Time is 10 Welcome to this press conference where Nordea will present its Q1 2018 result. My name is Rod Malvin, and I'm heading up the Investor Relations. We will start with the presentation of the Group's CEO and President, Mr. Kasper von Koskull. Then we will have a film time.
And then we will have a Q and A session with the analysts. The journalists are welcome to have individual interviews with Casper. And the rest of you are welcome to stay for Q and A with our new CFO, Mr. Christoph Rees and me. So Casper, please welcome.
Yes. Welcome, everybody. Good to see you all here. Again, 1 quarter is behind us and 2018 has started. If I would maybe just give 1 or 2 words on kind of the economic or the backdrop of 2018, I think it's fair to say that 2017 particularly was actually an environment very stable, very benign economic underlying environment.
And when we're into 2018, I think the benign economic environment is continuing, but maybe more volatility, maybe somewhat more uncertainty, certainly in the financial markets in 'eighteen, but still a very benign economic environment in all of the 4 home markets that we have. When I look at the Q1 result, I'm pleased because we are improving profitability. We had a weaker quarter in Q4 2017
and we
are now clearly improving Our operating income is coming up from that quarter. And more importantly, operating profit is meaningfully above the Q4 and actually in line with what we had a year ago despite the fact that I said those uncertainties and the volatility that we have seen in the beginning of 2018. Most importantly, we are delivering on what I call the 4 Cs. And the 4 Cs, I think, are the critical element of any bank moving forward in this environment. And the 4 Cs to me is cost, credit, I.
E. Risk, risk under control, capital and compliance. Those have been our focus over the last two and a half years, and I'm sort of very pleased that we are delivering on all four of those elements. On cost, we have mentioned that 2016, 2017 where is where we have invested heavily and when we actually are past that period, those costs would be coming down. They are coming down.
We see that in the Q1 and are now very confident that we will deliver on our cost target in 2018. Of course, that will then also continue. So cost is under control. Credit quality that we have today is the strongest we've had since really the financial crisis started. So very confident on that.
Having said that, we've been in addition to that because credit quality reflects decisions made in the past. Last 2 years, we've been very diligent in actually being less aggressive in those segments, which we have seen higher risk. We have derisked the bank. That derisking actually will be seen in the future. That is usually an element that sometimes tends to be forgotten when looking at banks.
Decisions de risking, you see that in the future. We've done it and I think we've done it in the right segments. We have also grown less in those segments than where we've seen some of the risk elements over 2016 and 2017. Capital, and I'll come back to capital as well. Capital ratios that we have today, and I think I've said this in every single Q meeting I've stood here, we have never had the level of capital historically that we have today.
I would say today that of any large European or Nordic bank, we have the strongest capital base and in that sense are the strongest from a capital and balance sheet perspective. I'm firm on that. Compliance, we have invested heavily, basically, completely revamped our whole operational risk compliance, IT security platform over the last 2.5 years. Gives us confidence to move forward. That's an area where you were never done.
But it feels very good in an environment which is more uncertain, more volatility to have a much more robust bank in that regard. And of course, I have always a however, because what I'm not pleased is that we did predict that the Q1 would be somewhat slower in terms of top line, but top line has been somewhat weaker than I expected. Not a full surprise because we did say that the Q1 would be given kind of the run rate we had coming into the Q1, it was expected that would be somewhat. So on top line, it's something that we internally have said. Now with 2 years more in Norway focused, now it's time to really move and put the focus to get that business momentum.
I'm confident that we can get it. We have a great platform in place. And with the 3 Cs in place, it is now time to really beef up that side. So in that sense, I'm not concerned. It means, of course, that the revenue guidance we said, which was actually growth from the restated number is more challenging, but I'm not going to change it.
But where I'm confident is that we will have a higher net profit in 2018 than we had in 2017. So EPS growth is something that I'm very confident. Where we have a little bit more uncertainty, but we were working on is actually the guidance on the top line. So in that sense, somewhere a quarter where we've proven a lot of the things that we wanted to prove, the 3Cs and now being able to focus externally. Numbers, I probably have covered already.
Operating income, I. E, revenues, yes, that's where yes, we are up on last quarter, but yes, we are down on the quarter before. And kind of a slight weakness that I see is in NII, and I'll come back to that. Fee commission, the line that actually has been strong in the Q1 is actually net fair value. The line that is very strong, I think, is cost because cost is something that we did tell you that we would turn that and actually deliver and we are delivering and we will continue to deliver on that side.
Operating profit, of course, meaning meaningfully higher than in the last quarter and in line pretty much the same as we had last year, which I feel is a good achievement. Credit losses, I already mentioned. We never had that number in the last 10 years. And of course, on capital, I. E.
Management buffer is today soon 250 or it's 230, but we have a meaningful management buffer. So I don't think there's any question on the strength of this bank now moving forward in terms of its capital base. Let's look at just quickly on some of the line items. And when we look at net interest income, I mentioned some weakness there. But actually, when I look at margins and volumes, they're pretty okay.
I mean, there's no real movement in margin of volumes. We have somewhat lower lending margins. That's offset by higher deposit margins. The weakness may become or the lower NII actually comes from funding costs and then regulatory costs that are kicking in. Day count, really the key.
So NII pretty much flat in terms of underlying business momentum. The weakness maybe has been more in net fee commission and that is driven by asset management. When we compare it to the Q4, of course, we have the performance fees coming in, in the Q4. So yes, that has an impact. We don't have the performance fees in the Q1 here.
We have had some outflows in the beginning of the year, predominantly January, February. We had inflows in March, which really to me is saying that we were impacted by MiFID. We were inwardly focused probably towards the end of the year and in the beginning year just to get MiFID in place. So the fact that we have net inflows in March actually tells me that we are getting that momentum back. But clearly, that's an area where we are focused.
The fact that we have a track record and probably the best performing funds shows that we actually have the product and service capabilities to put the momentum back in that. But it's mostly on that line. Somewhat weaker also in on the corporate side, advisory. Although here when we say that it was not that active, we actually were very active in the Q1. The fact is that some of these big deals are now closing and they're closing in the Q2.
So we actually have a pretty good momentum for the Q2 already on fees and commissions in from that side. And in that sense, I already have confidence that some of that has been turned in that business segment. So mostly, I would say, asset management and where we need to now kind of learn to live in the Michelin environment and actually get back the customer focus, the momentum into the business, which I'm pretty confident that we can. Net fair value. Underlying net fair value is actually coming pretty much where we would expect.
We've always said our net fair value expected where we should be is between €300,000,000 €350,000,000 and we are kind of bang in the middle of that in terms of the underlying. Now in terms of customer flow, customer flow still reflects kind of the environment, which we've had really in the last 5, 6 quarters, somewhat lower. But it's a healthy customer business, but it's still somewhat lower from the history. But in the last 5, 6 quarters, we've had that type of customer flow. And here really the improvement is actually on the trading side, some of that volatility coming back more normalized trading.
So the underlying net fair value. And then we have a one off, really a positive impact from new valuation models that then takes our fair value to the number that we have seen. So that is a one off, but the underlying is also looking reasonably healthy. So all in all, something that I'm very pleased of. Cost is I think the thing where no I've been questioned.
Are you or do you have cost under control? And I think we have now both internally external improvement that we have put a cost plan in place. And it's been very deliberate to actually grow our cost in 2016, 2017 given the investments we've done. There is some increase in staff cost, but that is actually just due to the periodization that we have there. But otherwise, this trend is now down.
The big savings are in the big group projects, consultants, etcetera. And of course, staff levels are also coming down given the change in the business model that we are doing, becoming more digital and actually having much more common. We are going into centers of excellence, etcetera, etcetera. So we are changing the way we run the business. This is not cost cutting from an existing base.
This is changing the way we do the business. And this is also the way we will furthermore in the coming years have reduced cost and more efficiency. So on that one, I'm very confident. We've mentioned this before because we always look at reported cost. We should also look at cash spending and cash cost.
And here you see that the cash cost is also coming down, which is I think is the more important because cash cost is actually the thing that I. E. Lower cash cost is the thing that will actually generate capital. And of course, capital is key in this business. Cash cost for this year, we expected $400,000,000 less than last year.
We will deliver that. And we are well on our way also and I'm not changing the target to actually take cash cost down to €4,500,000,000 or €4,700,000,000 by 2021. That's €1,000,000,000 less of cash cost by that time. And again, I emphasize that improves capital generation. That's part of the transformation that we are doing.
So we're well underway on that. Asset quality, I think, is key at this point of the cycle. I don't know how long the cycle will last, but I think it is fair to say that maybe it is on its second or last leg or whatever, but it will not last forever. So actually the derisking we've done and now actually having the lowest loan loss ratio for the last 10 years, I think is the right time to be in that position. So I'm very confident on the quality of our credit book.
We do not see in the coming quarters that this situation will continue. Some of the weaker segments is still probably oil offshore, Danish agriculture, but overall very confident on this side. I emphasize again the 3 Cs are very important when you're at this point of the cycle. In terms of impaired loans, this is a new number because we do now IFRS 9, 5.2 percent, half really serving, half non serving, pretty much where we would expect it to be as well. So all in all, very confident on that.
Capital, almost this is almost like a parrot. We have never been as well capitalized before. And that I have said every single quarter I have stood here. It's continuing. And I think it is important that you can see that this is a bank that can generate capital because at the end of the day that's what makes the fact that you can run long term and be the bank to your customers that you want to be.
I think it's important when we look at CET1 ratios. This has annoyed me, frankly, in the past because you get this although it's quite easy mathematics, you still have this notion that but your CET1 ratio is lower than this or that or how do you compare. These numbers have never been comparable. And now I think what the Swedish FSA is doing by actually putting these floors, I. E.
The mortgage risk weight floors, into the risk weighted assets, which you should do because then you can compare banks. Then you can everybody is on the same line. If it really is reflected in the risk weighted assets you have, then you can say apples to apples, how do banks look? And when you look at that, it's very clear that we are and we have the highest CET1 ratio, frankly, of any bank in Europe of our size, certainly the highest also. And that doesn't change meaningfully our capital buffer.
So this is a very solid well capitalized, maybe even overcapitalized, but let's not go in the bank. Transformation, I always get how does the core bank system work or how is that progressing is that your core bank system is just one, but one very important element of our transformation. Our transformation is a lot more than that, a lot more than that. The branchification of this bank and then the following redominization, which is not yet complete, and we need to, of course, say we need to complete it. That is a fundamental transformation of this bank, particularly the branchification.
We are probably the only bank with significant branches in our core markets operating with the model we have. A very pure European, very clear bank on how you run it and how you look at it. We are unique. You talk to the European regulators, they love that structure. I think we're a model that many banks would like too, but it's not been easy to get there.
That transformation is pretty much complete. Simplification come a long way. Corebank system replacement is part of that, but a big part of that is also simplifying products, processes behind so that we can actually then change the core bank system. We have launched proof of concept already done way back in time. We have launched now new products on the new platform.
And now we have actually in larger numbers moved existing customers and existing products to the new platform. And I can say that transfer has gone extremely well, actually without any major hiccups. A hell of a lot of work behind the scenes, I can tell you, but it's gone. Now it's actually easier to stand here to say, we are confident that by 2020, we will have the core components of the core bank system in the 4 core markets because it's not only in our proof of concept, it's not only proof of that it works for customers. Now we have actually moved large amount of customers on there.
We also have our credit transfer interbank payments on the new global payment engine. So we again see that this is happening. When we started this exercise 3, 4 years ago, we had 47 payment systems. I remember counting those. We are now moving into a new world.
So simplification is also going in right there. But there's a lot more to simplification. It's also new ways of working. We are moving into an agile way of working in many of our businesses. That is also simplification.
We are breaking down the kind of vertical silos and we're starting working much more horizontally in lean teams. Derisking is an important part. Derisking of the asset side, I've actually mentioned. But derisking is also the investments in the operational risk compliance, IT, IT security, all the things that we've done there, which we, of course, will continue because on this side, you are never done. This side, you are never done.
You will always have to improve on that side. But now we have both the competence processes, people in place, which we did not have 2.5 years ago. And then, of course, critically, the whole digital journey with the digital channels that we have and are creating both with collaboration with small and medium sized exciting fintech players, but also some of the big tech giants like Apple and Samsung where have chosen us as a partner here in the Nordics. And of course, generating and creating now a new momentum in actually coming up with new products and service. So transformation, still a long journey to go, but I think the key components of what I call transformation are now coming in place and we can become more customer centric and customer focused.
We have a good base to do it. When I look at and I look at Martin who sits there in the corner, I look at the wholesale bank he is running and look at what we've done again in the Q1. And I always look at kind of 4 main components. Where are you on equities? Where are you on advisory?
Where are you in bonds? And where are you in loans? Those are kind of and from there, a lot of risk management and other products then flow from that. And we are pretty much where we want to be, I. E, the leading player in this region.
The fact that we were a lead advisor and a financer of the 2 largest transactions, landmark transactions in the Nordics, the acquisition of TDC and the merger between Teletu and Com Hem actually is a testament of the leading position we have in this region. We were also part of the 3 largest IPOs, European IPOs of the Q1 of 2018. And you know they were not all in the Nordics. So that means also we are the Nordic choice when equities needs to be distributed in this region by European blue chips that actually are have actually become public early this year. Same thing in funds.
Yes, we have had outflow in the 1st month, now inflow. But to actually succeed in this, of course, you need good funds. Last quarter, I mentioned about our performance in 2017. We have some of the top performing funds. And we have actually now also in the Q1 got a lot of rewards in on this side really across all the four markets in terms of our fund performance.
And maybe most importantly, the question I get on customer satisfaction. I'm not satisfied with our customer satisfaction. That's for clear. That's for sure. I mean, I just want to put it.
We are working on this. But at the same time, and you heard me say this in at the AGM, in those segments where we have our relationship customers, in those segments where the customer is using multiple products from Nordea with a lot of interaction, we have very happy customers. So, of course, we need to actually broaden our relationship with all of our customers. But the second thing is also we have also maybe been, again, 2 in more focused. Customer interaction, meeting customers, be it online or physically, is key to be accessible.
And so we have a lot of new initiatives where all of us, me included, that's why the funny picture, take part in talking to clients. We talk to thousands of clients now proactively to be closer to them and that actually gains loyalty. So we are having a new momentum in this. And in all of our core markets, all FOC markets and in all of our those relationship segments, our customer satisfaction is nudging up. But I'm not I mean, I'm not saying here that we are where we want to be.
We will work on this and I get it. Then we also have the broader mass market. The solution there is much better digital deliveries. And that's why the transformation is and the digital investments we are doing, that is the answer for a lot of the customer satisfaction questions, particularly in the broader mass market. But it's not only those.
I mean, technology plays an important role, very important role also in customer satisfaction and how you use technology to become closer and more relevant to your customer. That's why I would like to invite a person, Matthias, to the stage. And I will ask him one very simple question. Who are you?
Thank you, Casper. My name is Matthias Strauss, and I solve problems with AI in the bank. It's not only me, it's my team and we work together with our data science lab and advanced analytics team and different business units to solve good problems to make it better for our customers. And I really think that I have the best job in the bank right now, Casper. I know you like your job too, but I think mine is better right now.
Let's have a question, Darden. Yes, let's talk about that later maybe. But so what do we do, right? So we basically all the stuff that we do is to make it better for the customer, right? So we do in 3 categories.
1 is to infuse intelligence into way we interact with our customers to make it more relevant, more pleasant to the business with us. It's about super powering our employees, giving better tools, insights, they can focus more on the customer. It's about enabling instant banking. So doing banking in new ways that we really didn't think were possible before. So we do that.
I'll give you some examples what we do. We have our robotics family. I don't really particularly like the word robotics, but we have our software robots, not really AI, but we have around 250 of them. And last month, they executed a quarter of a 1000000 tasks like sending a letter to a customer or opening an account. We have our Nova, our virtual agent.
She had 10,000 interactions last month with customers and NPEs, helping them to solve problems or answer questions. We are developing an AI powered platform to send 1 to 1 communications to our customers to be more relevant to them and do it in the right time in the right channel. We are making our AML case handlers. We've given them superpowers to be more effective and handle larger volumes. And we are actually reinventing, I would say, the way we deal with the insurance claims in our life and pension business, totally redoing that by using machine learning, robotics, text analytics, advanced OCR, setting up in a way that a fintech would do it.
So I think that's pretty amazing. So in some of these areas, I think we're the front runner in Odea, but we are still in early ages of AI obviously. So having said that, we I'll show you a short movie. It's like a 1 minute and it's in the movie you will meet Gustaf. Gustaf is sitting right here.
He's an AI trainer. An AI trainer is a new role in ODEA. It's and he is teaching our Nova how to speak. So we're now developing speech and hopefully you will see that in the not too distant future. So thank you.
Let's see if it works.
Hello, Gustav. I've heard
that you're working within artificial intelligence and machine learning here at Nordea. What are we looking at?
I'm part of the group data management office and we're working heavily on AI and machine learning. And what we have here in front of us is Nordea's virtual assistant Nova and she's able to give us instant banking experiences now through voice.
That sounds awesome. Could you show an example?
Sure. So we have an example here where we've taught her to help me when I've lost my card. You want to see?
Yes.
All right.
Alexa, open Nova.
Hey, Gustaf. I am Nordea's virtual assistant, Nova, and your personal adviser. What can I help you with today?
I lost my card last night.
I am sorry to hear that you lost your card. Which one did you lose? Is it your Visa card or your Mastercard?
My Visa.
Do you
want me to cancel and order a new card for you?
Yes, please.
Alright. Where do you want the card delivered?
At home.
Okay. I have an address here, Charles Street 12. Is it the 1?
Yes.
Consider it done. Your new card should be arriving shortly. Expected delivery is tomorrow. Is there anything else I can help you with?
No. Thank you, Nova. Alexa, exit.
A little bit of taste of the future. I think we'll try to do this also going forward. I think, Rodney, now you're kind of the master of this, so we may take both questions, but yes.
Yes. We will start with some high level questions for Casper. I also want to be addressed like that at work. I'm too old. We have time for a few high level questions for
Magnus Andersson at ABG. Just on the income side, since I mean, you were talking about the 4Cs, and I think most of us here are focusing on the I. And to start or just take a high level, on net commission income, the fee income line was the weakest one since Q3 'fifteen. And when I look at the split, I see that it looks like the investment banking parts are quite weak. Securities, brokerage, corporate finance, etcetera, the weakest for at least 3 years, probably more, lending fees coming down quite same time, I look at wholesale banking where you have ramped up for quite a long time and profitability is still 8% there.
And I know you have a 12% ROCAR target. Can you just try to tell us more what are you going to do here to that fee income? More explicitly, what measures do you think you can take to get profitability up to reverse this trend on the fee line, which I think stood out the most to us sitting here today?
First of all, I think I I mean, corporate side of course is a little bit always a little volatile. So the Q2 you will actually see a different number. We have some very big the pipeline the deals that I've mentioned they will close in the and you see that with other banks as well. So the cycles when you compare bank to bank particularly in different geographies is different. So that's one.
Then the second thing is that we have actually done a major rehaul also in cost wise in our wholesale bank, which actually is now coming through. And that has not been a cost driven exercise, it's been an offensive driven exercise where we have become and I probably should give more word to Martin here who sits, but I where we have become much more and we have now moved purely into a very global organization. And we can see now already effects of when we deliver more relevant better products on a global. We have been in that business maybe a little bit too regional local up to date and we've done a big you probably have read about it, a big change there where we both become more efficient on the cost side, but actually will also drive revenue. And that's predominant in the markets trading and that side.
And then in terms of deals itself, of course, league tables will drive revenue. It's always I have been in the business for 30 years in that business in particular. Leak tables and your position and your position with clients, that will drive the revenue side. You have to be up there. And now we have shown that we are not only in the past we used to be in Denmark, Finland, weak in Norway, Sweden.
Now we're actually strong in all four countries and with a very broad and also when we look at customer satisfaction, we actually have the best customer positioning in all four markets today of any bank. So I think that will actually that's on that side. On the asset management side, it's a little bit also the fact that we've had tremendous growth over the last years, particularly in kind of the on the international side. And when you have that very rapid growth, you will come to a point where kind of the breather, now also with equity volatility, there has been kind of profit taking. And then when you add that to MiFID II, we have actually said that we have slower growth there, but we think that we can get back to that growth path when we make some of the changes that we need to make there as well.
But I think those are kind of the highlights of those two businesses, which are the key drivers of the fee commission line. But then I always emphasize, you have to look at the platform and your position on that platform and that is actually solidly in place. Then I would be concerned because but those are in place. The fund performance is there, the organization is there and of course the key position in or the lead position in Wholesale Banking. So it's in place.
You just need the momentum.
Do you think that the short term reorganization or sorry, the reorganizations you've done within markets, do you think that might have had a negative impact short term that should recover?
Undoubtedly some. Although when you look at the numbers, the numbers is not that bad. I think the number both the customer number and the trading number in the Q1, we've always said that this is a business where we should be in this kind of environment between 3, 350, 350, I think the number is now 320, 330 for the quarter. And it's not a fantastic backdrop in terms of environment. So even the new organization has performed.
But I
think when I look at Martin, as always said, this is just the beginning. So the offensive moves that we've made there probably hasn't come through. So you could have maybe expected even. But I've always said that the last 2 years, we have been inwardly focused throughout the when you branchify, when you redomicile, when you change your whole operational risk and compliance side, when you start changing the operating model, when you change core bank systems, when you do all that, everybody in the organization is involved. It undoubtedly has, but you don't go and announce it and advertise it.
I think we've done a remarkable job actually to keep the momentum, which we can now actually accelerate.
We can hand it over to Andreas, please.
Thanks. Andreas Zorkin, Sonfexa on BNP Paribas. I remember a year ago, we sat here and you said that your key target for the year was to improve the customer satisfaction or brand affinity, whatever we would call it. And then some events where the move has actually made things worse. And you seem to be losing market share primarily in Sweden, but maybe a bit in Denmark.
But in Sweden, what we've seen externally that you've done is that you cut mortgage pricing twice. Could you tell us, if the market share is not recovering, do you have other things that you're going to focus on? Or will you continue to cut price? Is that the strategy you have out of it?
I'm not sure. I mean, I think this focus on mortgage is a little bit overdue overdone because it's not like we are the mortgage bank. We do mortgage is a very important element in our Swedish business in all of our businesses. But when you look at its share of when you look at our mortgage volume in 2017 in Sweden, it was flat. We haven't declined.
Our market share may have declined, but we took and we actually announced it more than a year ago, we will take a more cautious view in a very hot housing market. That housing market corrected. We have seen a stabilization. And I think it's the right time to be kind of a little bit more forward leaning, actually to maintain we're not going for big volume. I don't need to kind of go volume and market share.
I mean, again, the 3 Cs, you have to remember banks are also taking risk. So I think that was very deliberate what we did. Now when you look at the Q1, we are flat. But when we now have changed pricing, we had I think in the 1st week, we had a 36% growth. But we are not going for a lot of market share gain.
We want to have roughly the kind of the market position we need and want to have, which we've had historically. So I don't actually buy the fact that we have lost that much. Particularly on customer satisfaction, I'm working on it, but customer satisfaction in the large corporate segment, number 1 in the region. Customer satisfaction in a lot of our key segments in Commercial Banking, very good. It is in the mass market.
And the mass market customer satisfaction, we can only improve by becoming much more digital, more simple, easy to use anywhere, anytime for customers. We need to become more customer friendly. And then, of course, we do need to work on because when you have domicile issues and others, they do impact branding. And we need to tell more a better story what we actually are doing. We're one of the largest taxpayers in Sweden.
We are probably one of the leaders in sustainable finance and how we actually approach sustainability. A lot of the good things we do. We need to become better in telling that, but that's actually a long term journey. So I think on a lot of these, we actually have moved in the right direction. But I admit that there's a lot of misunderstanding with domicile issues.
There were a lot of misunderstanding on Panama. And we put that behind us. We are a very different bank today with what we have done in the last two and a half years.
So that means that if you don't grow faster than the market, we shouldn't expect more price cuts. Is that the way of looking at it?
And now again, I think you are looking at, again, very one segment. I think we will continuously look at and adjust. There's a lot of things happening in the Swedish mortgage market. And I'm pretty confident that in terms of who we are and the position we can actually we can handle that. It's not a new thing in terms of price and other competition.
And I think we will go through a period now where we'll see what the new entrants will do, what will actually the challenges do. But just what we have done recently, I think we have shown just in the 1 week that, hey, we can but we can play with that. But the first or no, sorry, the last 4 or 5 months of last year were very deliberate. We did not want to grow with the market. We said that as well.
And we kind of delivered on that because we did the had to take a more cautious view on that very, very hot housing market that we had last year, which now has, in my mind, corrected and stabilized, so we can take these steps.
We have room for one more question. Peter, please. You were early up.
Yes. Peter Kaskov from SEB. Just one question on the derisking. I think you mentioned for a few quarters that derisking is coming to an end, and I read that in this quarter report as well. Could you elaborate a bit on what that means in reality?
And when do you think that we have reached the end for real?
I think it's for real because I think when you look at I always just take 1 2 segments. When I look at shipping offshore in Russia, if you take €6,000,000,000 out of that, that's almost €200,000,000 in just pure NII. That's done. And actually that I don't see that we are at a level And I would actually say that 2 now I'm actually very comfortable where we are in Russia. We are kind of at between probably not the moment to 2,000,000,000 to 2,500,000,000.
We used to be at SEK 6,000,000,000. And that is actually a very well running portfolio, also portfolio that can be managed in a sanctions environment. But I also remember a month ago people kind of shook their head and said, did you really need to do that? There's not a single person who questions are derisking today as it comes to Russia because people only wake up when things happen. And I think we've done the right thing.
We can manage that business. It's a profitable business. We can navigate that in this environment, but I would not like to have it with the size we had before. So that derisking was the right thing to do. And that's a €200,000,000 those 2 just it's a €200,000,000 top line.
But if somebody likes that top line, top line always comes with risk. That I always remind you. This is not a and that sometimes tends to be forgotten. I think I'm very comfortable where we are and how we can grow from the base we have now.
And then just
kind of Sorry, we need to move on. We will continue soon with the Q and A for the analysts. But the journalists would like to have individual interviews with you. Please go back and Emma and Hanna will take care of you. And everyone who wants to stay in the room, please feel welcome.
And then I'm welcoming you up to Mr. Christoph Rees on stage.
Thank you, Casper. Thank you. Thanks for being here.
So we'll wait a minute while everything is being settled. We also have a telephone conference with us, and we also have the webcast. And we will, of course, welcome questions from the telephone conference as well. So Christoffer, our new CFO, has been CFO for a month. So before this event, I've tried to teach him everything I can.
And as you can imagine, that went pretty fast.
Thank you, Rodin. Thanks for that coffee. I want coffee. That means today you'll answer most
of the questions. So should we start kicking off? Maybe one moment
just before we start is given I am new here and I have just been here a bit more than a month, I thought actually it might be appropriate at least for the analysts to introduce myself a little bit. Reece is not a Swedish name but I'm actually half Swedish. Rees is a Welsh name. So half Viking, half kelp, don't really know what that makes me. But anyway, I've spent most of my career in the U.
K. Prior to joining Nordea. I worked at Merrill Lynch, then at Morgan Stanley. And the last 8 years prior joining Nordea, I was at Barclays. And most of my career, I've been in the Capital Markets Business running various types of businesses across the Nordics as well as EMEA.
And at Nordea, I've been the COO for the wholesale bank and to Kasper's earlier questions, I was running markets just a little bit more than a month ago. And now I'm here as CFO. One of the key things I think for a CFO is to do what we're doing here. It's about relations, Investor Relations. And what I would very much look forward to as we go forward on this journey is to get to know all of you a little bit more, both in groups and bilaterally, and so that we can together work on the Nordea joint as we move forward.
So I very much look forward to meeting you all in person.
Thank you. So should we start then we can start with Jens, followed by Jan and then Mats.
Thanks. Jan Slinger from Carnegie. If we start with maybe a big picture question. There's a bit of a softer revenue guidance in the report this morning. I mean, how much buffer have you got to your net profit targets with a growing 2018 over 2017?
Are we getting close to not being able to meet that?
No, we are confident that we are going to meet our net profit targets. What we're saying here, the revenue guidance is still as is, but given the soft quarter that we've had in some of the core elements of our business, we talked about NCI earlier and NII. We will have a softer quarter. So there the revenue guidance is slightly more at challenged. But given the initiatives that we are taking right now in the various businesses, we believe that we will have momentum coming into the second half.
I want to mention the Casper's point about the fact that we have been somewhat internally focused. And I basically joined the bank when the bank went slightly more internally focused. But I think it's important now that the momentum and that Nordea gets its commercial zeal back into the business And Casper talks a lot about customer satisfaction. It is about customer intensity. It's about customer productivity.
And we are actually shaping our business, particularly also for the mass market to deliver those products. So, yes, the revenue is a little bit more uncertain as we go forward, but we have always guided for a softer first half. But net profit increase we are confident we will achieve.
Okay. And then just talking about that momentum, I know NII is less than half of your revenues, but we still have volumes which are falling quarter over quarter. Can you give us a bit of flavor maybe by market on what are you doing to stem the outflow? When will we be able to see some growth coming back into Nordea?
I think if you look at the retail piece, I mean, actually local currencies, the volume has actually stabilized. I think the volume loss in NII was more on the Wholesale Banking side or the large corporate side. But there we're actually seeing some improvements in margins. You have seen and Casper talked about what we did in Sweden. And we are continuously monitoring all the markets and we will want to grow with the market going forward.
So we believe that there is momentum to drive volume as we go forward, albeit under cloud tighter margins. I think the momentum, if you look at, I'll comment a bit on the NCI, I do think that in Wholesale Banking on that side, there has been a lot of momentum in Q1 and actually that line is impacted by IFRS 15 as well and it's roughly $10,000,000 So actually NCI quarter on quarter in wholesale is broadly flattish. And therefore, you need to take that IFRS 15 piece into account. And there the momentum is very strong and I do believe that the pipeline in Q2 will materialize. In asset management or in funds flow, there are a couple of effects.
Firstly, we are selling our Private Banking International business, which is having an impact. We have moved customers from Private Banking into Personal Banking and that is changing the way we account for under management. Then there are also some seasonality effects. I actually believe Casper had the bridge up earlier. All of those mean that actually the net sort of outflow is more from 3 point is not 3,600,000,000 it's more 1,500,000,000.
And there clearly Casper made the point that equity markets has an impact. There has been some reallocation. And I'll emphasize the fact that we have grown and we have also soft closed the stable fund, which has made the wholesale distribution as a management slightly softer. So going into Q2, it is softer, but we do believe that Q2 will improve over Q1 in terms of
inflows.
We can move then to Jan, please, sorry, followed by Mats and then Magnus.
Thank you, Jan.
So first, just clarifications there on the revenue guidance, which is a comment today in the report as well. So I think previously, we've discussed 1% to 3 percent revenue growth or so in 2018 vis a vis 2017. So when you say that is more challenged, we should think about those 1% to 3%. And then from what base? Is that €9,200,000,000 or €9,300,000,000 or what base is it?
€9,200,000,000 Okay. And when we look at the Asset Management and Wealth Management business, rather, overall, so we can if we go back a year or so, we can see that now you've had 0 inflows overall. And I understand that you've had MiFID implementation, as all banks have had, and we've had equity volatility, etcetera, etcetera. But would you say that is it a structural issue where you have outflows from previously sold volumes via the national distribution or any other sort of more structural issue which is causing now outflows to offset inflows in other areas? Or if you could define that issue the way you see it internally for us because we don't have much inflows from the retail funds either for a while.
So just trying to square that box and see what the issue is and if it can be solved sort of with better equity or capital markets here in the second and third quarter. Thank you.
Maybe I can give it a crack and then you can add. First of all, actually our retail distribution in Denmark and Norway actually had net inflows. Finland was broadly flat and there were some outflows in Sweden. I think a lot of it has to do with, yes, there has been some close of the stable return fund. And we have had inflows in some of the other funds, but not enough to offset it.
So the issue I think is actually getting enough inflows to drive it. A lot part of that is the market. I personally don't think that there is some fundamental structural thing in this because we are going out, we need to market ourselves. We've had just like in some of the other areas of the business, a lack of intensity with clients. MiFID II was actually more of an inertia in terms of the systems and processes to get that going.
So there's very little activity in the first one and a half months of in some of the businesses. So that actually changed. And in March, we actually had net inflows into asset management. So I think it is there is potential, but we are coming in to the year slightly softer than expected.
Yes, I mean, if you look at the 4 different components, I mean, if you look at Private Banking, that's basically only because of the divestment of Private Banking International and that we move clients to Personal Banking. So that is underlying. It's no outflows. If you look at the institutions, I mean, this is the soft closure. And then you have big mandates that are going back and forth every quarter.
And they're coming in and sometimes they're coming out. And you have some seasonality there as well. If you then look in wealth sorry, if you look in life and pension, there are no outflow at all. And if you look at the retail funds, it's basically Sweden. The rest of the market, we have inflow.
So there's no structural thing at all.
Okay. And one more question there on another product line. So going back to mortgages, which was a previous question as well, and not just in Sweden, but primarily in Sweden perhaps, where the market share has gone down to close to 0 or a little bit below actually. So I guess that over time, the bank is unhappy with being that at that low level. And now your normal market share is more like 15%, I guess, in the Swedish market.
And my question is, would you like to get back to that market share now in the next year or so? And if yes, what are you prepared to to reach that market share? Because it is a competitive market, fairly transparent, with quite a few players who are trying to get new volumes. So one, is that your ambition? And 2, what you're prepared to do to reach that place?
So as Kasper mentioned, we made some changes this year on the pricing. And just like we did not make the changes previously because we did not go for volumes. And that served us well in 2017. Now when the market has corrected, we have made these changes because we do want to support Swedish economy, Swedish people when they actually make their big purchases and also be there as a long term strategic player in the Swedish market. And then we also took a risk based approach.
Now is a good time to make these movements. So we're not going to change market share nilly willy. At the end of the day, we are business people and we're going to be monitoring the market's development. We're going to monitor what happens and we're going to make the necessary adjustments to participate in the market at a level that works for us and our customers. So this is not purely a market share gain, but we will monitor it and we want to participate and take our natural market share in Sweden and grow with the market.
So the answer is you want to be like 15% market share in a year's time or so growing from where you are now.
If the market
If we think
about new production now, of course.
If the market if we are comfortable where the market is and it continues to grow and it's got the stability it has, we hope to grow with the market. I'm not going to give a number Thank
you. Mats here,
Thank you. Mats here, Al, Handelsbanken. I wonder if you can go more into the corporate segment, maybe building on Magnus' questions previously. We see lead tables are good, but we also note in the report that commissions from these income lines is declining slightly. So if you can comment just on the activity level across regions, across products, what you see here going forward?
Yeah. First of all, I'd like again to make the point that NCI or as you talked about the fees and commissions are actually impacted by IFRS 15, it's about 10,000,000. So if you add that on top, it's actually not going down that much Q on Q in the large corporate segment. But the activity has been very strong. But just so this is a lumpy business and I've been in that business for well over 20 years and some quarters are good and some not you need to look at a longer period of time.
And we have some fantastic mandates driven by where you can see it publicly on the league tables. And the pipeline is very strong. We hope that will materialize as we go forward in Q2. So activity is pretty strong across the board there. I would also like to point out on the markets activity, you saw it's actually in line with what we have guided before.
It's $325,000,000 And I think the key issues there is actually there hasn't been some big corporate events that have sort of made that little extra, but that is also potential pipeline going forward. So I think in the large corporate space activity is strong. And if you look at the lending volumes, both on the sort of CBB space and in wholesale, we have a lot of new leads coming in. So there is a momentum there as well, but that takes a bit of time to come through. And actually in CB, we've increased our lending volume and actually seeing some margin increases in Sweden.
I think where we had some large lending falls is in Finland in large corporates and that is mainly driven by a very large migration of loan to bond, which you obviously saw in the fees from previous years. That's the main driver there.
We have international guests also on the telephone line. So should we invite them, please, operator?
Thank We will now take our first question from Willis Palmero of Goldman Sachs. Please go ahead.
Hi, good morning and thank you for the presentation. I have two questions. The first one is on the housing market. Just to pick up on the comment you put on the press release when you announced the change in pricing in Sweden, you said you were anticipating a more stable housing market going forward. So I saw the signs stabilization in the Q1.
What makes you think this will continue?
Yes. I mean, we saw a quite sharp correction last fall on the housing prices. And in the most heated area, prices went down 20%. We think that was fundamentally sound. It was driven by what we view as temporary oversupply.
It has never been any issues on the demand side, and that has been very stable. And as you know, the overall economy is performing very well. But it was a temporary oversupply coming from a lot of new housing starts. We know now that they will come down in 'eighteen, 'nineteen. So we We know now that they will come down in 'eighteen, 'nineteen.
So we see a market that is in balance between supply and demand. We see continued extremely low interest rates, and our forecast is now that the rates will remain stable till Q4 of 'nineteen. I mean, it's a very long time. And then, of course, the unemployment is in low levels. So we don't really see any issues in the housing market that we saw basically 18 to 20 months ago when we saw that the asset inflation was high single digit or low double digit.
We felt uncomfortable with that. But now we see it's much better in balance.
Okay. Thank you very much. And the second question is on the Temenos platform, the core banking transformation. I heard Casper comment saying that everything was on track. You also mentioned at the 4Q results that there were a slight delay in the roll that happened in 1Q instead of 4Q.
So I was wondering if you could elaborate on that if net net there was a catch up. When would you expect the first savings to come as a result? Also, if you decided if you would be rolling the product by geographies or by product or any feedback you could share on that transformation?
Yes. Kasper was referring to the fact that we have migrated over a quarter of a 1000000 customers in Finland in April. That migration went very, very well. And as we go forward in the next few months, we'll continue to migrate customers onto the core banking platform. And very in the very near future, we will also they will also be able to open accounts on that platform through their mobile app.
And then as we go forward, that mobile will also be rolled out in the various other countries. The plans and the deadlines they're probably referring to set some time back, right? And we are more focused on actually doing this in the right way and with the right quality. Simplification and the core back of platform and the technology efforts that we have is one of our top priorities for the firm. So for us it's more about the customer experience, doing it with quality and doing it well rather than actually fitting a specific deadline.
And yes, the scope you've got also remember that the scope has indeed increased here in this program as well. So that is more important for us than hitting a specific deadline that was set many years ago. So yes, you could argue it's delayed, but for us, it's about the quality and customer experience when we launched this.
Thank you very much. Maybe last small thing on the cost side. As of 4Q, You were mentioning that the target for 2018 cost base included €150,000,000 I think of transformation cost. You booked a bit lower amount in the Q1. Is the €150,000,000 still stands for the full year?
Yes, it does. So you should expect these transformation costs to go up a little bit in the coming quarters. On the other hand, we have seen quite small effects on the cost initiatives. You will see a gradual increase on them. So we are still very confident to deliver on the 2018 targets.
Thank you. We will now take our next question from Natasha Blackman of Societe Generale. Please go ahead.
Good morning. Hi. I have a few questions on funding. You mentioned in the release that you are expecting to issue non preferred senior this year by possibly using the contractual subordination solution. Would you be able to tell us how much are you looking to issue in total and how much of that would be would you be keen to do this year?
That would be my first question.
Yes, we are indeed expected to issue a non preferred security this year. This is the starting, I believe it was 2 in this year as we go forward that would develop and in total I believe it was SEK 20,000,000,000
Around that number.
Around that number. But that can, of course, change depending on our
balance sheet change.
But that is likely to come down, I assume.
Sorry, we didn't see the last question.
I assume that would be coming down because obviously that's under the Swedish MREL, €20,000,000,000
Yes. I mean, we'll see what the MREL requirements would be. So you're right. Okay.
And how much would you like to do this year?
We're still evaluating market, but I think we have communicated previously in a few billion.
A few. Okay, great. And then my second question is in subordinated debt. Do you have any needs to issue there, so in AT1 or Tier 2? Are you done for now?
On 81, we don't have any plans to issue this year. On Tier 2, I'm a bit more uncertain. So let us come back to that one later on. But on 81, we are already feeling the demand.
Perfect. We'll now take our next question from Matti Ahokas of Chase Bank. Your line is open. Please go ahead.
Good morning. It's Matt Thiago from Danske Bank. I haven't changed jobs. Two questions please. Firstly, you mentioned that the revenue momentum would be picking up in the second half, but also at the same time you're saying that at least the commission side would be picking up also already in Q2.
What are the underlying assumptions that Q2 would not yet see the increased revenue momentum? And then if you could talk a bit about the outlook for lending margins in the different geographies and where they operate at the moment? Thanks.
Okay. I got to remind when the questions are. So when we talked about previously on the questions on the momentum that was very much related to the brokerage fees and in Wholesale Banking. Of course, the question is prior on asset management, it is indeed softer on the fees and commissions on the savings and investment products. The other revenue momentum we have is, we believe that we will grow with volumes as we talked about in the vending side, but there is margin pressures.
We have in Norway impaired the increase of NIBOR has created some margin pressure. So we're going also into Q2 slightly softer there. In Denmark, it's more about the lending mix and we have an initiative that we will roll out hopefully towards latter parts of this year that we can probably support the consumer lending business in Denmark to improve that status. And then in Sweden, we've just talked about the mortgage margins here. In the corporate side of Sweden, we are actually seeing lending margins, signs of that ticking up as well as some potential volume pickup.
So that's a positive sign. And I think that sort of gives you hopefully enough flavor.
Thank you. We will now take our next question from Adrian Cighi of RBC. Your line is open. Please go ahead.
Hi there. Thank you very much for taking my questions. I have two questions, please. One follow-up on NII, particularly on wholesale funding. How much of a headwind did the U.
S. LIBOR OIS spread increase contribute to NII this quarter? And assuming it remains at the same level, how much more of a headwind will contribute to Q2 and Q4? Yes. How much more of a headwind will contribute to Q2 and Q4 Q3 and Q4?
And then on capital, please. You're now meaningfully higher than your own target. While we know that you have a new regulator in starting October, do you think they'll ask a much higher management buffer? Or what is the risk or risks that you see them stopping you from distributing at least some of this excess capital back to shareholders?
So let me start with the capital question. As Casper said, we're very highly capitalized. We've got a huge capital buffer of 2 30 basis points. And if given the new changes in Swedish risk weight floors, we're actually one of the highest capitalized banks in Europe. We are currently a Swedish company and as such we will go through the normal Swedish SREP process.
And as we enter into the SSM, we will go through their process and we are following those guidelines. So that's really where we're at and we'll have to see what the outcome is of that when we move. And we have our intent or we are willing to commit to actually going into the SSM at the current capital levels.
The first question was? Funding.
Funding. Yes, we had a slight higher funding costs than in this quarter, which was actually indeed driven mainly by the U. S. And the difference in funding cost was about $5,000,000 if I recall correctly and that was driven by Matt. And I think we are expecting and if you look at our funding cost has come down over the last year or so and it's still trending and we still expect it lower, but slightly higher than we have previously guided about quarter.
You've got to tell me when you got it. So we still expect funding to be slightly €70,000,000 or so better than before? Correct. Yes, the change here is that previously we
said that the increase in regulatory costs were to be met with lower funding costs and what's around €100,000,000 on both sides. The regulatory costs are now kicking in €26,000,000 higher, so that's around €100,000,000 per year. The funding cost, we do expect to be down some €70,000,000 €80,000,000 So there is a slightly lower decrease in funding cost than we expected before.
Thank you very much.
Should we take a pause with the telephone conference and enter the room again? So Niklas, please. Niklas' hand is
hurting. Hello. Thanks for the presentation. Niklas Meknes here from DNB. A question on the cost guidance that you kept intact now at €4,900,000,000 That the cost guidance that was set after the Q3 results last year.
And if I take into account what's happened with FX movements, you've had quite depreciation of the Swedish and Norwegian, krona versus the euro and also the divestment of Life Pension in Denmark, I end up with annualized cost tailwinds of around, yes, slightly north of €100,000,000 So I understand you maybe don't want to change your guidance on the back of such fluctuating factors. But is it fair to assume that assuming the current FX relations that you should be able to outperform the cost target? Or has there been kind of other cost headwinds since that cost target was set in Q3? That means that we should still expect cost to be, yes, closer to SEK 4,900,000,000?
So first, we reiterate the target of SEK 4,900,000,000. And on the FX comment, we are as Kasper said, we are actually changing the firm. We're not phenomena, we're actually changing the firm in terms of how we leverage the scale and synergies of Nordea and that drives cost efficiencies as well. So we are not looking at costs and we are not changing our plans on a sort of month to month basis depending on the FX is And hence, the cost target remains at €4,900,000,000 And then Nordea Life and Debt Pension, is
that Mark? Yes. And as you may remember, we said that this will lower our cost base with some €40,000,000 And we said before that around €4,900,000,000 But that €4,900,000 was slightly above €4,900,000 And now we are talking about slightly below, but we still rounded to €4,900,000 And then the FX impact in this quarter was €11,000,000 So that's a tailwind obviously that we get. But I mean, we don't do forecast on currencies in our cost outlook. So therefore, yes, if we get tailwind, that's good.
But we can have headwinds as well. So no one knows.
Next move in 6 months' time in the opposite direction, right?
Yes. But then revenue should improve as well.
Okay. Magnus,
please.
Yes. Just on the wholesale banking, to try to be a bit more specific, just a year ago almost you had an Investor Day in London where you talked about your plans for each business area and you launched a 12% return target for this business. We're still at 8%, same level as 1 year ago. Cost to income ratio up quite significantly. You have reduced capital consumption though, withdrawn risk weighted assets.
So when I look at this business, you're not the only ones having profitability problems with large corporate business. Do you think this is purely cyclical? Or do you think there's something structural? And what do you think about the 12%? Is it really realistic within a 2 to 3 year time period as you see it?
We've talked a lot about the derisking. And the de risking actually sits very much in wholesale Russia and with the shipping oil in offshore. And it was also about covering and working with the right clients. And I think the initiatives that Wholesaler put in place, both on the efficiency side and also in terms of shaping the markets business, I do think that they will have a momentum and the target still remains at 12%. As Kas indicated, obviously de risking revenues have risk and we have de risked something that has higher NII.
The efforts now is actually to grow the corporate business that we have had in place. We have de selected a few clients, but we are now seeing a lot of leads, a lot of new momentum. So we hope that that will slowly come in 2.5 years' time for sure. And the momentum in the advisory business is good and we have restructured the markets business. So all the components are there to grow and achieve that.
Please remember also that the loan losses are still elevated here. In this quarter, we had 1 Danish corporate customer that costed us quite a lot. So we have 35 basis points, which is elevated.
And finally, just if I may be a bit bold, do you think you will be able to grow NII at a group level quarter on quarter in Q2?
We don't do quarterly forecasts.
Thanks.
Andreas, please, sorry.
Thanks. Just when I look at NII and Treasury, it declines significantly. And partly or part of that is the transfer pricing that we've seen in other divisions. Can you tell us how much is that and how much is the underlying performance in our treasury? And then you can also say where does it go?
How much goes to the key divisions?
Yes. I can give you all the details later on, but SEK 40,000,000 is transferred from group functions into the VAs. Four-0. Four-0. And now the remaining SEK 20,000,000, 1 is repayment of a loan.
If you may remember, we had a funding agreement with a buyer of our Polish and they have now repaid that fully. And that is around €6,000,000 €7,000,000 Then we have slightly higher funding costs, as we discussed, And the rest is simply higher regulatory costs, I. E, resolution and DGS.
And then could you say
Sorry. So you can say this is a fair run rate going forward.
Yes. And then the IFRS 13, right, in Denmark, how is that split between Business Banking and Retail Banking?
EUR 77,000,000 in Personal Banking and EUR 58,000,000 in CBB. Thanks. Peter?
Yes. Just a follow-up on NII margins in Personal Banking. In Finland, NII was down some 10% Q on Q. If you just could elaborate a bit on what drove that?
Yes, we've had a challenge in Finland. There is the front book is having lower margin in the back book. We have had a lot of competition in Finland. However, given the changes recently in the risk where the mortgage flow is actually giving a bit of respite now in terms of the margin. So we do think that this is stabilized and we actually think we can grow market share in Finland from now.
And if you look at the decline, I think it's €9,000,000 or so €8,000,000 €9,000,000 and actually €8,000,000 or higher deposit and guarantee fees and €2,000,000 is the day count effect. So underlying is not really happening.
Okay. And the comment there on kind of margins and volume growth in Finland, do you expect an uptick in margins in Finland?
We expect to grow with markets.
But in terms of margins, is there any particular trend there?
We're seeing it.
Yes, I guess mortgages.
I think the we're seeing a bit of respite, a bit of the margin pressure is coming off a little bit, not necessarily that it's increasing.
Okay. Then just one follow-up question on the funding costs. I mean, you mentioned in the past that it would probably be some back end loaded in the year, the decline in funding costs. How should we look at Q2? I guess it goes back to
Magnus' question on quarterly forecast.
Yes. That I can support you with. We do expect funding costs to come down with a small amount in Q2. We are talking single digit euros. And then it will remain on those levels in Q3 and Q4.
So fairly small movements from Q1.
Okay. Thanks.
Do we have more questions from the telephone?
Certainly. We will take our next question from Bruce Hamilton of Morgan Stanley.
Just a follow-up question looking at fees and commissions. When I look at the sort of savings and investment income in Q1, it's down 13% year over year and you've given some reasons. But the assets under management have only declined by 3% over that same period. And it looks like in terms of where outflows have been, it would probably be where I'd expect lower rather than higher margins, so institutional. So what's driving the much sharper decline in fee and commission?
Is there just structural pressure on fee margins? Is it lower sales because you're not generating as many sales? How do I understand what's going on there and whether that continues?
Yes. If you look at asset management fees, I mean, you have seasonality, so you have no performance fees. Then we actually have another seasonality.
Yes. Sorry, go on.
Yes. Then we have some seasonality also when it comes to the fund fee days. We have less in Q1. And the rest is explained by lower volumes. If you look on the income spread under asset management, they have been fairly stable at around 42, 43 basis points.
So we don't see any margin pressure.
Okay. That's helpful. Thank you.
Thank you. We will now take our next question from Riccardo Robre of Mediobanca. Please go ahead.
Good morning to everybody. Three questions, if I may. So on
the discussions you're having with ECB, when do you think you will be in the position to
position to say something to the market about your capital requirement and risk weighted assets? Do you think this is going to happen ahead of October 2018? This is my first question. The second question I had is on the capital gain that you will get from the sale of UC AB. Is this going to be treated like a normal earnings?
So it's going to be part of a potential dividend payment? The third question I have is on the risk weighted assets. They've come down a bit this quarter. Assuming the loan book doesn't change, should we expect IRB parameters to continue to improve over the next quarters, so RWA eventually to go to keep going down if the loan book remains flat or to go up less than the loan book should the loan book start growing again? And the very final question I have is on, given that the share price is kind of over and over closer and closer to the tangible equity, could you consider efficient to maybe replace a substitute part of the dividend payment with a buyback?
So let me maybe start with the capital and then see if I remember the following questions. So as I said earlier, we are in under the Swedish regulation, we are following the Swedish extra process for 2018. We will then and we continue having dialogue with ECB as we go forward. When we go into the SSM, we will follow their process. So the capital outcome of that will come out when we have clarity from as how we land in terms of our discussions in quarters to their processes.
And that also relates to the question on buybacks. Buybacks, 1st of all, basically decided by the AGM at a later stage and we will see what the capital outcome is as and when we are in SSM and what happens in the future.
And on the capital gain, now I'm looking at Pavel. I think it's other operating income, yes. And it's net of tax. And that we plan to report in Q2. We also plan to have the capital gain from Nordea Life and Pension Denmark in Q2, and that number is around €250,000,000
Did we miss a question?
All right. No, no, no,
no, no. No, no. I think I'm just on risk weighted assets.
Exactly, yes. And decline in this quarter, we had a €3,100,000,000 decline. Of that, almost everything relates to improved credit quality. It's around SEK 2,500,000,000 and the rest is FX. And the FX is then and then the FX is decline on the common equity as well.
I understand that. But do you think it's going to go on like that? I mean, the credit quality within the group would allow further positive migrations, I don't know how to call it.
We don't give guidance for that. We are very happy when it happens.
Okay. Fine. We will now take our next question from Kim Burgle of Deutsche Bank.
Actually, most of my questions have been answered. But again, just a little bit on what you said. Casper, I think he sort of briefly just used the wording being over But obviously, as you're saying, your cash spend is now going down. You've got these one off effects coming in the coming quarters. So it looks like your cash generation is going to be relatively strong this year as well.
How should we be thinking about this? I mean, that you're a buffer, you're a buffer. What does that mean? What do we what should we expect from that? Is that just if it's not really, really if it's not distributable, then is it a buffer?
So just how should we be thinking about this?
Well, maybe I'll just comment very briefly on the dividend policy. Obviously, we keep our dividend policy as is and we are accruing €0.69 for this quarter, which is nothing more than €0.01 more than the previous one and that is in line with our dividend policy. We've actually communicated that policy to our new regulators and we had no pushback on that. So that remains intact. And I think the answer to your other question remains as is, I.
E, we will follow the process in SSM and we'll see the outcome of that and we will communicate that in due course.
Okay. Thank you. Thank you. We will now take our next question from Jacob Kruse of Autonomous. Please go ahead.
Hi. Thank you. Can I just ask, when I look at the league table data you provided for your large corporate banking business and your commentary around some of those deals perhaps being more Q2, if I understand you correctly? Just how much of your Q1 kind of deal flow was reflected in Q1? And how much do you feel is flowing into Q2?
Or not precise numbers, but what kind of magnitude are we talking about there? And then my other question was just quickly. The headquarter move that is scheduled for October 1, '18, is that on track? And is that still where you expect to have that finalized? Thank you.
On the first question, was that how basically the level of income in Q2 in the Wholesale Banking? Is that what you're asking?
Well, no, what I'm asking is, if Q1 if you're saying Q1 was a strong quarter in the Wholesale Bank from a league table point of view, but perhaps not as strong from a revenue point of view, is there an element of Q1 performance getting about to be booked in Q2?
Yes. You can say that. I mean, we've had a I mean, the lead tables are strong. The environment was good. And we've had very good deals in Q1 as well.
But it's it was weak, but the momentum now going into Q2 is strong. So there
is an element of pipeline that we have, which is that we see, which is good, that we hope will materialize in Q2. And also if you look at the tombstones we presented under the investment banking chart, you saw some very sizable deals that are not closed yet. And unfortunately, we are not allowed to invoice before we close the deal, But we plan to do that in Q2.
Right. Okay. Okay.
Thank you.
And this headquarter move?
Yes. As of the moment, we are continuing our discussions with the relevant authorities and we are aiming and on track to meet the 1st October date. And maybe you read
the Inti with the Head of the Swedish FSA. And we were happy to hear that he has exactly the same view as we have on the capital side. So we are pleased to see that we are aligned in the thinking. So do we have any further questions from the telephone?
There are no further questions on the telephone at this time.
Okay. Thank you very much. Thank you very much for coming to this event. You're, of course, always free to call me or Pavel at your discretion. We will be in Lon Lon tomorrow as we have an Anders Breakfast, but all of you are welcome.
Thank you very much.