Welcome everyone to this press conference, where Nordea will present its Second Quarter 2018 Report. My name is Rodman Alveen, Head of Investor Relations. We will start with a presentation by the President and Group CEO, Mr. Casper von Kooskull. Then we will open up for some high level questions for him.
Then we will split the group into 2, where the journalists can have 1 on 1 interviews with Casper and the rest are welcome to stay for questions for our Group CFO, Chris Rees and me. We also have a special guest from Edinburgh today. Casper, please?
Thank you, Ed and good morning and great to see you all here. I apologize, I'm a little bit losing my voice in one of these classic summer calls, 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, but I think I would like to set the scene.
I'd like to set the scene and 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, and 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 1,000 of digital experts into the bank. And over the last several years, we have actually invested €900,000,000 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, but we have been innovators since we were founded. Founding Nordea, putting Nordea in place the way it is today was really innovative. So we've been innovators since our foundation and we still are. Today, 30% of our customer meetings are actually done digitally online, 30%, and that's only the start.
We embrace change and 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 derisked 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, and we want to actually focus on being the leading bank in the Nordic region. The recent acquisition of Jensidige 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 1500 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. But we've come a long way and I feel very good about it. And then 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. And 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. So it's a step towards really being in the banking union by 1st October this year.
So 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. And this, of course, is only a beginning.
We have upgraded our Apple Pay services. We have launched Apple Pay in Norway, but 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. Again, 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 3 in this area in the banking in the world. So we've actually been named top 3 in terms of open banking portal in the world. We Trade is our blockchain platform for trade, which we actually have developed together with 8 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 We Trade.
Again, 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 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 Codet was launched in Finland and in Sweden, and 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. And then we have the mobile app. We mentioned that before, 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 adviser on your mobile. And 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. And 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, and I mean really strongly. And 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 1 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. And 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 advisers that we call business partners and their proactive way of dealing with our customers. So 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 5 for me are critical. Customers is really is the income, cost, credit quality, which is risk, capital, of course, key for to be a strong bank, and compliance, which needs to be really left, right and center of everything we do, and 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, but 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 the really the event of this quarter was the announcement that we will buy Jensidige 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 JNC Digger Verskling, which is the largest P and C player in the Nordic Norwegian market. And I think being the number 2 bank and number 1 P and C company working together, I think this partnership will actually have mutual benefits to both. It's a great partner to have in Norway. So 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% visavislastquarter, showing really that business momentum coming through. And we had a lower fair value number because of more difficult trading environment. I'll come back to that.
But when we look at operating income, we are up 10% visavis 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% compared 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 2 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%. And I think I've stood every time I've stand here, I say we have never had capital levels at this level. And I can say it again, core Tier 1 at 19.9 is actually the highest core Tier 1 ratio we have ever had as a bank. So customers, cost, credit, capital compliance and we're pleased that we are delivering on those. I 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. And 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. And 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 Q3. 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, we have given that NIBOR is falling, that actually eases that going into the Q3. But in Sweden, there is definitely pressure on the mortgage margins that you all know.
We do have lower funding and regulatory costs, but plus 2% on NII. Then 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. And this despite the fact that we have lower volumes in Asset Management, That's something that we are working on. But the fact that we have lower volumes in Asset Management and grow the fee commission line by 5% shows really the strength of our 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 and 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. But it is important that you have customer intensity and then, of course, you need to have really a number one product and service offering, that combination. I typically take up maybe one landmark transaction.
We've had many, particularly in the M and A and equity side, But I will actually not take out a M and 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 7 markets. This is probably the largest or one of the largest cash management transactions in the Nordic region and 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.
So it's not only about equity M and 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. And if you look at the customer area over really here you see 6 quarters, you can see that the customer business and I've said that I think repeatedly over many years, the customer area in on the Netfair line is a stable €200,000,000 to €250,000,000 revenue quarter by quarter. And in the second quarter, we actually had improved revenues compared to last quarter.
The trading environment is soft. So in that sense, that is impacts net fair value. And we have to also remember that we have deconsolidated Nordea Life and Pension and we have some negative XVA impact as well. But customer business is stable and improving, which is also very good because we have made big changes in that being more offensive in terms of the structure. So we are very well positioned actually going forward.
And 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 1st 6 months, and now I'm looking at the 1st 6 months, I'm not looking at the quarter, we're actually down 5% visavis if we compare it to last year. And this is despite the fact that we have actually increased depreciations and we also have transformation costs included in this. Then 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 1st 6 months compared to last year. So 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 and cash cost has impact on the capital for bank. So you need to also look at cash cost and we have actually we look at both cost lines or look at cost in both dimensions. And 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. So it is not only the reported cost, but also the cash cost.
And 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 and I think we have wanted to reserve for that in advance should that happen. There is uncertainty as you all know, you all follow it and we've done it. When we look at the our core Nordic business, we actually have write backs, and actually our gross impairment rate is also down. So I think the credit book is solid, I'm very happy to say, and I don't see any major change in at least the coming quarters.
You can never see too far, but 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 core Tier 1 level, but also the management buffer now at is at a level at 2.4 is at a level that we have never it before. Also feels good to have it at this level going into the redomiciliation and having the flexibility. So being strong, well capitalized, I think, has always been something that has been the kind of the market that Nordea has always had.
So going into the banking union with this is, of course, something that gives me very high comfort level. In terms of did I jump over something? Yes, I did actually. Maybe a few words on the Jensidige Bank announcement that we have made. This is a good fit for Nordea.
The ENCDE Bank is a growing bank. It's a profitable bank and it's also a digital bank. It has a good actually low risk profile. 80% of its assets are on the mortgage side. And strategically, it actually brings also competencies and capabilities, not only for our Norwegian business, but the bank more broadly.
So the strategic fit is very good and IFRS look very much forward to, once we have closed this deal, welcoming the ENCD Bank employees to the Nordea family and also having them to contribute not only in their own business, but contributing in Norway and actually for Nordea more broadly. Those capabilities will be very, very valuable that we have. And as I mentioned also the partnership with Jensidige, the insurance side of it is something that we see potential both for them and us, Mutual Beneficial being the number 2 bank and number 1 insurer in the market, something it's a I think it's a great kind of great partnership and not to tie. In terms of the move, it's going according to plan. We expect that we will be in the banking union and headquartered in Finland by 1st 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. And 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, I am 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's much more fun.
And this time, I really wanted to finish on innovation. Innovation to many is a buzzword. Yes, innovation, everybody talks about innovation. What is innovation? And I we want to give you one example.
What's innovation at Nordea? It's 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. So we look at a video on innovation and then I'll what is innovation, one example of innovation within Nordea. So Tabs, can you tell the audience who you are and maybe something about the video itself?
Because there's a lot behind that video.
Yes. No, absolutely. I love that video. So yes, my name is Tabitha Cooper, and I've been working in the banking business, Financial Services, for 18 years, and I'm very, very passionate about change. So what is Runway?
Well, Runway is the video that you just saw. But earlier on in the talk, Casper, you talked about Nordea being an organization that seeks to boost, support and enable innovation. So Runway is basically an entrepreneurship program that does just that. So 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.
So the way that we do that is this process which you see where we support them in new ways of working. So 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've also given them access to our executive management team.
We give them access to business sponsors and also our customers. So basically, what Runway does is it supports and enables our colleagues to run fast.
Why is that important?
Well, I mean, you actually kind of said it yourself earlier, and you've said it on many occasions too, Casper. But the world is changing and it's changing fast. The speed of that change itself also is speeding up, it's accelerating. And the reason that that's happening is because of the significant improvements in technology, but also the radical improvements in the connectivity infrastructure. So what that means is that obviously, the world is enabled to move faster.
And so what's happened then as a result of that is a boom in entrepreneurship globally. So the results of that entrepreneurship means that customers and society have come to expect a much higher standard of solution and service. And so why is it important? Well, it's important that all traditional organizations actually change and adapt to this new way of being. So I think, yes, that's why it's important.
And 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. But I can really honestly say that we're not this is not the organization
to pan out.
Thank
you, Thabbs. Pleasure.
Thank you.
Well, this we had 136 ideas that were pitched by the organization. We selected 10 kind of finalists and then from there 3 winners. And if you just think about 136, there were many big teams. That's actually 100, no 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 and they get the tools, they get the resources and they get the ability to solve customer problems. And this is only one of many of our ways of trying to really boost innovation.
So we are at the forefront here and we intend to stay in the forefront in this area. Anyway, I want to give that and I think we'll try to do this also going forward. Give you a little bit snippets to 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 kind of direct us forward?
Yes. I also like to ask personal help, maybe Bjorn. We have some time for high level questions for Kastur before we split up. So Magnus, followed by Peter, Do we have a mic?
Yes, mic would be
good to have. Yes. The mic
is on his way. Sorry.
Yes. Hi. Magnus Andersson at ABG. Just on costs, the annualized Q2 cost level was SEK 4.6 billion, and you have some FX tailwinds of SEK 50,000,000 to SEK 100,000,000. But even if I add SEK 100,000,000 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.
I mean, even if FX would swing back a bit, you will be significantly below the 4.9%. 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?
No, I think it's partly cautious, Batya, also that we know that sometimes it goes faster and then it tails off a little bit. We also are still continuing to this transformation. We invest still heavily into particularly now into kind of the front line of it. And I don't see a reason to change it now. I mean, I think we are on a path.
We have, of course, a target for 2021 as well. So 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 can not only take 1 quarter is not a full year. So let's take one step at a time.
Okay. But if I would say that the cost guidance you gave in Q3 'seventeen looks a bit conservative now, would you agree?
I'm not going to go into that field. Okay. I'm happy with it.
Yes. The second question, yes, you announced an acquisition recently of Gensleria and now another smaller transaction today. Is it the case that
the new platform will make it
easier for you to integrate acquisitions?
The
The second is not going to be integrated per se, but the first one, we intend to integrate, yes, to Encore when that at least how we do it and when we do it, we'll have to we'll help come back. But of course, our intention is to do that. And once we have it, of course, there that is of course the plan.
Is the fact that you're upgrading your platform making it easier to integrate acquisition than it would have been?
That should be the case, yes. That will be the case.
Okay, thanks.
Peter?
Yes. Hi, Peter Kessel from SEB. Just one follow-up question from Magnus on the acquisition of Gjensittery Bank. I mean, 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 we just it's the same as we will actually, of course, take the Norwegian, the Finnish, the Danish go into Encore. This is just one piece. So 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 and we now show that we can do it.
So in that sense, you do not yes, you add one more integration, but you don't add complexity because it will then be running on ENCORE. So 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. But yes, there is one more integration to do, but then that is actually one of the core competencies that we now create by doing this in all four countries. So I think I would actually see this as a positive.
Okay. Then just my 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?
What's I mean, what's the improvement? What's it caused by
or Or well, what are you seeing that tells you that you're improving customer satisfaction, that it's
We do a very deep assessment and analysis on Net Promoter Scores on our customers constantly. And 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. But 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 it, of course, has affected, there's a lot of emotions around it.
All these things have affected also the transformation per se. It's 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. So it's real and it's real our customers going to them and in big volumes. So that's what we see.
And so that's hard numbers for us.
But 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 biggest. We see a stable trend in the other ones. We also see improvements there, but that's more stable. And then I also emphasize that this is particularly when I talk the very the strong improvement is actually in the household, the mass market segment. We have many segments, private bank and now talking Sweden or other countries, private banking, corporate banking, business banking, where we have very good customer satisfaction figures.
As I said, in Wholesale Banking, we are the number one franchise in the region. We have to remember, we have many, many customers very happy. It's this segment, which, of course, the media and more broadly where the image comes through. And I'm very conscious that we need to fix it, but it's not customer satisfaction across the board and it's not even customer satisfaction across the board Sweden, it's that segment and there we have seen a very meaningful improvement. But 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.
And I think I actually lose my voice. So I think that will actually
Hi, Robert Ronde, Kepler Cheuvreux. Given the strong capital and you have a strong management buffer, which may eventually even go get widened with the move to Finland. Is this type of acquisitions with Jansidige Bank that we saw in the quarter, is Termea a way to manage down the capital? And should we expect more of these type of acquisitions rather than distributions?
It's another way to manage down capital. I think we this is certainly, our capital allows to make this. This was an attractive acquisition for us. We did it. We predominantly, we grow organically.
But of course, a bank like us, we need to be strategically savvy. And when we see opportunities, we can do that as well. So but it's not a capital driven strategy. It was 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 1 on ones with Casper, please follow him and AFREDITE, and AFREDITE will take care of you. And the rest of you are more than welcome to stay for the Q and A session. We also have a telephone conference, so people can call in.
So while people are going out, I would like to welcome our group CFO, Mr. Christoph Rees. Thank you.
Good to
see you all here again. This is actually my 1st full quarter here. Last time I'd be I was just being in this role for 3 weeks. Now it's 3 months. I think last time, Rodney briefed me over a cup of coffee.
Now I've been in 3 months, and he's just briefed me still with one cup of coffee. So there you go. But I have to say though, being a CFO and I've been in the banking business mainly in U. S. And America fronts 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. Anyway.
Thank you. So I think we start with Andreas followed by Nicolas at Herdmanos.
Do we have the people on the line? Yes, we have people on the line as well.
Thank you. It's Andreas from Exane here. A question on net interest income. I was looking at the bridge. And if I looked at the margins and volumes contribution, I think that was minus 31 in the quarter.
And then other items were plus €53,000,000 And when we focus coming quarters, I mean, it's easier for us to continue to focus on margins and volumes rather than the other, which is 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 NII?
So let's look at the some of the dynamics in the various regions. So if you take let me take corporates first because I think that has a story there. We've had, as we've talked about in Wholesale Banking derisked in Russia, in particular in SRO, 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.
So we see credit demand stabilizing and increasing. So that is a clear underlying sort of path or tailwind going into Q3. Then if you look at the sort of 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 that 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's 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. And then the margins and then 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%. So we are seeing positive signals of momentum even in Sweden. However, the margin pressure there persists. So that is those are sort of the trends in NII.
But adding up all those trends, that sounds like flat rather than growth. Is that the wrong thing of looking at it?
I'll leave it to I think that we have an intention now, as we said before, to really try and start we have had negative NII now. 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
taken on. No,
I think maybe
to add on that also, I mean, we don't guide that specifically on individual lines. So I mean, I think you are much better equipped than us to do the modeling, but the trends we can describe for you.
And 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 €9,200,000,000
Thank you.
And then you will have some €500,000,000 in one offs on top of that.
Yes. But I want to make a point here because I think as Casper said, it's given the first half of this year, given the market developments during the half year, it is unlikely that we will meet those revenues. And generally speaking, I think I'll be very prescriptive on revenues is very there's a lot of factors that are impacting overall revenues. This is the macroeconomic environment, this is GDP, it's the interest rates, it's also the Central Bank does, there's a Trump effect, there's a Brexit effect and so on and so. It's phenomenally difficult to predict.
So as we go forward, we would like to talk very much with you on the trends, the momentum is in business and so on and so forth rather than to be too prescriptive on revenues. So 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. So first, a follow-up on the cost question from earlier. I think if I try to calculate impacts from the FX movements and divestments, it seems like you had a tailwind on the cost of maybe €150,000,000 but as you
Yes, Dominic continue, sorry.
Yes. But yes, as pointed out earlier, you keep your cost guidance of SEK 4,900,000,000 and it seems like you're actually trending a bit below that. So is that if we assume that currency rates are going to stay at current levels, is the cost level between 4.7% and 4.8% more likely than the cost target of 4.9% How should we think about that?
I'll go back a little bit to what Kasper said. We keep the target at SEK 4,900,000. I think the headwind or the tailwind, I'm going to be managing them now, Tailwind for FX is about SEK 60,000,000 so far. And 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. So we are actually trending slightly below our target, which is positive. So we are coming into the second half with a tailwind. However, this is also bearing fruit from some of the activities that we started earlier.
So it is there is a it can also don't presume the trajectory is going to be the same. It is most likely going to be flattened out. And then, of course, who knows what happens with FX. So for now, we keep the 4.9% target. We are doing well for that target.
We have executed very well. But there's another half to go, and we'll have we'll see how we go going forward.
And 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're speaking also about positive impact from adjustment to state guarantees in Denmark, I think it is in the Commercial and Business Banking division. If we how should we think about that into Q3? How much of this changes and impacts on the net interest income in the second quarter will stay into Q3?
And how should we strip those out?
Yes. You can say now we had the year to date effect, meaning that we both have, so to say, correction both for Q1 and Q2. And then obviously, in Q3, you will not see the full impact. So therefore, you will see a headwind or maybe some €10,000,000 due to that. And then in Q4, it's going to be flattening out.
On the resolution front?
On the resolution or the combined, yes. Because we have a year to date correct effect of 23 percent, and roughly half of that comes then from Q1.
And on funding into the second half?
I think that it has potential to be somewhat lower, but you're talking single digit €1,000,000 So it's not a big but somewhat lower, from the quarter on quarter.
And then finally, the state guarantee figure?
No, that's included in the 23% I talked about before.
Okay. Thank you.
But maybe also to highlight, I mean, this tailwind we have on cost is, of course, a corresponding headwind on revenues. So one reason we don't expect to reach the 2017, 2011 is also FX. So that's included in that guidance.
Magnus? Yes. Just following up on costs. You talked about SEK 150,000,000 in transformation costs for 2018, and 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 SEK 40,000,000 so far this quarter. So SEK 42,000,000, I believe it is. And I think we have obviously a target out in 2021. We have a lot of initiatives in place. So for now, we were keeping that number as is, as we expect further utilization of it in the second half.
Okay. And then headcount outlook. Headcount was down quite significantly. And 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, and we will continue that trend going forward. And 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.
And remember, this quarter, when we deconsolidated Danish Life Business, that reduced the staff by 4.80, and that's not part of the 6,000 increase refers to its 4,000 staff and 2,000 consultants. So I
believe you strip that out as about 200,000 to 300,000 this quarter. Correct.
Okay. Thanks. And then on Asset Management, for the Q2 in a row, you have huge outflows impacting your asset base, of course. What's happening there?
So let me try and split because now you're talking about AUM, right? So let me try and split it up in 2 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 Fund grew really, really fast, was super, super successful.
Remember, the quality of that was and therefore, we had to make a decision to soft close it. And that and 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, the that has mainly, therefore, not had the inflow that it has had historically. So 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.
So those are the sort of business sort of impact. Then there's some of the structural elements that we talked about last quarter are still affecting this quarter. 1 is the sale of our international private banking business in Luxembourg that has caused outflow. And then you have the transfer of clients internally. So a structural internal structural issue between Private Banking to Personal Banking.
And then we account for AUM in a different way. So we take those two blocks together, they account for majority of the net outflow and they're broadly sort of sixty-forty. If you then if you have stripped that out, the net inflow to the rest of the business is actually €600,000,000 So we are seeing momentum in certain other areas of our business in AUM. Private Banking Sweden, not only has customer satisfaction gone up, but actually that has actually performed very well, and there we've had a net inflow of over €1,000,000,000 So we are seeing it in other areas. The underlying is having some inflows as well.
But those are the main issues. And I do think though, as you go forward, some of the internal structure elements, they are largely now dissipating. But then we do have some headwinds still in the particularly on that wholesale distribution front.
Okay.
Thank you. And then finally, just on the dividend from the Life Company, was this it for 2018?
So we had a dividend of €100,000,000 in this quarter. And you can say, I mean, the life company is well over capitalized, and it will be over capitalized also after this dividend. Then we don't plan to make a new dividend in 2018. We'd usually take the dividend in Q1 every year. So the next one is the normal one in Q1 'nineteen.
Okay, thanks. So we have a telephone conference. So please, operator, if you can open it up.
Thank you, sir. We'll take our first person who is Matti Ahokas 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 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? That is his term. Thanks.
Okay. So sorry, it was slightly difficult to hear, but I understand the first question about the Swedish mortgage market and the second question about copper lending in particular also. So just to take a step back, early 2017, the Swedish housing market was very hot. And we made a decision then to basically take a risk based approach and not go for the very risky loans. And 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 and in January April reduced some of our list prices because we want to be competitive and also we want to be 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, right? So that has had an impact on the margins for us. And the intent is, of course, to grow, and that is what happened in June.
And we actually saw when we changed the list prices, the amount of inquiries that we had was significant increased over 50% just in those sort of few weeks when we came out with new list prices. And since then, we've seen a significant increase in applications, but it does take a bit of time before you get after you've made the commitment to actually get the processing in place and actually get the loans going. And that's what we saw in June, volumes increasing by 1.5% or so. And we have that, therefore, tailwind going into Q3 on volumes. However, margins still remain challenging, partly because we reduced it.
Now it is worth to note that if you STIBOR also increased over this quarter and there and that has impacted the reported NII margins in Sweden. But there's actually an offsetting income in the other group functions to the previous question. So if you look at the overall margin impact, NII is down about minus 9% or so on a local basis. And then it was the corporate lending. And then it was the corporate lending.
The corporate margins, I mean, 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. I don't think that there is a specific and we are looking at our average returns over a portfolio and over the various products, and that is how we continue to look at the business. It's a return particularly Wholesale Banking is a return based business where we look at the portfolio of customers. And of course, it's not just about lending when you lend to a corporate customer.
It is about the overall relationship 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. So it's a broad based and I don't think we've alleviated any return hurdles. Instead, the return hurdles remain as is and full target same target as before in
wholesale banking. Great. Thanks.
So next question from the telephone conference, please.
Thank you. Our next question is Sophie
Pietriesen from JPMorgan. So I wanted to ask about excess capital. Your capital position is strong at the moment, and you announced the NCD acquisition. But 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 Nordic region? And my second question would be on trading income. I know you don't guide specifically on the different lines. But on in the beginning of the call, you mentioned that underlying trading for customers is around EUR 200,000,000 to EUR 250,000,000. Does the CHF 300,000,000 to CHF 350,000,000 kind of normalized trading income still hold?
Or should we assume lower trading income going forward?
Okay. So 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. But I'll take the second question first. Trading, yes, so as I said, I mean, it is a tough environment in the Nordics.
You've low volatility, yield curves have flattened, softer messaging from Draghi, Italy and so on and so forth. However, 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. However, the risk management of the trading business was very weak this quarter, and that is really what has driven that line slightly down. And 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.
And given the market environment, well, you may be the judge. Then of course, this quarter, we have also been affected with roughly SEK26 1,000,000 impact from the sale of NLP Denmark.
And on top of that, you've
got the XVA effect. If you add them back, you're actually reasonably close to the lower end of that guidance of €300,000,000 to €350,000,000 Going forward though, given where we are, I would sort of probably estimate this line to be more around that €300,000,000 mark plus or minus €25,000,000 or so. That's what I think you should have in your heads. And on the first part
of acquisitions, I mean, yes, I mean, this morning we bought 40% we announced the acquisition of 40% of an asset manager. It's a very small acquisition. So but still, yes, we are open. We have no further plans. But we will, of course, inform you if you find anything.
And yes, on geography, as Casper said before, I mean, we have really focused our business to the Nordic region. So now we are 98%, 99% Nordic. So that's our core markets.
Thank you.
Thank you. So one more question from the telephone conference.
Thank you. Our next question comes from Kim Bergel 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. But I guess the big question for
all of us when we
look at you in particular is not only how you're doing, but how are you doing sort of relative to what the market is indicating? Can you give us examples of sort of other things that you are monitoring just to see your own performance relative to sort of what the market would indicate, where you are improving relative to what you should be seeing? Or any other key performance indicators than the Net Promoter Score?
Yes, we have the Net Promoter Score. We also have customer engagement index that has also shown the same promising signs, in particular in the Sweden and household as well. But as Casper said, this is directionally positive and their 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. The clearly though, given where we're at, we are still that is a good trend that we're seeing, but 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 where you get we have Prospera, for example, which is commonly used here in the Nordics. And there we have also very good results in many of our product and services areas. In Asset Management, they also survey the clients themselves. So there are a lot of internal, but there are also significant amount of external service that we do as well. But if you think about those areas, that's a lot for us to see where we are performing and how we are doing.
But our customer satisfaction, for example, in large corporates has always has been very strong. I mean, we're number 1 in the majority of league tables in the Investment Banking business in the Nordics. So that is also a testament to customer satisfaction. So there are a few different ones, both external and internal ones. And of course, the ultimate proof
of adding is that we see volumes coming back. Mortgages will now have growth in June. In Private Banking, we had more than €1,000,000,000 in inflow. In Swedish Private Banking, So I mean, the business momentum is, of course, the biggest evidence that we have turned the corner. Okay.
But I
guess, I mean, sort of looking for these sort of forward looking indicators, I know I guess some of them will obviously internal and for competition reasons, you won't want to disclose those. But is there any of this that you can sort of disclose on a regular basis so that we can sort of see and better track how you're doing?
I think the best way is actually the public surveys, which we would help. We would, of course, we can summarize them and disclose those to you because they're out there publicly. So the various Prospera surveys and so on and so forth, those we can disclose. The rest we could talk about the various trends in our business.
Okay. Thank you.
Okay. So let's go back to the audience here and then we'll come back to the telephone conference later. But please, Jens, followed by
Peter.
Thanks. Janss Helene from Carnegie. First, just a little bit to NII. I mean, 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. I mean, we think the 2 largest mortgage banks in Sweden managed 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. But the times it takes 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. So I would say the following.
We have changed the trend, right? We've had some outflow. Now we have inflows, and that's a positive change. But I also want to be a little bit cautious that the margin pressure still remains. And but we are growing the volume.
So that's and then in Denmark, we are also increasing the volume as well as in Norway. And in Norway, we are actually coming into with NIBUR having fallen towards the end of the quarter, we actually have a tailwind also on margins in Norway.
Can I but then just come back to the margin pressure that you talked 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 kept margins, whereas I think both you and SEB are talking about the margin pressure. Is that are you in do you feel that you're in different markets than they are? That's why
No, now I refer to particularly households, right? But I think if you look at our overall Swedish NII, that's also the corporate base and the large corporates. And the volume there has actually, as I said, the credit demand actually is positive. But again, the margins over this quarter has also come down in that area as well. Not as it's not as pressurized as the household, but that's also a challenge because it's a reasonably buoyant market at the moment.
But 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. So we had a very differentiated pricing. So if you were sort of 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.
Now we see that leverage is coming down. Prices are falling. We see a much more stable environment. And therefore, we can now participate in this part of the segment as well. So when we lower the list price, it's mainly to come in there where we have been higher than the other banks.
So then obviously, we have margin pressure because we're adjusting rates to where the others are. We have also for instance adjusted our stress test. So before we had the strictest stress test in Sweden, we had 8% stress test level, while all the others had 6% to 7%. So 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.
So we are coming from another level than the other banks, which I think is important to remember.
Okay. Fair enough. And then I just a quick question on Gensirge, 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? Whether how we should look at that from, I guess, 2019, 2020 onwards?
I think a little bit what Kasper said, this is actually a strategic decision to continue the growth in Norway, which is one of our core markets. So a couple of things. Firstly, yes, there's 176,000 customers, right? So 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. Then I think it's a strategic partnership with Jensidige. They got 750,000 customers. They're the biggest P and C company in Norway. 500 or so is our best estimate.
Don't bank with Nordea. So I think for us, it's channels. It's also the fact that it is a digital platform. So clearly, there are things that we can collaborate and cross verticalize across Novo Nordisk over time. But 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.
So 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 SEK 4,000,000 of lower funding costs in the quarter. Is that it? Or should we expect anything more onwards?
I think for funding costs, Roden 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. And for this quarter or this year, I think we've estimated that the benefit of funding overall would be around SEK 70,000,000 to SEK 80 1,000,000 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. So sequentially into Q3, Q4, we might not see anything?
Continue, as is. Okay. So 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. A couple of questions, if I may. The first one is, if I understand it correctly, you are giving us conveying us mostly 2 messages this morning. The cost base, you are keeping it unchanged the cost target, sorry, you're keeping it unchanged at CHF 4,900,000,000 because what you have seen in a 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 9,200,000,000. But revenues in the first half were affected by FX too. And this is maybe one of the reasons why and actually they were affected probably more than cost given that you're not running the business with a cost income ratio above 100%. So if I forget cost and I forget revenues, can you 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 the Infiniti 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. And 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 and 2017? So our we are confident that we can achieve that. So I guess the expectation is yes on that as. And then on CapEx
Sorry, Mr. Ries. Sorry, Mr. Ries. I was not referring to the bottom line.
I was just I was referring to revenues minus cost, then credit losses, tax and 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?
Yes. Ricardo, we have not guided on that one. So unfortunately, we cannot comment on that. What we do comment is that net profit will be higher. Then you can see the trends on loan losses.
And as you see, we have a very good solid trend on loan losses. And of course, that's a good indication for you, so you can strip out that and then you can see revenues and costs. But we don't guide specifically on pre provisioning profit.
Okay,
okay, fine.
And on the capital front, and 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, and 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. And that is the nominal amount of capital that we will bring into the SSM or the ECB. And then going forward from there, we will await the SREP 2019 from the SSM in terms of determining what that capital then will look like. So 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.
And to Kasper's early point, because I know you were referring to acquisition and growth, we are open. We have a very strong management buffer. The end of the year will have an impact on it, of course. But if the opportunities arise, we have the possibilities to do things. But it is not a capital distribution strategy to go for acquisition.
It is the strategy is to continue to grow in the core Nordic markets. And if opportunities arise, we will consider. But as we go forward, we maintain capital moving into the SSAM at the same level that we have in we will have in 30th September.
Okay, okay. Very clear. Thanks.
Next question from the telephone conference, please.
Thank you. So Bruce Hamilton
My question has actually been asked, so I'll pass on. Thank you very much.
Thank you, Bruce. Thank you. Next one, please.
Thank you. Jacob Proust 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 the there will be a net reduction of cost sorry, a net sorry, there will be a gross reduction of cost of SEK 250,000,000 to SEK 400,000,000 of which SEK 225,000,000 to SEK 250,000,000 in 2018. So is that plan still kind of current?
So should we still expect whatever your 2018 cost is that there's another SEK 150,000,000 to SEK 150,000,000 of net cost reductions as the transformational program sort of rolls out and then until 2021? And then my second question was just on your comment just now on the capital. So are you saying you are going to run with the Swedish capital requirements until you get the European SREP in 2019? Or does that apply also after that you're going to have some sort of look back to what you would have required in Sweden from 2019 onwards? Thank you.
Yes. On the first question, I'm not sure I fully understood you. But is it correct that you asked whether there are Yes. Just
Yes. Just your previous guide you said net savings of up to €400,000,000 of which up to €250,000,000 in 'eighteen.
Yes. Yes, exactly. Yes. So the way we phrased this was that in 2021, the total cost base will be below €4,800,000,000 and that still stands. Then of course, please remember that FX movements can of course lead to another number.
And currently, the number is lower, but would still stick to that because no one knows how the SEK will move.
Yes. But then I guess my question is on constant FX, assuming you deliver SEK 4,800,000,000 this year, should we then assume that on constant FX, you should hit SEK 4,600,000,000 to SEK 4,700,000,000 in 2021, just given the operating
Now I don't want to speculate about the 2018 target. So let's deliver on the 2018 first.
And then on capital, I'll try and make that a little bit clear. We are today a Swedish bank. We are regulated under the Swedish FSA, and we are going through the Swedish SREP process. And 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.
And as
we go through 2019, we will get a new SREP from the SSM. And we will, of course, communicate on that when we get it. But that is the plan. So during that transition, we will maintain the nominal amount of capital effectively given to us by the Swedish FSA.
Right. And then I guess superseded by the European SREP in September 2019?
Correct. Jacob, just to come back to your comment, I mean, when it comes to our cost plan, yes, we have cost initiatives that will come post 2018. That we do have. But I don't want to speculate how we will end up in 2018. So that's still 4.9
Yes. No, sorry. I just mean, if 2018 is any number, the 2021 number should be €100,000,000 or so below that.
We have cost initiatives after 2018.
Yes. Okay. Thank you.
Thank you. Next question please.
It's 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. Would you be impacted from the move of the 25% mortgage risk weight 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 Swisscreek floors. And I believe if we remained under the Swedish system, I think we showed some charge there in the Q1, the capital requirement will go to, if I recall correctly, around about 16.4 when we made those adjustments.
But the Pillar 1 floor won't apply to your non Swedish portfolio once you move out?
Yes, that's correct. Please then remember that we have also floors in Norway and Finland already before.
Right. Right. Thank you.
So next question please.
Ian Seeley from Citigroup. Please go ahead. Your line is now open.
Good morning. It's Ian Seeley from Citigroup. Two quick ones, if I may. Firstly, when in your economic environment statement, you say in the Nordics, we are seeing signs of the economic cycle is starting to reach a peak level. Could you just maybe elaborate a little bit on that and what it means for lending growth across both household and corporate?
And second question on the impairment. If I look across the different categories of that, it seems that, obviously, we saw Russia in the quarter, but also we saw an increase in personal in Denmark and Finland. So 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.
Yes, now I remember
the door. Yes, now I remember the door. Yes, sorry. Yes, now 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. So that's our expectations.
In terms of loan growth, I mean, 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. So we actually thus invest. So 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. And 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 in London and Russia.
Yes. So Russia is not the U. S. Action there are no new U. S.
Actions this year. And we have just taken conservative prudent measure to reserve against any potential impact it might have on some of our counterproges on their financial performance due to those U. S. Actions. And 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.
And 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.
So 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 trade in revenues in the region of SEK1 1,000,000,000 in 2018? Is the number correct?
Now we have said that a normal quarter, you should expect around €300,000,000 of fair value income and then plusminus €25,000,000 And that's purely previously we said €300,000,000 to €350,000,000 But this is purely an adjustment to the divestment of Laudaei Life and Pension Danmark, which is $26,000,000 per quarter. So $300,000,000 per quarter.
Okay. Okay. Okay. Got it. Thanks.
Do we
have more questions from the telephone conference?
There are no further questions over the telephone at this time, sir.
So 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. Go and enjoy the lovely summer here in Sweden and have a great summer and see you in the autumn.
Thank you.