Time is 10:00 A.M. Welcome to this press conference where Nordea will present its first quarter 2018 result. My name is Rodney Alfvén, and I am heading up the Investor Relations. We will start with a presentation of the Group CEO and President, Mr. Casper von Koskull. Then we will have film time, and then we will have a Q&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&A with our new CFO, Mr. Christopher Rees, and me. Casper, please welcome.
Welcome everybody. Good to see you all here. Again, one quarter is behind us, 2018 has started. If I would maybe just give one or two words on the economic or the backdrop of 2018, I think it is fair to say that 2017 particularly was actually an environment very stable, very benign economic underlying environment. When we are into 2018, I think the benign economic environment is continuing, maybe more volatility, maybe somewhat more uncertainty, certainly in the financial markets in 2018. Still a very benign economic environment in all of the four home markets that we have. When I look at the first quarter result, I am pleased because we are improving profitability. We had a weaker quarter in Q4 2017, we are now clearly improving. Our operating income is coming up from that quarter.
More importantly, operating profit is meaningfully above the fourth quarter 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 four Cs. The four Cs, I think, are the critical element of any bank moving forward in this environment. The four Cs to me is cost, credit, i.e. risk under control, capital, and compliance. Those have been our focus over the last two and a half years, I am very pleased that we are delivering on all four of those elements. On cost, we have mentioned that 2016, 2017 were years where we have invested heavily, when we actually are past that period, those costs would be coming down. They are coming down.
We see that in the first quarter, we are now very confident that we will deliver on our cost target in 2018. Of course, that will then also continue, cost is under control. Credit quality that we have today is the strongest we have had since really the financial crisis started. Very confident on that. Having said that, we have been in addition to that, because credit quality reflects decisions made in the past. Last two years, we have been very diligent in actually being less aggressive in those segments which we have seen higher risk. We have de-risked the bank. That de-risking 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 have done it, I think we have done it in the right segments.
We have also grown less in those segments where we have seen some of the risk elements over 2016 and 2017. Capital, and I will come back to capital as well. Capital ratios that we have today, and I think I have said this in every single Q meeting I 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 am firm on that. Compliance, we have invested heavily, basically completely revamped our whole operational risk compliance, IT security platform over the last 2 and a half years. Gives us confidence to move forward. That is an area where you are never done.
It feels very good in an environment which is more uncertain, more volatility, to have a much more robust bank in that regard. Of course, I have always a however, because where I am not pleased is that we did predict that the first quarter 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 first quarter would be, given the run rate we had coming into the first quarter, it was expected that it would be somewhat so. On top line, it is something that we internally has said, now with 2 years more inwardly focused, now it is time to really move and put the focus to get that business momentum. I am confident that we can get it.
We have a great platform in place, with the three Cs in place, it is now time to really beef up that side. In that sense, I am 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 am not going to change it. Where I am confident is that we will have a higher net profit in 2018 than we had in 2017. EPS growth is something that I am very confident. Where we have a little bit more uncertainty, but we were working on, is actually the guidance on the top line. In that sense, somewhere a quarter where we have proven a lot of the things that we wanted to prove, the three Cs, and now being able to focus externally. Numbers I probably have covered already.
Operating income, i.e., revenues, yes, that is where, yes, we are up on last quarter, but yes, we are down on the quarter before. The slight weakness that I see is in NII, and I will come back to that. Fee commission. The line that actually has been strong in the first quarter 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, 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.
On capital, management buffer is today soon 250 or it's 230, but we have a meaningful management buffer, 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. 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. There's no real movement in margin and 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 cost and then regulatory costs that are kicking in. They count really the key. 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 fourth quarter, of course, we have the performance fees coming in in the fourth quarter. Yes, that has an impact. We don't have the performance fees in the first quarter 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 here just to get MiFID in place. The fact that we have net inflows in March actually tells me that we are getting that momentum back. 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. It's mostly on that line. Somewhat weaker also on the corporate side, advisory. Although here when we say that it was not that active, we actually were very active in the first quarter. The fact is that some of these big deals are now closing, and they're closing in the second quarter. We actually have a pretty good momentum for the second quarter already on fees and commissions from that side. In that sense, I already have confidence that some of that has been turned in that business segment.
Mostly, I would say asset management and where we need to now learn to live in the MiFID 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 EUR 300 and EUR 350. We're bang in the middle of that in terms of the underlying. Now in terms of customer flow, customer flow still reflects the environment which we've had really in the last five, six quarters, somewhat lower, but it's a healthy customer business, but it's still somewhat lower from the history. In the last five, six quarters, we've had that type of customer flow. Here, really the improvement is actually on the trading side.
Some of that volatility coming back, more normalized trading. The underlying net fair value. 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. That is a one-off, but the underlying is also looking reasonably healthy. All in all, something that I'm very pleased of. Cost is, I think, the thing where I know I've been questioned. Are you or do you have cost under control? I think we have now, both internal and external, proven 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.
Otherwise, this trend is now down. The big savings are in the big group projects, consultants, et cetera. 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, et cetera. We are changing the way we run the business. This is not cost cutting. Kind of 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. 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.
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. Of course, capital is key in this business. Cash cost for this year, we expected EUR 400 million 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 EUR 4.5 billion or EUR 4.7 billion by 2021. That's EUR 1 billion less of cash cost by that time. Again, I emphasize that improves capital generation. That's part of the transformation that we are doing. Well on the way on that. Asset quality, I think is key at this point of the cycle.
I don't know how long the cycle will last, I think it is fair to say that maybe it is on its second or last leg or whatever, it will not last forever. Actually, the de-risking 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. I'm very confident on the quality of our credit book. We do not see in the coming quarters that this situation would continue. Some of the weaker segments is still probably oil offshore, Danish agriculture, but overall, very confident on this side. I emphasize again, the three 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, half really serving, half non-serving.
Pretty much where we would expect it to be as well. All in all, very confident on that. Capital. This is almost like a parrot. We have never been as well capitalized before. That I have said every single quarter I have stood here. It is continuing, and 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. It is important when we look at CT1 ratios. This has annoyed me, frankly, in the past because you get this Although it is quite easy mathematics, you still have this notion that your CT1 ratio is lower than this or that, or how do you compare? These numbers have never been comparable.
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 you can compare banks. Everybody is on the same line. If it really is reflected in the risk-weighted assets you have, you can say apples to apples, how do banks look? When you look at that, it is very clear that we are, and we have the highest CT1 ratio, frankly, of any bank in Europe of our size. Certainly, the highest also. That doesn't change meaningfully our capital buffer. This is a very solid, well-capitalized, maybe even over-capitalized, but let's not go in there, 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 re-domiciliation, 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. We're a model that many banks would like to, but it's not been easy to get there. That transformation is pretty much complete. Simplification. Come a long way.
Core bank 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 scene, 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 four core markets.
It's not only now proof of concept, it's not only proof 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. We again see that this is happening. When we started this exercise three, four years ago, we had 47 payment systems. I remember counting those. We are now moving into a new world. Simplification is also going in right there. 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 vertical silos and starting working much more horizontally in lean teams. De-risking is an important part.
De-risking of the asset side, I've actually mentioned, but de-risking is also the investments into operational risk compliance, 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. Now we have both the competence processes, people in place, which we did not have two and a half years ago. 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 who have chosen us as a partner here in the Nordics. Of course, generating and creating now a new momentum in actually coming up with new products and service.
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 Martin, who sits there in the corner, I look at the wholesale bank he's running and look at what we've done, again, in the first quarter, and I always look at four main components. Where are you on equities? Where are you on advisory? Where are you in bonds? Where are you in loans? From there, a lot of risk management and other products then flow from that. 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 two largest transactions, landmark transactions, in the Nordics, the acquisition of TDC and the merger between Tele2 and Com Hem, actually is a testament of the leading position we have in this region. We were also part of the three largest IPOs, European IPOs, of the first quarter of 2018. You know they were not all in the Nordics. That means also we are the Nordic choice when equities needs to be distributed in this region by European blue chips that have actually become public early this year. Same thing in funds. Yes, we have had outflow in the first months, now inflow. 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. We have actually now also in the first quarter got a lot of rewards on this side, really across all the 4 markets in terms of our fund performance. 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 just want to put it. We are working on this, but at the same time, you heard me say this 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. Of course, we need to actually broaden our relationship with all of our customers. The second thing is also we have also maybe been, again, too inwardly focused.
Customer interaction, meeting customers, be it online or physically, is key to be accessible. 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. We are having a new momentum in this, and in all of our core markets, all 4 markets, and in all of those relationship segments, our customer satisfaction is nudging up. I'm not saying here that we are where we want to be. We will work on this and I get it. We also have the broader mass market. The solution there is much better digital deliveries.
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. It's not only those. 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, Mattias, to the stage, and I will ask him 1 very simple question. Who are you?
Thank you, Casper. My name is Mattias Fras, 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 the different business units to solve good problems to make it better for our customers. 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.
Yeah, let's talk about that later maybe. What do we do? Basically, all the stuff that we do is to make it better for the customer. We do in three categories. One is to infuse intelligence in the way we interact with our customers, to make it more relevant, more pleasant to do 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, doing banking in new ways that we really didn't think were possible before. 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. We have our software robots, not really AI.
We have around 250 of them, and last month they executed a quarter of a million 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 MPs, helping them to solve problems or answer questions. We are developing an AI-powered platform to send one-to-one communications to our customers to be more relevant to them and do it in the right time and the right channel. We are making our AML case handlers. We're giving them superpowers to be more effective and handle larger volumes. 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.
I think that's pretty amazing. On some of these areas, I think we're a front runner in Nordea. We are still in early ages of AI, obviously. Having said that, I'll show you a short movie. It's one minute. In the movie you will meet Gustav. Gustav is sitting right here. He's an AI trainer. An AI trainer is a new role in Nordea. He is teaching our Nova how to speak. We're now developing speech. Hopefully you will see that in a not too distant future. 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, we're working heavily on AI and machine learning. What we have here in front of us is Nordea's virtual assistant, Nova, she's able to give us instant banking experiences now through voice.
That sounds awesome. Could you show an example?
Sure. 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, Gustav. I am Nordea's virtual assistant, Nova, and your personal advisor. 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.
All right. Where do you want the card delivered?
At home.
Okay. I have an address here. Charles Street 12. Is it the one?
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.
Oh. A little bit of a taste of the future, I think. We'll try to do this also going forward. I think, Rodney, now you're the master of this. We may take both questions, but yeah.
Yes. We will start with some high-level questions for Casper. I also want to be dressed like that at work, but I am too old. We have time for a few high-level questions for Casper, and then we will do the analyst Q&A. Magnus, please start.
Should I wait for the mic or should I take it?
Yes, the mic is on its way.
Okay, thanks. Hi. Magnus Andersson at ABG. Just on the income side, since you were talking about the four C's, and I think most of us here are focusing on the I. To start, or just take a high level on net commission income, the fee income line was the weakest one since Q3 2015. When I look at the split, I see that it looks like the investment banking parts are quite weak. Securities brokerage, corporate finance, et cetera, the weakest for at least three years, probably more. Lending fees are coming down quite significantly, guarantees, et cetera. At the same time, I look at wholesale banking, where you have ramped up for quite a long time, and profitability is still 8% there. I know you have a 12% ROIC 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 the corporate side, of course, is always a little volatile. The second quarter, you will actually see a different number. We have some very big pipeline. The deals that I've mentioned, they all close in there, and you see that with other banks as well. The cycles, when you compare bank to bank, particularly in different geographies is different. That's one. The second thing is that we've actually done a major rehaul also cost-wise in our wholesale bank, which actually is now coming through.
That has not been a cost-driven exercise, it's been an offensive-driven exercise. I probably should give more word to Martin here, who sits, but where we actually have become much more. 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 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. 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. League tables 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. Also when we look at customer satisfaction, we actually have the best customer positioning in all four markets today of any bank. I think 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 on the international side. When you have that very rapid growth, you will come to a point where the breather.
Now also with equity volatility, there has been profit-taking. When you add that to MiFID II, we have actually said that we have slower growth there, 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. I think those are the highlights of those two businesses, which are the key drivers of the fee commission line. 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 those are in place. The fund performance is there, the organization is there, and of course, the key position or the lead position in wholesale banking. It's in place. You just need the momentum.
Do you think that the short-term 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 are not that bad. I think both the customer number and the trading number in the first quarter, we've always said that this is a business where we should be in this kind of an environment between 300, 350. I think the number is now 320, 330 for the quarter, and it's not a fantastic backdrop in terms of environment. Even the new organization has performed. I think when I look at Martin, as always said, this is just the beginning, the offensive moves that we made there probably hasn't come through. I've always said that the last two years, we have been inwardly focused throughout the organization.
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, 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.
Thank you.
You can hand it over to Andreas, please.
Thanks. Andreas Håkansson for Exane 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. Then some events with the move has actually made things worse, and you seem to be losing market share primarily in Sweden, but maybe a bit in Denmark. 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 prices? Is that the strategy you have out of it?
I'm not sure. I think this focus on mortgage is a little bit overdone because it's not like we are the mortgage bank. Mortgage is a very important element in our Swedish business, in all of our businesses. When you look at its share of whole, 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 a little bit more forward-leaning actually to maintain. We're not going for big volume. I don't need to go volume and market share. Again, the three Cs. You have to remember, banks are also taking risk.
I think that was very deliberate what we did. Now when you look at the first quarter, we are flat. When we now have changed pricing, I think in the first week we had a 36% growth, but we are not going for a lot of market share gain. We want to have roughly the market position we need and want to have, which we've had historically. I don't actually buy the fact that we have lost that much, particularly on customer satisfaction. I'm working on it. 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. 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 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. That's actually a long-term journey. 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.
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?
Again, I think you're looking at 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 have, we can handle that. It's not a new thing in terms of price and other competition. I think we will go through a period now where we'll see what the new entrants will do, what will actually the challengers do. Just what we have done recently, I think we have shown just in the one week that, hey, we can play with that. The last four or five months of last year were very deliberate. We did not want to grow with the market.
We said that as well, we delivered on that because we had take a more cautious view on that very hot housing market that we had last year. Which now has, in my mind, corrected and stabilized, we can take these steps.
We have room for one more question. Peter, please, you were early up. Yes. Hi, Peter Kjaergaard from SEB. Just one question on the de-risking. I think you've mentioned for a few quarters that de-risking is coming to an end, I read that in this quarter report as well. Could you elaborate a bit on what that means in reality, when do you think that we've reached the end for real?
I think it's for real because I think when you look at, I always just take two segments. When I look at shipping offshore in Russia, if you take $6 billion out of that's almost EUR 200 million in just pure NII. That's done, actually, I don't see that we are at a level. I would actually say that now I'm actually very comfortable where we are in Russia. We are at between probably not at the moment $2 billion-$2.5 billion. We used to be at $6 billion. That is actually a very well-running portfolio, also a portfolio that can be managed in a sanctions environment.
I also remember a month ago, people shook their head and said, "Did you really need to do that?" There's not a single person who questions our de-risking today as it comes to Russia, because people only wake up when things happen. 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. That de-risking was the right thing to do, and that's a EUR 200 million. Those two just is a EUR 200 million top line. If somebody likes that top line, it always comes with risk. That I always remind. 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-
Sorry.
We need to move on. We will continue soon with the Q&A for the analysts. The journalists who would like to have individual interviews with you, please go back and Emma and Hannah will take care of you. Everyone who wants to stay in the room, please feel welcome. I'm welcoming up Mr. Christopher Rees on stage. Thank you, Casper.
Thank you. Thanks for being here.
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. Christopher, our new CFO, has been CFO for a month. Before this event, I've tried to teach him everything I can, and as you can imagine, that went pretty fast.
Thank you, Rodney. Thanks for that coffee.
That one coffee.
That means today you'll answer most of the questions.
should we start kicking off?
Maybe one moment just before we.
Yes. Good
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 analyst, to introduce myself a little bit. Rees is not a Swedish name, but I'm actually half Swedish. Rees is a Welsh name. Half Viking, half Celt. Don't really know what that makes me. 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 eight years prior to joining Nordea, I was at Barclays. Most of my career, I've been in the capital markets business running various types of businesses across the Nordics as well as EMEA.
At Nordea, I've been the COO for the wholesale bank, to Casper's earlier questions, I was running markets just a little bit more than a month ago. 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. 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, that we can together work on the Nordea journey as we move forward. I very much look forward to meeting you all in person.
Thank you. Should we start then? We can start with Jens, followed by Johan, and then Matti.
Right. Thanks. Johan Ekblom from Carnegie. If we start with maybe a big picture question. It was a bit of a softer revenue guidance in the report this morning. How much buffer have you got your net profit target with a growing 2018 over 2017? Are we getting close to not being able to meet that?
We are confident that we are going to meet our net profit target. 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 have a softer quarter. There, the revenue guidance is slightly more challenged. 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 Casper's point about the fact that we have been somewhat internally focused, I basically joined the bank when the bank went slightly more internally focused. I think it's important now that the momentum and that Nordea gets its commercial zeal back into the business. Casper talks a lot about customer satisfaction.
It is about customer intensity. It's about customer proactivity. We are actually shaping our business, particularly also for the mass market, to deliver those products. Yes, the revenue is a little bit more uncertain as we go forward, but we have always guided for a softer first half. Net profit increase, we are confident we will achieve.
Okay. 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, actually in 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. There we're actually seeing some improvements in margins. You have seen, Casper talked about what we did in Sweden, we are continuously monitoring all the markets, we will want to grow with the market going forward. We believe that there is momentum to drive volume as we go forward, albeit under slightly tighter margins. I think the momentum, if you look at our 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, actually that line is impacted by IFRS 15 as well, it's roughly EUR 10 million.
Actually NCI quarter-on-quarter in wholesale is broadly flattish. Therefore you need to take that IFRS 15 piece into account. There the momentum is very strong, 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, that is changing the way we account for asset under management. There are also some seasonality effects. I actually believe Casper had the bridge up earlier. All those mean that actually the net outflow is not EUR 3.6 billion, it's more EUR one and a half billion. There clearly Casper made the point that equity markets has an impact. There has been some reallocation.
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 imagined slightly softer. Going into Q2, it is softer, but we do believe that Q2 will improve over Q1 in terms of inflows.
Okay. Thank you.
We can move then to Johan, please. Sorry. Followed by Mats and then Magnus.
Thank you, Johan Olsson.
Yes.
First.
It's the questions
clarifications there on the revenue guidance, which is common today in the report as well. I think previously we've discussed a 1%-3% revenue growth or so in 2018 vis-à-vis 2017. When you say that is more challenged, we should think about those 1%-3%. Then from what base? Is that EUR 9.2 billion, or EUR 9.3, or what base is it?
9.2.
Okay. When we look at the asset management and wealth management business rather overall, if we go back a year or so, we can see that now you've had zero inflows overall. I understand that you've had MiFID implementation as all banks have had, and we've had equity volatility, et cetera. Would you say that, is it a structural issue where you have outflows from previously sold volumes via the international distribution? Any other sort of more structural issue which is causing now outflows to offset inflows in other areas? 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.
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. Personally, actually our retail distribution in Denmark and Norway actually had net inflows. Finland was broadly flat, and there was some outflows in Sweden. I think a lot of it has to do with, yes, there has been some close of these Stable Return Fund. We have had inflows in some of the other funds, but not enough to offset it. The issue, I think, is actually getting enough inflows to drive it. 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. There's very little activity in the first one and a half months in some of the businesses. That actually changed. In March, we actually had net inflows into asset management. I think there is potential, but we are coming in to the year slightly softer than expected.
Yeah, if you look at the four different components, 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. That is underlying, it's no outflows. If you look at institutions, 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. You have some seasonality there as well. If you look in wealth, sorry, if you look in Life and Pension, there are no outflow at all. If you look at the retail funds, it's basically Sweden. The rest of the market we have inflow. There's no structural thing at all.
Okay, thank you. One more question there on another product line. 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 close to zero or a little bit below actually. I guess that over time, the bank is unhappy with being at that low level. Now your normal market share is more like 15%, I guess, in the Swedish market. My question is, would you like to get back to that market share now in the next year or so? If yes, what are you prepared to do to reach that market share? Because it is a competitive market, fairly transparent, with quite a few players are trying to get new volumes. One, is that your ambition?
Two, what you're prepared to do to reach that, please? Thank you.
As Casper mentioned, we made some changes this year on the pricing. Just like we did not make the changes previously because we did not go for volumes. 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. We also took a risk-based approach. Now is a good time to make these movements. We're not going to change market share willy-nilly. 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. 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.
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 mark-
If we think about new production now, of course.
If we're 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 because it depends on the market in a year's time.
Sure. Okay. Many thanks.
Please, Matti.
Thank you. Matti here, at Handelsbanken. I wonder if you can go more into the corporate segment, maybe building on Magnus' questions previously. We see league tables are good, but we also note in the report that commission from these income lines is declining slightly. If you can comment just on the activity level across regions, across products, what you see here going forward.
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. 15 is about EUR 10 million. If you add that on top, it's actually not gone down that much QOQ in the large corporate segment. The activity's been very strong. Just so this is a lumpy business, and I've been in that business for well over 20 years. Some quarters are good and some not. You need to look at a longer period of time. We have some fantastic mandates driven by where you can see it publicly on the league tables. The pipeline's very strong, and we hope that will materialize as we go forward in Q2. 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 EUR 325 million. I think the key issue there is actually there hasn't been some big corporate events that have made that little extra. That is also potential pipeline going forward. I think in the large corporate space, activity is strong. If you look at the lending volumes, both on the CBB space and in wholesale, we have a lot of new leads coming in. There is a momentum there as well. That takes a bit of time to come through. Actually in CB, we've increased our lending volume and actually seeing some margin increases in Sweden.
I think where we've had a large margin lending falls is in Finland, in large corporates. 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.
Okay. Thank you. We have international guests also on the telephone line. Should we invite them, please, operator? Thank you. If you would like to ask a question at this time, please press star one on your telephone keypad. Please ensure that the mute button is depressed on your phone to allow your signal to reach our equipment. Again, that's star one on your telephone keypad to ask a question. We will now take our first question from Willis Palermo of Goldman Sachs. Please go ahead.
Hi. Good morning. 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 a change in pricing in Sweden. You said you were anticipating a more stable housing market going forward. I saw the signs of stabilization in the first quarter. What makes you think this will continue?
Yeah, 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 a temporary oversupply. It has never been any issues on the demand side. That has been very stable, and as you know, the overall economy is performing very well. It was a temporary oversupply coming from a lot of new housing starts. We know now that they will come down in 2018, 2019. We see a market that is in balance between supply and demand. We see continued extremely low interest rates. Our forecast is now that the rates will remain stable till fourth quarter of 2019. It's a very long time. Then, of course, the unemployment is on low levels.
We don't really see any issues in the housing market that we saw basically 18 to 20 months ago, when we saw that asset inflation was high single digit or low double digits. We felt uncomfortable with that. Now we see it's much better in balance.
Okay. Thank you very much. The second question is on the Temenos platform, the core banking transformation. I heard Casper comment saying that everything was on track. You're also mentioning at the Q4 results that there were a slight delay in the roll that happened in 1Q instead of 4Q. I was wondering if you could elaborate on that, if 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. Casper was referring to the fact that we have migrated over a quarter of a million customers in Finland in April, and that migration went very well. As we go forward in the next few months, we'll continue to migrate customers onto the core banking platform. In the very near future, they will also be able to open accounts on that platform through their mobile app. Then as we go forward, that mobile app will also be rolled out in the various other countries. The plans and the deadlines they're probably referring to are set some time back. We are more focused on actually doing this in the right way and with the right quality. Simplification and the core banking platform and the technology efforts that we have is one of our top priorities for the firm.
For us, it's more about the customer experience, doing it with quality and doing it well, rather than actually fitting a specific deadline. Yes, you've got to also remember that the scope has indeed increased here in this program as well. That is more important for us than hitting a specific deadline that was set many years ago. Yes, you could argue it's delayed, but for us, it's about the quality of customer experience when we launch 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 EUR 150 million, I think, of transformation cost. You booked a bit lower amount in the first quarter. Is the EUR 150 still stand?
Yes.
For the full year?
Yes, it does.
Thank you very much.
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 from the cost initiatives. You will see a gradual increase from them. We are still very confident to deliver on the 2018 targets.
Thank you. We will now take our next question from Natacha 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, 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 you be keen to do this year? That'll 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 two in this year. As we go forward, that would develop. In total, I believe it was EUR 20 billion.
Around that number, yeah.
Around that number.
Yes.
That can of course change depending on how the balance sheet changes.
That was under the Swedish rules. That is likely to come down, I assume.
Sorry, we didn't hear the last question.
I assume that would be coming down because obviously that's under the Swedish MREL, EUR 20 billion.
Yeah. We'll see what the MREL requirements will be. You're right.
Okay.
Yes.
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. Then my second question is in subordinated debt. Do you have any needs to issue there, so in AT1 or Tier 2, or are you done for now?
On AT1, 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. On AT1, we are already filling the demand.
Great. Okay. Thank you very much for that.
Thank you.
The next question.
Thank you. Perfect. We'll now take our next question from Matti Ahokas of Danske Bank. Your line's open. Please go ahead.
Good morning. Yeah, it's Matti Ahokas 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? 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. Got to remind me of the questions. When we talked about and previously on the questions on the momentum, that was very much related to the brokerage fees and in wholesale banking. Of course, the questions 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 lending side, but there is margin pressures. We have in Norway, impaired the increase of NIBOR has created some margin pressures, so we're going also into Q2 slightly softer there. In Denmark, it's more about the lending mix. We have an initiative that we will roll out hopefully towards the latter part of this year that we can probably support the consumer lending business in Denmark to improve that status.
In Sweden, we've just talked about the mortgage margins here. In the corporate side in Sweden, we are actually seeing lending margins, signs of that ticking up, as well as some potential volume pickup. That's a positive sign. I think that sort of gives you hopefully enough flavor.
Thank you. We will now take-
Thanks.
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? Assuming it remains at the same level, how much more of a headwind will contribute to Q2 and Q3 and Q4? Then on capital, please. You're now meaningfully higher than your own target. While we know that you have a new regulator 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 the excess capital back to shareholders? Thank you.
Let me start with the capital question. As Casper said, we're very highly capitalized. We've got a huge capital buffer of 230 basis points. Given the new changes in the 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. As we enter into the SSM, we will go through their process, and we are following those guidelines. That's really where we are at. We'll have to see what the outcome is of that when we move. 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.
Funding costs.
Yes, we had a slight higher funding cost in this quarter, which was actually indeed driven mainly by the U.S., the difference of funding cost was about EUR 5 million, if I recall correctly. That was driven by Matt. I think we are expecting, if you look at our funding cost, has come down over the last year or so, and it is still trending, and we still expect it lower, but slightly higher than we had previously guided about a quarter. You have got to tell me when we guided. We still expect funding to be slightly EUR 70 million or so better than before.
Correct. Yeah, the change here is that previously we said that the increase in regulatory costs were to be met with lower funding costs, and it was around EUR 100 million on both sides. The regulatory costs are now kicking in EUR 26 million higher, that is around EUR 100 million per year. The funding cost, we do expect to be down some EUR 70, EUR 80 million. There is a slightly lower decrease in funding costs than we expected before.
Thank you very much.
Should we take a pause with the telephone conference and enter the room again? Nicolas, please. Nicolas' hands is hurting.
Hello, thanks for the presentation. Nicolas McBeath here from DNB. Question on the cost guidance that you kept intact now at EUR 4.9 billion. The cost guidance that was set after the Q3 results last year, and if I take into account what's happened with FX movements, we've had quite depreciation of the Swedish and Norwegian kroner versus the euro and also the divestment of Life and Pension in Denmark, I end up with annualized cost tailwinds of around, yeah, slightly north of EUR 100 million.
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 other cost headwinds since the cost target was set in Q3 that means that we should still expect cost to be closer to EUR 4.9 billion?
First of all, we reiterate the target of EUR 4.9 billion. On the FX comment, as Casper said, we are actually changing the firm. We're not phenomenal. 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. We are not looking at cost, and we are not changing our plans on a month-to-month basis, depending on what the FX is, and hence, the cost target remains at EUR 4.9. Nordea Life and Pension in Denmark.
Yes. As you may remember, we said that this will lower our cost base with some EUR 40 million. We said before that around EUR 4.9, but that EUR 4.9 was slightly above EUR 4.9, and now we are talking about slightly below. We still round it to EUR 4.9. The FX impact in this quarter was EUR 11 million. That's a tailwind, obviously, that we get. We don't forecast on currencies in our cost outlook. Therefore, yes, if we get tailwind, that's good, but we can have headwinds as well. No one knows.
FX can move in six months' time in the opposite direction, right?
Yeah.
Revenue should improve as well.
If it moves, yes.
Magnus, please.
Yes. Hi. 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 eight, same level as one year ago. Cost income ratio up quite significantly. You have reduced capital consumption, though, withdrawn risk-weighted assets. 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? What do you think about the 12%? Is it really realistic within a two to three-year time period as you see it?
We've talked a lot about the de-risking, and the de-risking actually sits very much in Wholesale with Russia and with the shipping oil and offshore. It was also about covering and working with the right clients. I think the initiatives that Wholesale have put in place, both on the efficiency side and also in terms of shaping the Markets business, I do think they will have a momentum, and the target still remains at 12%. As Casper 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 deselected a few clients. We are now seeing a lot of leads, a lot of new momentum. We're hoping that that will slowly come in two and a half years' time, for sure.
The momentum in the advisory business is good, and we have restructured the Markets business. 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 one Danish corporate customer that cost us quite a lot. We have 35 basis points, which is elevated.
Okay. 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.
Okay. Thanks.
Andreas, please. Sorry.
Thanks. Just when I look at NII in treasury, it declines significantly. Part of that is the transfer pricing that we see in other divisions. Could you tell us how much is that and how much is the underlying performance then on treasury?
You can also say where does it go? How much goes to the key divisions?
Yeah. I can give you all the details later on. €40 million is transferred from group functions into the VAs.
40.
40. Of the remaining 20, one is a repayment of a loan. If you may remember, we had a funding agreement with the buyer of our Polish business, and they have now repaid that fully, and that is around EUR 6 million-EUR 7 million. We have slightly higher funding costs, as we discussed, and the rest is simply higher regulatory costs, i.e., resolution and DGS.
Could you just-
Sorry. You can say this is a fair run rate going forward.
Yeah. The IFRS 15, right, in Denmark. How is that split between business banking and retail banking?
EUR 77 million in personal banking and 58 in CBB.
Thanks.
Peter.
Yes. Thanks. Just a follow-up on NII margins in personal banking. In Finland, NII was down some 10% Q1 Q. If you just could elaborate a bit on what drove that?
Yes. We've had challenges in Finland. There it's the front book is having lower margin on the back book. We have had a lot of competition in Finland. However, given the changes recently in the risk weight, the mortgage flow is actually giving a bit of respite now in terms of the margin. We do think that this is stabilized, and we actually think we can grow market share in Finland from now. If you look at the decline, I think it's EUR 9 million or so. EUR 8 million, EUR 9 million. Actually EUR 8 million or higher deposit in guarantee fees and EUR 2 million the day count effect. Underlying, it's not really happening a lot.
Nice. Broadly.
Okay. A 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 market.
In terms of margins, is there any particular trend there?
We're seeing it, yeah.
Yeah. I guess mortgages.
Yeah. I think we're seeing a bit of respite. The margin pressure is coming off a little bit. Not necessarily that it's increasing.
Okay. Just one follow-up question on the funding costs. You mentioned in the past that it will 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-
Yeah
quarterly.
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. It will remain on those levels in Q3 and Q4. 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. Please go ahead.
Hi. Good morning. Just a follow-up question looking at fees and commissions. When I look at the sort of savings and investments income in Q1, it's down 13% year-over-year. You've given some reasons, but the assets under management have only declined by 3% over that same period. 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. 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?
If you look at asset management fees, you have seasonality, so you have no performance fees. We actually have another seasonality-
Sorry, go on.
We have some seasonality also when it comes to the fund fee days, so we have less in Q1. 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. We don't see any margin pressure.
Okay. That's helpful. Thank you.
Thank you. We will now take our next question from Riccardo Rovere of Mediobanca. Please go ahead.
Good morning to everybody. Three questions if I may. On the discussions you're having with ECB, when do you think you will be in the 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 have is on the capital gain that you will get from the sale of UCAB. Is this going to be treated like normal earnings, so it's going to be part of a potential dividend payment? The third question I have is on risk-weighted assets. They've gone down a bit this quarter.
Assuming the loan book doesn't change, should we expect IRB parameters to continue to improve over the next few quarters, so RWA eventually 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. The very final question I have is on, given that the share price is over and over, closer and closer to the tangible equity, would you consider efficient to maybe replace or substitute part of the dividend payment with a buyback?
Let me maybe start with the capital and see if I remember the following questions. As I said earlier, under the Swedish regulation, we are following the Swedish extra process for 2018. We will continue having dialogue with ECB as we go forward. When we go into the SSM, we will follow their process. The capital outcome of that will come out when we have clarity from SSM how we land in terms of our discussions in accordance to their processes. That also relates to the question on buybacks. Buybacks, first of all, needs to be decided by the AGM at the later stage, and we will see what the capital outcome is as and when we are in SSM and what happens in the future.
On the capital gain, now I'm looking at Paweł, I think it's other operating income. Yes. It's net of tax. 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 EUR 250 million.
Did we miss a question?
All right. No, I think I'm Just on risk-weighted assets.
Decline in this quarter, we had a EUR 3.1 billion decline. Of that, almost everything relates to improved credit quality. It's around EUR 2.5 billion, and the rest is FX. The FX is then.
No.
The FX is declining the common equity as well.
No, I understand that. Do you think it's going to go on like that? The credit quality within the group would allow further positive migrations. I don't know how to call it.
We don't give guidance on that. We are very happy when it happens.
Okay, fine.
What we could say is that.
Thank you. We will now take our next question from Kim Bergoe of Deutsche Bank. Please go ahead.
Morning. Actually, most of my questions have been answered, again, just a little bit on what you said. Casper, I think he sort of briefly just used the wording being over-capitalized. Obviously, as you're saying, your cash spend is now going down. You've got these one-off effects coming in the coming quarters. It looks like your cash generation is going to be relatively strong this year as well. How should we be thinking about this? That you are above your buffer, what does that mean? What should we expect from that? If it's not distributable, then is it a buffer? 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 EUR 0.69 for this quarter, which is nothing more than EUR 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. That remains intact. 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. As a reminder, it's star one to ask a telephone question. 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 deal flow was reflected in Q1, and how much do you feel is flowing into Q2? Not precise numbers, but what kind of magnitude are we talking about there? My other question was just quickly, the headquarter move that is scheduled for October 1st, 2018, is that on track? Is that still when you expect to have that finalized? Thank you.
On the first question, was that how, basically the level of income in Q2 in wholesale banking, is that what you were asking?
Well, no.
Like in a much smaller way than I-
I guess what I'm asking is, 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?
You could say that. The league tables were strong. The environment was good. We've had very good deals in Q1 as well. The momentum now going into Q2 is strong. There is an element of pipeline that we have, that we see, which is good, that we hope will materialize in Q2.
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. Unfortunately, we are not allowed to invoice before we close the deal. We plan to do that in Q2.
Right. Okay. Thank you. 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 of October date.
Maybe you read the INT with the head of the Swedish FSA. We were happy to hear that he has exactly the same view as we have on the capital side. We are pleased to see that we are aligned in the thinking. Do we have any further questions on the telephone?
Thank you. There are no further questions on the telephone at this time.
Thank you very much.
Thank you.
Thank you very much for coming to this event. You're of course always free to call me or Paweł at your discretion. We will be in London tomorrow, so we have an analyst breakfast where all of you are welcome. Thank you very much.