Please go ahead.
Hi, morning. My question's actually been answered, I'll pass on to the next one. Thank you then.
Good to hear Bruce. Next question, please. Said Martin.
Next question is from Riccardo Rovere from Mediobanca. Please go ahead. Your line is open.
Good morning. Good morning to everybody. I hope you can hear me. Couple of questions, if I may. The first one, if you can elaborate a little bit on what we can expect on an NII from the treasury department, which keeps going up and down like a yo-yo. Is there any hope to see a kind of stabilization in that part of the P&L? This is the first question. Second question I have is on risk-weighted assets. Should we expect any more positive impact on migrations or anything like that, or we should expect RWA to go in line with the loan book in the coming quarters in the foreseeable future?
Sorry, the line was very bad, so I didn't catch your first question. The second question, I guess was with respect to RWAs. Just to be clear, this quarter, we have seen some migration, particularly in the corporate book, both in terms of the fact that we have de-risk has lowered our RWA, and it has actually continued this quarter. You could expect some element of migration. Although I think it's flattening out. Then, of course, at the same time, we are investing in our business. We have the view of wanting to utilize our capital for our core clients. There is an element of growth in there as well. The first question, though, I didn't quite catch.
Okay. If there is on NII in treasury department, if there is any stability to see a stabilization in this line of the P&L, even though it keeps going up and down like a yo-yo every quarter, what should we expect in the foreseeable future from this component? I hope now you can hear me.
You are right that we saw an improvement in group functions and other, and that was mainly driven by treasury. That's correct. We think this level now, EUR 27 million, it's the level we do expect in the coming quarters as well. You can say between EUR 20 million-EUR 25 million is a realistic number.
Okay. Thank you.
Just to be clear, it will be a little bit volatile within that range over time because it is related to some hedging components as well and rate effects and so on. What Rodney said is a fair estimate as on the forward.
Right. Thank you.
Thank you, Riccardo. Next question, please.
Thank you. The next question comes from Pauline Stokols from Barclays. Please go ahead. Your line is open.
Hi. Thank you for taking my question. I have two. One is you previously communicated, in your 1Q report that you would see pending regulatory investigations resolved in 2018. Do you still expect this to be the case? The second question is on capital. Do you have an idea of management buffer you want to hold above the 13.7%? Should we assume that it's the nominal equivalent of the 1.5% you target today? Thank you.
I didn't quite catch your first question, again, but I will answer the second, and maybe we can revert back to the first one if you can repeat then. As said, we have committed to the nominal capital level from the SREP that we received from the Swedish FSA, the joint supervisory, and that we obviously commit until the 2019 SREP. Within that, there is the commitment on the requirement, which basically becomes that commitment, and it's also a commitment on our Pillar 2. We have not changed our capital policy, and our capital policy indeed has a management buffer based on the old regime of 50 to 150 basis points, and we will continue to maintain that same nominal amount. We also, therefore, do not envisage changing our dividend policy either throughout this period. Hence to the first question, would you mind repeating?
Yeah, sure. In your 1Q report, you commented that you expect to see pending regulatory investigations resolved in 2018. I believe you were referring to the Danish investigation. Is that still the case? Do you expect them to be resolved this year?
Yes, that is still the case. That's correct.
Okay. Thank you.
Thank you. Operator, before next question. We have a question from the audience. Please take a pause. Matti, you're invited. Please.
When you refer to margin pressure in the general comments, and especially Sweden, is it because that you see pressure in the market or actually that you've cut your own prices? I'm trying to kind of reconcile this development. Is it more the market or the fact that you have cut your own mortgage rates in Sweden?
You know the journey back in, I think it was Q4 2016, early 2017, we did not cut our margins in certain areas compared to others. Part of it was we thought the market at that time was very frothy, and there was some systemic risk in it. Obviously, towards the back end of 2017, that market corrected. We did not therefore in 2017 grow with the market. As a matter of fact, I think volumes were flat in 2017. As such, given that the market had corrected, we then also made an adjustment in January and in April on our list prices to grow that. Most of that margin is actually into the NII now for Sweden, and we are, and have seen in this quarter a trend shift. We are now growing in Sweden.
We are not growing with the overall market growth, but we're growing in the front book somewhere between around 4% at the moment. That trend shift has happened. In terms of is this market and I think it's a bit of both. We have new entrants. They are taking market share. If you look at the last three years, there are smaller players taking more market shares, and they might be doing that with some price. We are more concerned about the margins that we have, and we have been positioning ourself competitively, and we are growing. Just to come back a little bit then and talk about the other countries, just so you have a good sense of the outlook. Norway, we're growing with the market. Norway has been under margin pressure, which has to do with the NIBOR rates.
We have recently increased our margins in Norway, we're coming into Q4 with a little bit of tailwind in Norway. Finland is a more challenging market. There has been significant, in certain segments, very low margins, which we have chosen not to participate, hence we are losing some market share in Finland. Denmark mortgages, and this is standard mortgages, we're growing pretty much with the market, margins are broadly flat. That's sort of where we're at and where we're going into. Sweden, margin pressure, but we hope to grow more. Norway, margins are changing, and the rest is a little bit status quo as we go into Q4 on the household. If you look at the corporate side, just like Casper said, volumes in the corporate have seen a trend shift.
In Wholesale Banking after Q1, it has started to increase and is accelerating. In the SME space, we're also seeing a trend shift. If you look at the 1% volume growth in the overall corporate space, and this includes some areas where we're actually decreasing, like Russia and Norway, you could see if you analyze that, we're growing at about 3%-4% going forward. Margin picture is more mixed, but it's more stable. Hence, I would say there's a more balanced view of NII going into Q4 and next year.
If I may have a quick follow-up on that as well. We saw already the Norges Bank hike rates in last month, actually. We saw the kind of pressure from the NIBOR to mortgage rates. We're actually seeing slightly that in Sweden as well at the moment. Assuming that the Riksbank hikes rates in December, do you believe that the banks will be able to pass this on to customers, or is the competition so tough that will kind of take care of it?
I'm not going to speculate what other banks do, nor am I actually going to speculate what we do. We will make the business decision at that point in time when and if rates do indeed move.
Thank you. It seems like there are no further questions from the telephone conference. Is that confirmed?
That is correct. There are no questions from phone.
Thank you. Are there any more questions here from the audience? Okay. Thank you very much for participating in this historic event. Very sorry for the sound quality. I hope it improved over time. Now we are soon going to London. You are more than welcome to call us any time, but we will sit on a plane between 3:00 and 6:00, then we are in London, and you are most welcome for lunch on Friday. As I said, you are most welcome to call any time. Thank you.
With that, I say