Welcome everyone to this press conference where Nordea will present its second quarter 2018 report. My name is Rodney Alfvén, I'm Head of Investor Relations. We will start with a presentation by the President and Group CEO, Mr. Casper von Koskull. We will open up for some high-level questions for him. We will split the group into two, where the journalists can have one-on-one interviews with Casper, and the rest are welcome to stay for questions for our Group CFO, Christopher Rees, and me. We also have a special guest from Edinburgh today. Casper, please.
Thank you. Good morning. Great to see you all here. I apologize. I'm a little bit losing my voice, one of these classic summer colds, but I'll try to get through this with my voice intact. Anyway, great to see you here. I was actually planning to do a little bit different this time. Usually we zoom in straight to the numbers, I think I'd like to set the scene. I'd like to set the scene, say, what is Nordea today? Who are we? In a world that is changing so fast, what is Nordea today? Nordea is a modern digital bank. We're a company that boosts and fosters innovation. We are a bank that is focused on Nordic business and Nordic clients. We have intense focus on compliance, we are a bank that is moving into the banking union. Modern digital bank.
Modern societies are becoming more and more digital. Public and private services are more and more digitalized across all segments of society. Here in the Nordic region, I think we are, as societies, leaders in digital. Nordea, here in the Nordics, is in the forefront. We are a leader in this. We actually have, over the last several years, we have recruited thousands of digital experts into the bank. Over the last several years, we have actually invested EUR 900 million annually on our digital and making digital capabilities so that we can compete in this new world. We are well-positioned in this digital world, well-positioned to take the bank forward. A company that boosts and fosters innovation. Innovation usually is a buzzword, we have been innovators since we were founded. Founding Nordea, putting Nordea in place the way it is today, was really innovative.
We've been innovators since our foundation, we still are. Today, 30% of our customer meetings are actually done digitally online, 30%, That's only the start. We embrace change, we want to lead in innovation. We want to be a leader. Focusing on Nordics. Our core and our heritage is Nordic. Over the last few years, or several years, we actually have de-risked the bank in areas outside the Nordic, starting really with Poland, Baltics, Luxembourg, Russia. We want to be a focused bank. We want to grow in the Nordics, we want to actually focus on being the leading bank in the Nordic region. The recent acquisition of is a good step just in this very focused of being the leading bank in the Nordic region. Intense focus on compliance.
Compliance in today's world, in the financial industry, needs to be in the center of everything we do. We are today increasingly more compliant. We have 1,500 people dedicated to this and 12,000 frontline people who are working with this. Here, I need to say that we need to be humble. Everybody needs to be humble because compliance is not a destination, it's a journey, and that journey continues. We've come a long way, and I feel very good about it. Moving into the banking union. All our core markets, Norway, Finland, Sweden, and Denmark, are part of the European single market. We want to be in the core of Europe, be part of the banking union, where we get stable, predictable, and level playing field environment to operate.
Strategically, this is actually the place for us where we can really create value to our customers, our employees, and our shareholders. Very pleased, actually, that by the end of June, we actually got the banking license from ECB. It's a step towards really being in the banking union by 1st of October this year. What are the results, actually, from all the things that we are doing? We are an innovator, and I think when you're an innovator, it's actually an exciting time for your customers, because innovation, of course, is only there to serve your customers. First of all, we have been growing our robotics family, and we have now more than 300 robots serving our customers. This, of course, is only a beginning. We have upgraded our Apple Pay services.
We have launched Apple Pay in Norway, We also now have Apple Pay on the First Card, the corporate card, so that our corporate card users, our corporate customers that use that card, can pay with their mobile or with their watch as they are traveling and for business. Something make their life more simple. Our open banking platform is a platform and a portal where we can now create, together with partners, services and products in a very quick way, in a way which really gets more and more rich services to our clients. We have 2,000 developers now on our portal. 2,000 developers. This makes us actually one of the top three in this area in the banking in the world. We've actually been named top three in terms of open banking portal in the world.
WeTrade is our blockchain platform for trade, which we actually have developed together with eight European international banks. This actually is a platform that uses blockchain to make trade easy, fast, and transparent. We actually have now pilot companies doing real trades on WeTrade. This is an innovation that has been actually said to be the most innovative way of using blockchain in the banking industry. Very proud to actually be part of that now when we really start launching that much broadly into our corporate customer base. Nordea Wallet, I think is very cool. It's a very cool product. With Nordea Wallet, our customers can much easier see their transactions, and they can also plan their private economy and private finances in a much better way.
Nordea Connect was launched in Finland and in Sweden. This is really to support merchants in an increasingly growing e-commerce market by making mobile payments and online payments easier for them. Again, something that makes life easy for customers. We have the mobile app, I mentioned that before. It has been now launched in Finland with more features, easier to use, and with features where now you can have a video call with your advisor on your mobile. This is an app that we will also launch into Sweden and Denmark later this year, and then to Norway. Things are happening. This is actually making life easier for our customers. That's innovation. Of course, we will be able to start rolling out more of this given the platforms that we have created. Is it bearing results? Absolutely.
When I look at our customer satisfaction in Sweden, that has actually grown strongly in the last quarter. I mean really strongly. Our customer satisfaction in the other regions actually have a stable trend, so very happy there. It shows that we are doing the right things for our customers. In wholesale banking, there's no doubt that we are the Debt Capital Market champion in the Nordic region. Our customer has ranked us a clear number one in both Investment Grade and High Yield debt markets. In private banking, Private Banking Sweden customer satisfaction is growing also very strongly, which I'm extremely pleased about. In business banking, our ranking among our customers in all our regions is very high, and the trend is upwards. Our customers really appreciate our advisors that we call business partners, and their proactive way of dealing with our customers.
I think our Nordea employees, they're doing a fantastic job in really putting the customer first, and we will continue to put the customer first because it is bearing results. If we now look at the quarterly numbers, because this, of course, should then reflect also in the numbers. The improved customer satisfaction has also led into improved business momentum. We have improved our underlying income, and we continue to deliver on cost, on credit quality, on capital, and compliance. I think these five for me are critical. Customers is really the income, cost, credit quality, which is risk, capital, of course key to be a strong bank, and compliance, which needs to be really left, right, and center of everything we do. We are delivering on that.
When I look at the remainder of this year, I'm very confident that we will report a higher profit number, net profit number for 2018 than in 2017. However, given the somewhat slower start of 2018 in the first half, it's unlikely that we will in 2018 reach the top line level that we had in 2017. The net profit, we will be better than in 2017. In terms of cost and credit quality targets, they are unchanged. Very confident that we can achieve those. I think really the event of this quarter was the announcement that we will buy Gjensidige Bank in Norway. Very excited about that. It will actually grow our business in Norway.
It will strengthen our business in Norway, but it will also entail the fact that we will enter into a strategic partnership with Gjensidige Forsikring, which is the largest P&C player in the Norwegian market. I think being the number 2 bank and number 1 P&C company working together, I think this partnership will actually have mutual benefits to both. It's a great partner to have in Norway. Very pleased to have announced that. When we look at the numbers in more detail, first of all, I could say that we now see signs of positive volume developments really across most of our businesses and not all of our businesses. So, signs of volume growth. Net interest income is up 2% compared to last quarter. Fee commission is up 5% vis-a-vis last quarter, showing really that business momentum coming through.
We had a lower fair value number because of a more difficult trading environment. I'll come back to that. When we look at operating income, we're up 10% vis-a-vis the last quarter. On cost, I said we are delivering on cost as we have planned. Operating expenses down 3% from last quarter and 8% if we compare for the same quarter last year. So we are delivering on cost, which I've said that is really one of the key focuses to show that the big investment, and the big projects that we did in the last two years, we are now scaling those back. That, of course, then results to an operating profit, which is actually up 24% compared to last quarter. Loan loss levels at 10 basis points, again, below our long-term target of 16.
I think every time I stand here, I say we have never had capital levels at this level. I can say it again, quarter 1 at 19.9 is actually the highest quarter-on-ratio we have ever had as a bank. So customers, cost, credit, capital compliance, I'm pleased that we are delivering on those. Want to break down the operating income, so you see it, because operating income, we actually have both in Q1 and Q2, we have non-recurrent revenues, so difficult and then see what really is happening underlying. Pleased to say that when you take out those non-recurrent revenues, both in Q1 and Q2, we can show that really the underlying is growing by 3%. Something that I'm extremely pleased about, something that we have worked really reflecting not only the growing customer satisfaction, but the business momentum.
Frankly, some of that actually comes more towards the end of the quarter than in the beginning of the quarter. At least gives a good start for going into the third quarter. On net interest income, we really have positive volume development in most sectors, as I said. Lending is up 2% and deposits up 3%. Overall, NII up 2%. We do have pressure on particularly the Norwegian and Swedish lending margins. This is predominantly personal banking or the mortgage side. In Norway, actually, given that NIBOR is falling, that actually eases that going into the third quarter. But in Sweden, there is definitely pressure on the mortgage margins that you all know. We do have lower funding and regulatory costs, but +2 on the NII.
We look at fee and commission, very solid growth of 5%, really driven by strong corporate and advisory services, also increased lending fees and payment and card fees. This despite the fact that we have lower volumes in asset management. That's something that we're working on. The fact that we have lower volumes in asset management and grow the fee commission line by 5% shows really the strength of a diversified business model that we have, that we can actually do it despite somewhat lower volumes on asset management, shows the strength of the franchise. I want to specifically mention the corporate advisory services that, of course, we had a very strong quarter, a lot of landmark transactions.
It is all about increased customer focus and intensity, the fact that we have the number one product and service offering in this segment in the region, no doubt. Customer focus and the number one, that means really that we have consolidated our position as the leading corporate investment bank in this region, showing through almost any of the segments that we actually serve. It is important that you have customer intensity, and then, of course, you need to have really a number one product and service offering, and that combination. I typically take up maybe one landmark transaction. We've had many, particularly in the M&A and equity side, I will actually not take out a M&A or equity landmark transaction. I would actually like to bring out a transaction or a partnership deal that we've done with Telenor.
Telenor has actually selected us as their cash management partner in really seven markets. This is probably the largest or one of the largest cash management transactions in the Nordic region, actually shows our competencies and capabilities, particularly in mobile and e-commerce, which was actually very important to a customer like Telenor. We actually have a leading position, particularly in that segment in the Nordic region in cash management. It's not only about equity M&A, it is also about long-term partnerships with our most important customers. Just want to highlight that. Net Fair Value, we have improved revenue on the customer area. If you look at the customer area over really, here you see six quarters.
You can see that the customer business, I've said that, I think, repeatedly over many years, the customer area on the Net Fair Value line is a stable EUR 200 million to EUR 250 million revenue quarter by quarter. In the second quarter, we actually had improved revenues compared to last quarter. The trading environment is soft. In that sense, that impacts Net Fair Value. We have to also remember that we have deconsolidated in Nordea Life and Pension, and we have some negative XVA impact as well. Customer business stable and improving, which is also very good because we have made big changes in that being more offensive in terms of the structures that we are very well positioned actually going forward. Those changes that we have made are paying off. Cost.
Here is the one that I am probably most pleased because we are delivering on not cost only, but we are delivering on all the different components of cost that we wanted to do. We have reduced our larger projects or dismantled some of the larger projects that we have been driving within the whole group. We have reduced consultancy and staff cost, so that if you look at the first six months, and now I'm looking at the first six months and not looking at the quarter, we're actually down 5% vis-a-vis if we compare it to last year. This is despite the fact that we have actually increased depreciations, and we also have transformation costs included in this.
Of course, on top of that, you have a favorable FX, but I'm looking at in local currency is really a 5% improvement for the first six months compared to last year. A great achievement by everybody within the organization. Also want to emphasize that it's not only about the reported cost, it is really about cash cost. Cash cost is actually cash flow, Cash cost has impact on the capital for bank. You need to also look at cash cost, We look at both cost lines or look at cost in both dimensions. When we look at cash cost, our cash cost spend is actually down 10%. Again, here, I'm very confident that we will be able to achieve our cash cost target as well for 2018. It is not only the reported cost, but also the cash cost.
I again emphasize that's cash flow, that's real money, and it actually impacts capital. Asset quality continues to be strong. We have a net loan loss level of 10 basis points, as I said. This is really driven by a collective provision that relates to potential impact of sanctions, the U.S. sanctions in Russia. They could have impact, I think we have wanted to reserve for that in advance should that happen. There's uncertainty, as you all know. You all follow it, We've done it. When we look at our core Nordic business, we actually have write-backs, Actually, our gross impairment rate is also down. I think the credit book is solid, I'm very happy to say, I don't see any major change in at least the coming quarters.
You can never see too far, At least when I look at the coming quarters, I don't see any change on this. On the equity or capital level, I have already mentioned. This is both the capital level, quarter one level, but also the management buffer now is at a level at 2.4, is at a level that we have never had it before. Also feels good to have it at this level going into the re-domiciliation and having the flexibility. Being strong, well-capitalized, I think has always been something that has been the mark that Nordea has always had. Going into the banking union with this is, of course, something that gives me very high comfort level. Did I jump over something? Yep, I did, actually. Maybe a few words on the Gjensidige Bank announcement that we have made. This is a good fit for Nordea.
The Gjensidige Bank is a growing bank, it is a profitable bank, and it is also a digital bank. It has a good, actually low risk profile. 80% of its assets are on the mortgage side. Strategically, it actually brings also competencies and capabilities not only for our Norwegian business, but the bank more broadly. The strategic fit is very good. I, of course, look very much forward to, once we have closed this deal, welcoming the Gjensidige Bank employees to the Nordea family and also having them to contribute not only in their own business, but contributing in Norway. Actually for Nordea more broadly, those capabilities will be very valuable that we have.
As I mentioned, also, the partnership with the Gjensidige, the insurance side of it, is something that we see potential both for them and us, mutual beneficial being the number two bank and number one insurer in the market. I think it is a great partnership and knot to tie. In terms of the move, is going according to plan. We expect that we will be in the banking union and headquartered in Finland by 1st of October this year. I think we were very pleased that we got the banking license from the ECB here end of June. Of course, an important step for us to be able to be in the banking union.
As I said, that gives us a stability, a predictability, and level playing field to really develop this bank as the leading Nordic bank, but the leading Nordic bank at the core of the banking union. With that, you probably are already used to this, that we want to, or I'd like to at least finish on something that at least is very, to me, much more interesting. To me, it is much more fun. This time I really wanted to finish on innovation. Innovation to many is a buzzword. Yeah, innovation. Everybody talks about innovation. What is innovation? We want to give you one example what's innovation at Nordea. It is not a buzzword. Innovation at Nordea is something that actually creates all those things that I talked about, all the new things that we have been rolling out.
We'll look at a video on innovation. What is innovation? One example of innovation within Nordea. Just remember, never give up. Never give up. Spark inspires. A revolutionary customer experience. Tabs, can you tell the audience who you are?
Yes.
Something about the video itself, because there's a lot behind that video.
Absolutely. I love that video. My name is Tabitha Cooper, and I've been working in the banking business, financial services, for 18 years. I'm very, very passionate about change. What is Runway? Well, Runway is the video that you just saw. Earlier on in the talk, Casper, you talked about Nordea being an organization that seeks to boost, support, and enable innovation. Runway is basically an entrepreneurship program that does just that. What do I mean by entrepreneurship? Well, basically, if we have any colleagues in the organization who have ideas, and they do, they have ideas all the time.
They can basically have an opportunity to propose those ideas, if they can in some way sort of prove, through this process that you just saw, that it in some way improves the lives of our customers, or obviously our fellow colleagues to help them improve the lives of our customers. The way that we do that is this process which you see, where we support them in new ways of working. For example, we help them with agile methods, service design, customer experience, and this might not be something that they normally do in their everyday work. We give them help on how to pitch their ideas to our Executive Management Team. We also give them access to our Executive Management Team. We give them access to business sponsors and also our customers.
Basically, what Runway does is it supports and enables our colleagues to run fast.
Why is that important?
Well, you actually kind of said it yourself earlier, and you've said it on many occasions too, Casper. The world is changing, and it's changing fast. The speed of that change itself also is speeding up. It's accelerating. The reason that's happening is because of the significant improvements in technology, but also the radical improvements in the connectivity infrastructure. What that means is that obviously the world is enabled to move faster. What's happened then as a result of that is a boom in entrepreneurship globally. The results of that entrepreneurship means that customers and society have come to expect a much higher standard of solution and service. Why is it important? It's important that all traditional organizations actually change and adapt to this new way of being. I think, yeah, that's why it's important.
I think that I'm very excited, as someone who's been working at Nordea for a while, to see how much actually Nordea has changed. It may not be something that's easy to see on a day-to-day basis, and sometimes I'm like, "Casper." I can really honestly say that this is not the organization that I joined. I think, going forward for the future, I really feel that everything's in it for the customer going forward, and I'm very excited to see how that's going to pan out.
Thank you, Tabs.
Pleasure. Thank you.
Well, we had 136 ideas that were pitched by the organization. We selected 10 finalists, and then from there, three winners. If you just think about 136, there were many big teams. That's actually hundreds, thousands of people who actually are getting engaged in innovation, get energy, get an energy boost, and actually show that they can actually realize their dreams in an organization like us. They get the tools, they get the resources, and they get the ability to solve customer problems. This is only one of many of our ways of trying to really boost innovation. We are at the forefront here, and we intend to stay in the forefront in this area.
Anyway, I want to give that, I think we'll try to do this also going forward, give you a little bit snippets that you can dive a little bit deeper into what really is happening and understand that these are not buzzwords. This is real stuff happening, and this gives energy to our organization. With that, Rodney, are you coming back and direct us forward?
Yes. I also would like to have [purple hair, or maybe beard]. We have some time for high-level questions for Casper before we split up. Magnus, followed by Peter, please. Do we have a mic?
Yeah, mic would be good to have.
Yes, mic is on its way.
Sorry.
Here we are.
Yes. Hi. Magnus Andersson at ABG. Just on costs, the annualized Q2 cost level was 4.6, and you have some FX tailwinds, so EUR 50 million to EUR 100 million. Even if I add EUR 100 million in transformation costs, since you haven't had much in the first half of the year, you're comfortably above or below your cost target. Even if FX would swing back a bit, you will be significantly below the EUR 4.9 billion, and yet you keep the guidance. Isn't that very cautious, or is there something coming up during the second half we should know about?
I think it's partly cautious, but also that we know that sometimes it goes faster, and then it tails off a little bit. We also are still continuing this transformation. We invest still heavily, particularly now, into the front line of it, and I don't see a reason to change it now. I think we are on a path. We have, of course, a target for 2021 as well. We will have a declining rate from here on, and I think let's keep it that way, and then we'll see. I think we are, of course, continuously executing, but you cannot only take one quarter is not a full year. Let's take one step at a time.
Okay. If I would say that the cost guidance you gave in Q3 2017 looks a bit conservative now, would you agree?
I'm not going to go into that.
Okay.
I'm happy with it.
Yeah. A second question, you announced an acquisition recently of Gjensidige and now another smaller transaction today. Is it the case that the new platform will make it easier for you to integrate acquisitions so that we should get used to this also going forward?
The second is not going to be integrated per se, but the first one we intend to integrate, yes, to ENCORE. How we do it and when we do it, we'll have to come back, of course, our intention is to do that. Once we have it, of course, there, that is of course the plan.
It's the fact that you're upgrading your platform, making it easier to integrate acquisition than it would have been two, three years ago.
That should be the case. Yes, that will be the case.
Okay, thanks.
Peter?
Yes. Hi, Peter Kjaer from SEB. Just one follow-up question from Magnus on the acquisition of Gjensidige Bank. You are already running quite a complex IT program, and then you're adding another bank to your existing platform with this acquisition. What kind of level of complexity does that add to an already complex IT process that you are running?
I don't think this should actually add, because if you think about it, if we integrate that straight into ENCORE, then it doesn't add complexity because it's the same as we will actually, of course, take the Swedish and the Finnish, the Danish go into ENCORE. This is just one piece. We're not actually adding complexity in this particular case. It's one more integration thing that we need to do, but in a way, that is actually the competence that we are now building through the ENCORE integration, we now show that we can do it. In that sense, yes, you add one more integration, but you don't add complexity because it will then be running on ENCORE. It's not integrating into us and then to ENCORE. We will integrate it into ENCORE, which means that we jump over that stage to create that complexity.
Yes, there is one more integration to do, that is actually one of the core competencies that we now create by doing this in all four countries. I think I would actually see this as a positive.
Just a second question. You write in the CEO comment that efforts to increase customer satisfaction is bearing fruit. What exactly is it that you're seeing in, I guess, internal figures or external figures that shows the improvement?
The improvement, what's it caused by or?
What are you seeing that tells you that you're improving your customer satisfaction?
We do a very deep assessment analysis on Net Promoter Scores on our customers constantly. I think when we did the last one, which actually really measures our clients and how they perceive us, we've seen a very strong improvement in Sweden. That doesn't mean that we are where we need to be. We have a lot more work to do. The fact that you see an improvement after we have had a difficult period of the domicile question has been misunderstood in many ways, and of course, has affected. There's a lot of emotions around it. All these things have affected. Also, the transformation per se is not easy when you make this. The fact that we have now turned that and can see a meaningful improvement when we make our own customer surveys is that's where we see it.
It's real, and it's real our customers going to them and in big volumes. That's what we see. That's hard numbers for us.
It was mainly Sweden or is it across the border?
As I said, the big, big change is in Sweden, of course, because that's where, of course, the delta needs to be the biggest. We see a stable trend in the other ones. We also see improvements there, but that's more stable. Then I also emphasize that this is particularly when I talk the strong improvement is actually in the household, the mass market segment. We have many segments, private bank, and I'm talking Sweden or other countries as private banking, corporate banking, business banking, where we have very good customer satisfaction figures. As I said, in wholesale banking, we are the number 1 franchise in the region. We have to remember we have many customers very happy. It's this segment which, of course, the media and more broadly where the image comes through. I'm very conscious that we need to fix it.
It's not customers' satisfaction across the board, and it's not even customers that is across the board Sweden, it's that segment. There we have seen a very meaningful improvement. We will have to do more. We will do more. We'll put the customer first, and we will improve it further.
We have room for one more question. Robin, please.
I think I actually lose my voice.
Hi, Robin Rane, Kepler Cheuvreux. Given the strong capital and you have a strong management buffer, which may eventually even get widened with a move to Finland. Is this type of acquisitions with Gjensidige Bank that we saw in the quarter, is that a way to manage down the capital? Should we expect more of these type of acquisitions rather than distributions?
It's another way to manage down capital. Certainly our capital allows to make this. This was an attractive acquisition for us. We did it. Predominantly, we grow organically, of course a bank like us, we need to be strategically savvy, and when we see opportunities, we can do that as well. It's not a capital-driven strategy. It's strategically interesting, and we could do it. It gives us the flexibility, but I don't think this particular acquisition per se will change our capital policy and the way you need to think about Nordea and Nordea's capital.
Okay. With that, we say thank you to Casper. Those journalists who would like to have one-on-ones with Casper, please follow him and Aphrodite, and Aphrodite will take care of you. The rest of you are more than welcome to stay for the Q&A session. We also have a telephone conference so people can call in. While people are going out, I would like to welcome our Group CFO, Mr. Christopher Rees.
Thank you. Good to see you all here again. This is actually my first full quarter here. Last time, I had just been in this role for three weeks. Now it's three months. I think last time Rodney briefed me over a cup of coffee. Now I've been here three months, and he's just briefed me still with one cup of coffee. There we go. I have to say, though, being a CFO, when I've been in the banking business, mainly in U.S. and American firms prior to Nordea, and then, of course, you as a banker are viewed in a certain way. Now, with that great presentation, that is a modern bank.
Thank you. I think we start with Andreas, followed by Nicolas and then Magnus.
Do we have the people on the line?
Yes, we have people on the line as well.
Maybe we should take a call in between.
Thank you. It's Andreas from Exane here. Question net interest income. I was looking at the bridge, if I looked at the margins and volumes contribution, I think that was -31 in the quarter, then other items were plus 53. When we focus coming quarters, it's easier for us to continue to focus on margins and volumes rather than the other, which might or might not happen. Could you tell us how you're going to turn around the trend that you have a decline in the core part of the NII?
Let's look at some of the dynamics in the various margins. Let me take corporates first, because I think that has a story there. We've had, as we've talked about in wholesale banking, de-risked in Russia, in particular in SLO, and you've seen a declining volume trend there. We have now turned that corner, and this quarter we've seen increasing volume in the corporate sector, both in the mid-market sector as well as in the large corporate. We see credit demand stabilizing and increasing. That is a clear underlying path or tailwind going into Q3. If you look at the household sector, if you look at the mortgage volumes in Norway, for example, start there, they have actually increased over the quarter. If you look at Denmark, we've also seen a positive momentum in the mortgages, in the plain vanilla mortgage business.
However, in Denmark, you know there's a lending mix issue on the NII, so consumer loans still have some challenges on the margins there. In Finland, there's a lot of competition there. I think there is a significant price competition. We are not going for the really cheap prices, so we are losing a little bit of market share, but still growing in Finland, but that's a challenging market. The margins. In Sweden, to the customer satisfaction point and to the efforts that we have executed, and I think I stood here last quarter talking about getting that customer intensity out and getting in front of our clients, that we're seeing an effect actually in Sweden as well. The volumes are broadly flat over the quarter, but in June, mortgage volumes actually increased almost 2%. We are seeing positive signals of momentum even in Sweden.
However, the margin pressure there persists. Those are sort of the trends in NII.
Adding up all those trends, that sounds like flat rather than growth. Is that the wrong thing of looking at it?
I think that we have an intention now, as we said before, to really try and start. We have had negative NII. We've seen a turning point. We have positive NII this quarter. We want to continue to grow with the market. That is the key.
Okay.
I don't know if there's anything they can add on.
I think maybe to add on that also, we don't guide that specifically on individual lines. I think you are much better equipped than us to do the modeling, but the trends we can describe for you.
A second point, what's the starting point? What's the number we should be looking at for 2017 to say that revenues won't be at that level? Could you just tell us a clean number?
The EUR 9.2 billion.
Thank you.
You will have some EUR 500 million in one-offs on top of that. Yes.
I want to make a point here, because I think, as Casper said, given the first half of this year, given the market developments during the half year, it is unlikely that we will meet those revenues. Generally speaking, I think being very prescriptive on revenues is. There's a lot of factors that are impacting overall revenues. There's the macroeconomic environment, there's the GDP, it's the interest rates, what the central bank does, there's a Trump effect, there's a Brexit effect, and so on and so forth. It's phenomenally difficult to predict. As we go forward, we would like to talk very much with you on the trends, the momentum is the business, and so on and so forth, rather than to be too prescriptive on revenue.
I hope that we can have a really good discussion about what is the momentum, what are the trends, what is driving the business, the headwinds, the tailwinds as we go forward. Nicolas.
Yes. First to follow up on the cost question from earlier. I think if I try to calculate the impact from the FX movements and divestments, it seems like you've had a tailwind on the cost side, maybe EUR 150 million.
Yeah. Continue, sorry.
Yeah. As pointed out earlier, you keep your cost guidance of EUR 4.9 billion, and it seems like you're actually trending a bit below that. If we assume that currency rates are going to stay at current levels, is a cost level between 4.7% and 4.8% more likely than the cost target of EUR 4.9 billion? How should we think about that?
I'll go back a little bit to what Casper said. We keep the target at EUR 4.9 billion. I think the headwind or the tailwind. Tailwind for FX is about EUR 60 million so far. Of course, that is something we need to fix. We can't manage our costs based on FX, so we are managing our costs in local currencies and based on activities and the efficiencies that we are actually delivering. What I can say is that this half year we have delivered the efficiencies in a good way. We are actually trending slightly below our target, which is positive. We are coming into the second half with a tailwind. However, this is also bearing fruit for some of the activities that we started earlier. Don't presume the trajectory is going to be the same.
It is most likely going to be flattened out. Then, of course, who knows what happens with FX. For now, we keep the EUR 4.9 billion target. We are doing well for that target. We have executed very well. There's another half to go and we'll see how we go going forward.
Then another question on the Net Interest Income in the second quarter that was impacted by adjustments to the Resolution Fund fee, some funding impacts as well, and you've been speaking also about positive impact from adjustment to state guarantees in Denmark, I think it is, in the commercial and business banking division. How should we think about that into Q3? How much of these changes and the impacts on the Net Interest Income in the second quarter will stay into Q3, and how should we strip those out?
Yeah, you can say now we had a year-to-date effect, mean that we both have so to say correction both for Q1 and Q2. Then obviously in Q3, you will not see the full impact, therefore you will see a headwind of maybe some EUR 10 million due to that. Then in Q4 it's going to be flattening out.
On the Resolution Fund fee?
On the combined, yes. We have a year-to-date correct effect of EUR 23, and roughly half of that comes from Q1.
On funding into the second half?
I think that it has potential to be somewhat lower, you're talking single-digit million EUR, it's not that big. Somewhat lower from quarter-on-quarter.
Finally, the state guarantee fee-
No, that's included in the 23 I talked about before. Yes.
Okay. Thank you.
Maybe also to highlight, this tailwind we have on cost is of course a corresponding headwind on revenues. One reason we don't expect to reach the 2017 level is also FX. That's included in that guidance. Magnus.
Yes. Just following up on costs. You talked about EUR 150 million in transformation costs for 2018. You've hardly booked anything in the first two quarters. Is that still the number we should look at for the full year?
We've booked north of EUR 40 million so far this quarter, so EUR 42 million I believe it is. I think we have obviously a target out in 2021. We have a lot of initiatives in place. For now, we are keeping that number as is, as we expect for the utilization of it in the second half.
Okay. Then headcount outlook. Headcount was down quite significantly. What kind of trajectory should we look at for the remainder of the year?
In terms of the headcount trajectory, I think we have announced before 6,000 people. We are on track to meet that. We will continue that trend going forward. Obviously making sure that we treat our people well in all this transformation process, because transformation is necessary given where we're at, but it's also a little bit difficult. We are keeping the trajectory as is.
Remember this quarter when we deconsolidate the Nordea Life and Pension Denmark business, that reduces staff by 480, and that's not part of the 6,000 Chris refers to, is 4,000 staff and 2,000 consultants.
I believe you strip that out, it's about 2-300 this quarter.
Correct.
Okay. Thanks. On asset management for the second quarter in a row, you have huge outflows impacting your asset base, of course. What's happening there?
Let me try and split, because now you're talking about AUM, right? Let me try and split it up in two sort of components. The first component is actually, let's call it what we've talked about before, what happened with the Stable Return Fund. Remember where they came from. Stable Return Fund grew really, really fast, was super successful. Remember that the quality of that was. Therefore we had to make a decision to soft close it. Now given also a little bit of the sentiment in the market that there's more adjustments away from stable into more risky asset funds, that has mainly therefore not had the inflow that it has had historically. Now there is an outflow in the Stable Return Fund, and that is really the trend that continues from Q1.
This quarter we've also had some significant institutional, just a very few institutional outflows because they have started their own in-house business. In-house, they've insourced their asset management. Those are the business impact. There's some of the structural elements that we talked about last quarter are still affecting this quarter. One is the sale of our international private banking business in Luxembourg that has caused outflow. You have the transfer of clients internally, so internal structural issue between private banking to personal banking. We account for AUM in a different way. We take those two blocks together, they account for majority of the net outflow, and they're broadly sort of 60/40. If you have stripped that out, the net inflow to the rest of the business is actually EUR 600 million.
We are seeing momentum in certain other areas of our business in AUM. Private Bank in Sweden, not only has customer satisfaction gone up, but actually that has actually performed very well. There we've had a net inflow of over EUR 1 billion. We are seeing it in other areas, the underlying is having some inflows as well. Those are the main issues. I do think, though, as you go forward, some of the internal structure elements, they are largely now dissipating. We do have some headwinds still, particularly on that wholesale distribution front.
Okay. Thank you. Finally, just on the dividend from the life company. Was this it for 2018?
We had a dividend of EUR 100 million in this quarter. You can say, the life company is well over-capitalized, and it will be over-capitalized also after this dividend. We don't plan to make a new dividend in 2018. We'd usually take the dividend in Q1 every year. The next one is the normal one in Q1 2019.
Okay, thanks.
We have a telephone conference, please, operator, if you can open it up.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question over the telephone, please press star one. We will take our first person who is Mattias Håkansson from Danske Bank. Please go ahead, your line is now open.
Yes, good morning. Two questions from me, please. Firstly, regarding your comments on the Swedish mortgage market outlook. When you talk about the margin pressure here, do you refer to the fact that you change your prices or a more general comment about the margin pressure in the market? We are hearing a bit conflicting thoughts from your competitors on this. The second question is that there was some press articles earlier on last month, about Nordea actually reducing the return requirement on corporate lending. How would you comment that, and is this true? Thanks.
Sorry, it was slightly difficult to hear, but I understand the first question about the Swedish mortgage market and the second question about corporate lending, in particular wholesale. Just to take a step back, early 2017, the Swedish housing market was very hot. We made a decision then to basically take a risk-based approach and not go for the very risky loans. As such, we effectively did not grow with the market at that point in time. However, towards the latter part of that year, Swedish housing market has stabilized. Prices actually came down, and we have now therefore made a strategic decision to go back and try and grow with our natural market share.
As part of that, we have, in January and in April, reduced some of our list prices, because we want to be competitive and also it's pleasing to make our customers happy to do more business, and this is one of their biggest purchases they do their entire lives. That has had an impact on the margins for us. The intent is, of course, to grow, and that is what happened in June. We actually saw when we changed the list prices, the amount of inquiries that we had increased over 50%, just in those sort of few weeks when we came out with the new list prices. Since then, we've seen a significant increase in applications. It does take a bit of time after you've made the commitment, to actually get the processing in place and actually get the loans going.
That's what we saw in June, volumes increasing by 1.5% or so. We have that, therefore, tailwind going into Q3 on volumes. However, margins still remain challenging, partly because we've reduced it. Now it is worth to note that STIBOR also increased over this quarter, and that has impacted the reported NII margins in Sweden. There's actually an offsetting income in the other group functions to the previous question. If you look at the overall margin impact, NII is down about -9% or so on a local basis. Broadly speaking, if you take the whole thing into account with respect to the impact in group functions, it's roughly between 4%-5%, is the impact. Then it was the corporate lending. The corporate margins, it's a competitive environment out there.
We are there to grow and keep our franchise, and we are pricing it competitively to win business. We are looking at our average returns over a portfolio and over the various products. That is how we continue to look at the business. Particularly wholesale banking is a return-based business, where we look at the portfolio of customers. Of course, it's not just about lending when you lend to a corporate customer, it is about the overall relationship and the portfolio and the business that you make with those customers, both at lending, but also the ancillary income in terms of other activities that they do. It's broad based. I don't think we've alleviated any return hurdles. Instead, the return hurdles remain as is on full target. Same target as before in wholesale banking.
Great. Thanks.
Next question from the telephone conference, please.
Thank you. Our next person is Sophie Lund-Yates from JP Morgan. Please go ahead, your line is now open.
Yeah. Hi, here is Sophie Lund-Yates from JP Morgan. I wanted to ask about excess capital. Your capital position is strong at the moment, and you announced the Gjensidige acquisition. I was wondering, how should we think about further acquisitions, and if you plan to do further acquisitions, will it be purely in the Nordic region or could you potentially also consider something outside of the Nordic region? My second question would be on trading income. I know you don't guide specifically on the different lines, but in the beginning of the call, you mentioned that underlying trading for customers is around EUR 200 million-EUR 250 million. Does the EUR 300 million-EUR 350 million normalized trading income still hold, or should we assume lower trading income going forward? Thank you.
Apologies for my hearing, but I heard the second question, but not the first question. I'll leave the first question to Rodney, and I'll try to take the second question. I'll take the second question first. Trading. Yes, as I said, it is a tough environment in the Nordics. Low volatility, yield curves are flattened, softer messaging from Draghi, Italy, and so on and so forth. It is important to say, and I think Casper said it in his presentation, that the customer-driven business from the Net Fair Value income line actually increased this quarter. It's actually up 13%, which I think is a great testament to the products, the services, and the intensity that they're driving the business. The risk management of the trading business was very weak this quarter, and that is really what has driven that line slightly down.
If you look at the overall Net Fair Value line, and you take out the one-off that we had last quarter, it's down roughly 15% in totality. Given the market environment, well, you may be the judge. Of course, this quarter, we have also been affected with roughly EUR 26 million impact from the sale of NLP Denmark. On top of that, you got the XVA effect. If you add them back, you're actually reasonably close to the lower end of that guidance of EUR 300 million to EUR 350 million. Going forward, though, given where we are, I would probably estimate this line to be more around that EUR 300 million mark, ±EUR 25 or so. That's what I think you should have in your heads.
On the first part of acquisitions, yes, this morning we bought 40%, we announced the acquisition of 40% of an asset manager. It's a very small acquisition, but still. Yes, we are open. We have no further plans. We will of course inform you if we find anything. Yes, on geography, as Casper said before, we have really focused our business to the Nordic region. Now we are 98%, 99% Nordic. That's our core markets.
Thank you.
Thank you. One more question from the telephone conference.
Thank you. Our next question comes from Kinner Lakhani from Deutsche Bank. Please go ahead, your line is now open.
Hi. Just one question for me. You touched upon it or Casper touched upon it with the Net Promoter Score, I guess the big question for all of us, when we look at you in particular, is not only how you're doing, how are you doing relative to what the market is indicating. Can you give us examples of other things that you are monitoring just to see your own performance relative to what the market would indicate, where you are improving relative to what you should be seeing? Are there any other key performance indicators than the Net Promoter Score? Thanks.
Yes, we have the Net Promoter Score. We also have Customer Engagement Index. That has also shown the same promising signs, in particular in Sweden and household as well. As Casper said, this is directionally positive, the Net Promoter Score was a big jump in Sweden. We've also got similar surveys in private banking in Sweden, which is also showing positive signs, and so on. Clearly, though, given where we're at, that is the good trend that we're seeing, we still have some work to do to catch up to really further be where we want to be with respect to our customer satisfaction. Then of course, in other areas, I know both in markets areas, in wholesale banking, you have various other surveys. We have Prospera, for example, which is commonly used here in the Nordics.
There we have also very good results in many of our product and services areas. In asset management, they also survey the clients themselves. There are a lot of internal, but there are also a significant amount of external surveys that we do as well. If you think about those areas, that's a lot for us to see where we are performing and how we are doing. Our customer satisfaction, for example, in large corporates, has been very strong. We're number one in the majority of league tables in the investment banking business in the Nordics. That is also a testament to customer satisfaction. There are a few different ones, both external and internal ones.
Of course, the ultimate proof of the pudding is that we see volumes coming back. Mortgages now have growth in June. In private banking, we had more than a 1 billion EUR inflow in Swedish private banking. The business momentum is, of course, the biggest evidence that we have turned the corner.
Okay. I guess, looking for these forward-looking indicators. I know some of them will obviously internal, and for competition reasons, you won't want to disclose those. Is there any of this that you can disclose on a regular basis so that we can see and better track how you're doing?
I think the best way is actually the public surveys, which we will help. Of course, we can summarize them and disclose those to you because they're out there publicly, the various Prospera surveys and so on and so forth, those we can disclose. The rest, we can talk about the various trends in our business.
Okay, thank you.
Okay. Let's go back to the audience here and then we'll come back to the telephone conference later. Petrus Advisers, followed by Peter.
Okay. Thanks. Jens Hallén from Carnegie. First, just a little bit back to NII. I know Swedish mortgages is fairly small on your balance sheet, but I'm trying to use that to tie up your comments or the positive comments on momentum and positive customer satisfaction score. We're seeing the two largest mortgage banks in Sweden manage to grow in line with the market, but without changing the margin so much. Whereas you felt the need to reduce margins to, I guess, deliver pretty flat volumes in Q2. Can you try to just give a bit more flavor of when are we going to see the momentum coming through in some of those numbers?
Well, I can say we're coming into Q3 with tailwind, given what happened in June. We have, as I said before, seen a lot of new applicants come in. The time to take to get the applicants, and then they get the loan on the books, and then actually start earning the revenues, that takes a bit of time, and that's a little bit, I think, what we saw in June. I would say the following. We have changed the trend. We've had some outflow, now we have inflows. That's a positive change. I also want to be a little bit cautious that the margin pressure still remains. We are growing the volume. Then in Denmark, we are also increasing the volume as well as in Norway.
In Norway, we are actually coming into, with NIBOR having fallen towards the end of the quarter, we actually have a tailwind also on margins in Norway.
Can I just come back to the margin pressure that you talk about. Where do you see that in Sweden? I think this is where I'm trying to add up the comments from the likes of Handelsbanken and Swedbank that they have just kept margins. Whereas I think both you and SEB are talking about the margin pressure. Do you feel that you're on different markets than they are and that's why-
No, now I refer to particularly household.
Yeah, I mean-
I think if you look at our overall Swedish NII, that's also the corporate base and the large corporates. The volume there has actually, as I said, the credit demand is actually positive. The margins over this quarter has also come down in that area as well. It's not as pressurized as the household, but that's also a challenge because it's a reasonably buoyant market at the moment.
I think you also need to see where we are coming from. As Chris said before, we have been very cautious on mortgages, and especially the more leveraged part of the mortgage market. We had a very differentiated pricing. If you were a, so to say, a low LTV customer with good cash flow and wealth and so forth, we had actually one of the best rates already before. While if you were the opposite, we had the by far highest rate because we didn't want to participate there. We see that leverage is coming down, prices are falling, we see a much more stable environment. Therefore, we can now participate in this part of the segment as well. When we lower the list price, it's mainly to come in there, where we have been higher than the other banks.
Obviously we have margin pressure because we're adjusting rates to where the others are. We have also, for instance, adjusted our stress test. Before we had the strictest stress test in Sweden. We had 8% stress test level, while all the others had 6%-7%. Now that's adjusted to 7%, because we don't see that need anymore because the market is much more in balance. We also have strict amortization rules. We are coming from another level than the other banks, which I think is important to remember.
Okay. Fair enough. Thank you. May I ask a quick question on Gjensidige, the transaction that you did? Trying to get a feeling for whether you bought volume in Norway or whether this is something that you feel that you can use the system and use that in the other countries, how we should look at that from, I guess, 2019, 2020 onwards.
I think a little bit of what Casper said, this is actually a strategic decision to continue the growth in Norway, which is one of our core markets. A couple of things. Firstly, yes, there's 176,000 customers. That's your volume question. I think there's a capability question here as well. They are good in consumer finance, car loans, and so on in Norway, which is very complementary to the business that we have in Norway as well. I think it's a strategic partnership with Gjensidige. They got 750,000 customers. They're the biggest P&C company in Norway. 500 or so is our best estimate. Don't bank with Nordea. I think for us, it's channels. It's also the fact that it is a digital platform. Clearly there are things that we can collaborate and cross-fertilize across over Nordic over time.
It's the partnership and the complementary capabilities that they have, as well as actually the cultural mix seems to be is aligned as well. Those things together, I think can strategically help us grow and develop that business further, and in particular on the cross-selling front in Norway.
Okay. Thank you.
Peter?
Yes. Just a very small question on NII from my side. You have in the past spoken about lower funding costs, and you saw roughly EUR 4 million of lower funding costs in a quarter. Is that it, or should we expect anything more onwards?
I think for funding costs, I already mentioned that it might go down a little bit towards the second half, but I think our funding costs are quite low. It might go down a little bit. For this quarter or this year, I think we've estimated that the benefit of funding overall will be around EUR 70 million-EUR 80 million on NII from before. I think at the moment, this quarter improved a bit. I think it will be stable going into the second half.
Okay. Sequentially into Q3, Q4, we might not see anything.
Continue as is.
Okay.
Yes.
If you please can go back to the telephone conference. Operator, please.
Yes, sir. Our next question comes from Riccardo Rovere from Mediobanca. Please go ahead. Your line is now open.
Good morning to everyone. Couple of questions, if I may. The first one is, if I understand it correctly, you are conveying us mostly two messages this morning. The cost base, you are keeping it unchanged. The cost target, sorry. You're keeping it unchanged at EUR 4.9 billion because what you have seen in the first half is somehow affected by FX, and you don't know how FX can move over the rest of the year. I respect that. The other message you are telling us is that you think it's not going to be easy for Nordea to match the same level of revenues reported in 2017 that you have quantified before. If I understood it correctly, EUR 9.2 billion. Revenues in the first half were affected by FX, too.
This is maybe one of the reasons why actually they were affected probably more than cost given that you're not running the business with a cost-income ratio above 100%. If I forget cost and I forget revenues, do you think that the operating profit, so revenues minus cost at the end of 2018, can be more or less aligned or a little bit better than what you reported at the end of 2017? This is the first question. The second question I have is on capital and RWA. Can we say that the capital level will likely stay, aside from the acquisition of Gjensidige Bank, can more or less stay at these levels as after the dividend, the amount of capital that you will be generating internally will be used for growth instead of continuing to deleverage the business?
This could be a pretty, let's say, a fairly bullish statement given the recent track record on Nordea. Can I say that the capital can stay more or less around 20%?
I think the first question was, will profits be greater in 2018 than 2017? We are confident that we can achieve that. I guess the expectation is yes on that answer.
Sorry, Mr. Rees. I was not referring to the bottom line. I was referring to revenues minus cost. Credit loss, taxes, forget it. Revenues minus cost. Do you think you can do at least the same level of last year or a little bit better than that? Revenues minus cost, nothing else than that.
Yeah. Riccardo, we have not guided on that one. Unfortunately, we cannot comment on that. What we do comment is that net profit will be higher. You can see the trends on loan losses. As you can see, we have a very good solid trend on loan losses. Of course, that's a good indication for you so you can strip out that, you can see revenues and costs. We don't guide specifically on pre-provisioning profits.
Okay. Fine.
On the capital front, I might as well answer the question that most probably people are also thinking about, is that we are in the middle of a transition into the banking union. That's a quite unique situation. We have committed to maintain the same nominal amount of capital that we will have after the SREP 2019, which we will get to know in the end of September. That is the nominal amount of capital requirement that we will bring into the SSM or the ECB. Going forward from there, we will await the SREP 2019 from the SSM in terms of determining what that capital then will look like. Our aim is to maintain the same amount of capital post the process that we have today as we are a Swedish bank with a Swedish FSA.
To Casper's earlier point, because I know you were referring to acquisition and growth, we are open. We have a very strong management buffer. Years of the year will have an impact on it, of course. If opportunities arise, we have the possibilities to do things. It is not a capital distribution strategy to go for acquisition. The strategy is to continue to grow in the core Nordic markets, and if opportunities arise, we will consider. As we go forward, we maintain capital moving into the SSM at the same level that we will have in 30th of September.
Okay. Very clear. Thanks.
Next question from the telephone conference, please.
Thank you, sir. Bruce Hamilton from Morgan Stanley, please go ahead. Your line is now open.
Thanks. Morning, guys. My question's actually been asked. I'll pause on. Thank you very much.
Thank you, Bruce.
Thank you. Next one, please.
Thank you. Jacob Kruse from Autonomous Research, please go ahead, your line is now open.
Great. Thank you. Just two quick questions. First, on the cost side, in your presentation that you made in October on the cost cutting or on the restructuring initiatives, I think you were saying that there will be a gross reduction of cost of EUR 350 million-EUR 400 million, of which EUR 225 million-EUR 250 million in 2018. Is that plan still current? Should we still expect whatever your 2018 cost is, that there's another EUR 100 million-EUR 150 million of net cost reductions as the transformational program rolls out, until 2021? My second question was just on your comment just now on the capital. Are you saying you are going to run with the Swedish capital requirements until you get the European SREP in 2019?
Does that apply also after, as you're going to have some sort of look back to what you would have required in Sweden from 2019 onwards? Thank you.
Yeah, on the first question, I'm not sure I fully understood you, is it correct that you asked whether there are more cost savings to be done post-2018?
Yeah. Just your previous schedule said net savings of up to EUR 400 million, of which up to EUR 250 million in 2018.
Yes. Yeah. Exactly. The way we phrased this was that in 2021, the total cost base will be below EUR 4.8 billion, and that still stands. Of course, please remember that FX movements can of course lead to another number, and currently the number is lower, but we'd still stick to that because no one knows how the SEK will move.
Yes. I guess my question is on constant FX, assuming you deliver EUR 4.8 billion this year, should we assume that on constant FX, you should hit EUR 4.6 billion to EUR 4.7 billion in 2021, just given the operating
Yeah. I don't want to speculate about the 2018 targets. Let's deliver on the 2018 first.
On capital-
Okay.
I'll try and make that a little bit clearer. We are today a Swedish bank. We are regulated under the Swedish FSA, and we are going through the Swedish SREP process. They will come out with their requirement at the end of September, and that will imply a nominal capital amount requirement for Nordea. That we commit to keep the same as we go into the SSM. As we go through 2019, we will get a new SREP from the SSM. We will, of course, communicate on that one when we get it. That is the plan. During that transition, we will maintain the nominal amount of capital effectively given to us by the Swedish FSA.
Right. That gets superseded by the European SREP in September 2019.
Correct.
Jacob, just to come back to your comment, when it comes to our cost plan, yes, we have cost initiatives that will come post-2018. That we do have. I don't want to speculate how we will end up in 2018. That's still EUR 4.9 billion.
Yes. No, sorry. I just mean if 2018 is any number, the 2021 number should be EUR 100 million or so below that.
We have cost initiatives also after 2018.
Yeah. Okay. Thank you.
Thank you. Next question, please.
It is from Adrian Cighi from RBC. Please go ahead, your line is now open.
Hi there. I just had one quick technical follow-up on capital, please. Will you be impacted from the move of the 25% mortgage risk weight firm from Pillar 2 to Pillar 1 in Sweden, or will that apply only to your Swedish portfolio after the end of the year? Thank you.
No, we will be impacted by the Article 458 from Pillar 2 going to Pillar 1 for the Swedish risk weight floors. I believe if we remained under the Swedish system, and I think we showed some charts there in the Q1, the capital requirement will go to, if I recall correctly, around about 16.4 when we made those adjustments.
The Pillar 1 floor won't apply to your non-Swedish portfolio once you move out.
Yes, that's correct. Please remember that we have also floors in Norway and Finland already before.
Right.
Yes.
Right. Thank you.
Next question, please.
Ian Sealey from Citigroup, please go ahead. Your line is now open.
Good morning. It's Ian Sealey from Citigroup. Two quick ones, if I may. Firstly, in your economic environment statement, you say in the Nordics we are seeing signs that the economic cycle is starting to reach a peak level. Can you just maybe elaborate a little bit on that and what it means for lending growth across household and corporate? Second question on impairment. If I look across the different categories of that, it seems we obviously saw Russia in the quarter, but also we saw an increase in personal in Denmark and Finland. Is there any more color you can give on that would be very useful as well. Thank you.
Sorry, Ian. I was listening to the second question. Please repeat the first one. Now we're ready. The peak. Yes. Sorry. No, we do see a peak, and that's mainly for Sweden, where we see that we expect a slowdown in GDP, driven by less construction, less spending, and also higher rates. That's our expectations. In terms of loan growth, we have seen a slow loan growth now for quite some time, and we don't really expect that to slow down because especially in the corporate sector, we do have a lot of underinvestments. We see actually investments in the society being less than the depreciations. We actually disinvest. Therefore, now we are quite optimistic that you can see continued loan growth, and we still expect some 2% to 3% blended in the region.
It's actually interesting, if you look at a chart of the classical CapEx expenditure in the corporate sector, it has been coming down consistently over the last few periods, and it's actually now starting to turn. I think if you look at our numbers, you can see in the corporate lending volume, that is actually feeding through a little bit as well. Remind us the second question, please.
Just on impairments and the three key drivers of personal Denmark, Finland, and Russia.
There are no new U.S. sanctions this year, and we have just taken a conservative, prudent measure to reserve against any potential impact it might have on some of our counterparties on their financial performance due to those U.S. sanctions. That is really the main impact this quarter. If you look at the rest of our impairments, they're actually, in particular on the corporate sector, across the board, net reversals.
Yes. You are right that we did some provisions in Finland and Denmark due to model adjustments.
Right.
There's no deterioration in credit quality. That's what I'm saying.
Very useful. Thank you very much.
Next question, please.
Thank you. We have a follow-up from Riccardo Rovere from Mediobanca. Please go ahead. Your line is now open.
Yes. Thanks. Just a clarification. Did I get it right that you expect trading revenues in the region of EUR 1 billion in 2018? Is the number correct?
No. We have said that a normal quarter, you should expect around EUR 300 million of fair value income, and then EUR ±25 million. Previously we said EUR 300-EUR 350 million, but this is purely an adjustment with the divestment of Nordea Life and Pension Denmark, which is EUR 26 million per quarter. EUR 300 million per quarter.
Okay. Got it. Thanks.
Do we have more questions from the telephone conference?
No. No further questions over the telephone at this time, sir.
Thank you. We move back to the audience here. Do we have any more questions in the room? Is everything crystal clear? Thank you very much. Thank you for listening in, and thank you for coming.
We hope to see you before, now g o and enjoy the lovely summer here in Sweden, have a great summer, and see you in the autumn.
Thank you