Hello. Good morning, welcome to this presentation of the fourth quarter and the full year result 2017 for Nordea Bank. My name is Rodney Alfvén, and I'm heading up the investor relations at Nordea. We will start the press conference with a presentation of the Group CEO and President, Mr. Casper von Koskull. There will be opportunities for the journalists to have individual interviews with Casper. For the number nerds, we will have an in-depth Q&A session with Torsten Hagen Jørgensen, our Group COO and Deputy CEO. Casper, please welcome. The stage is yours.
Welcome, everybody. Good to have you here. Another quarter, another year. Time runs fast. Let me start by not getting the presentation up in the right way. How does this actually move? It's not moving.
Green button.
Yeah, I'm pressing the green button. Not an elegant start. Press the green button, nothing happens. No worries, we'll get there. Apologies for that. Should try that. Let me just start first by summarizing both the quarter and the full year, what I see as the key highlights. Of course, we need to start with the economic environment. I think I said last time I stood here is that the seven years or 7+ years I would been with Nordea, this is really the first time when we have seen pretty solid synchronized growth in all of our four home markets. First time really in seven years. That means also that in our core business, we've had pretty stable both margins and volumes, so nothing dramatic there. We have, and we've been pretty clear that we have, over the last two years, really de-risked the bank.
We have actually reduced exposures in some of our more risky segments, such as shipping and offshore and in Russia. Overall, we have been de-risking. That, of course, has impacted revenue, no doubt. I think that has been the right thing to do because it has also impacted and improved credit quality, and going forward, of course, it will benefit us. Another, I think, feature of particularly the latter part of the year and the last quarter is, of course, that we have seen unprecedented low volatility that has impacted our fair value line. This is a volatility level that we probably haven't seen since the 1960s. That probably is one of the features, particularly in the fourth quarter, where we have a meaningfully weaker fair value line, mostly also driven by some fair value adjustments.
When I look at maybe the profit development, I have to say, I'm not satisfied. Having said that, putting in the context of the transformation that we're going through, I'm not concerned and I actually expect really a profit to start improving given all the actions that we are taking in 2018. What we have been doing in the last two years in particular, we've been really building a more robust and more resilient bank with the investments we've done into risk compliance, IT remediations, et cetera. We have de-risked the bank, as I said. We have simplified the bank, and we are now in a position really to focus on accelerating the transformation and really driving the business for our customers. I'm extremely pleased where we are and really coming to this step of driving the bank forward.
When we look at the efficiency, the cost that I have said we have invested heavily in the last two years, I already see in the fourth quarter the turn in cost. If you look at on a quarterly basis, we see a meaningful and significant reduction in cost, which is, of course, only the beginning of what we have been saying. I can, with confidence, reiterate our cost target for 2018 at EUR 4.9 billion, and then, of course, a gradual decline to EUR 4.8. I'll come into these numbers in more detail, I think the important thing here is to know that these are P&L costs that when you look at cash cost, and particularly our ability to improve capital generation, it will be substantial in the coming years in our plan. When we look at our credit quality, very solid, actually improving.
Very solid, improving, don't see going forward any change on that trend either. Then, of course, I think the highlight always is our strong capital generation. We have never been as strong on the capital side as today. At 19.5% core Tier 1, and with a buffer to the requirement of almost 200 basis points, I think it is something that we have always said we can generate capital, we do generate capital, and we are a strong, profitable, and stable bank. That also gives us the confidence to deliver on our Dividend policy, where I think we've been very clear over the years that we have a progressive dividend policy, and we are delivering on that by increasing our dividend to €0.60. The proposal, of course, I fully recognize this is a proposal by the board to the AGM.
Of course, the AGM in March should, and hopefully will approve it. It actually shows that capital generation and the dividend policy that we have laid out is something that we have and will continue to deliver on. I do remember standing here 12 months ago, and there were always these questions like, "Can you do it?" Of course, we can do it. We have shown that we can do it, and we will do it also going forward. That's the highlight of 2017, highlight also of the last quarter. I think we're moving into 2018 with a lot of confidence in actually now accelerating the transformation and actually delivering much more to our customers and being very customer-focused. When I look at the numbers, highlight, yes, income has been under pressure. We see full year decline, slight decline at 3% towards last year.
NII is roughly flat. Here we have to remember the thing I already said, we have de-risked the bank, and that, of course, is reflected in the NII line. The other thing, of course, we have to remember, we are also not consolidating our Baltic operations anymore. That is also something that impacts that line. Very healthy growth in the fee and commission line. Of course, the fair value line, particularly when you look at the fourth quarter, you see a very big difference to last year. The fair value volatility is something that you see here. On expenses, we did predict and promise a total year expense growth between 3% and 5%, we bang in the middle of that.
Most importantly, we actually now see also a turn with quite a meaningful decline quarter-on-quarter in terms of last year and last quarter in 2016. Of course, the one I already said, a very, very strong, solid CET1 ratio of 19.5. Those really are the number highlights that I would put forward. If you look at a little bit more detail, the net interest income, a 5% decline. Again, mostly driven by the factors I already said, because when we look at in more detail, and if you take out the de-risking of what we have done, particularly in the segments that we view as somewhat more risky, which I think, again, is the right thing that we have done. We have said that we would do it. You actually see underlying growth over the last two years in our core business of 5%.
We actually grow in a healthy way in the core business, but really that shift in de-risking and focus that we have put in place, of course, infects the NII line. When we look at fee and commission line, we have a growth from the last quarter, mainly driven by asset management, healthy numbers there. Somewhat lower fee and commission in the payments and card side. Again, very good activity in DCM and corporate finance, which I'll come back to. We are the leading Nordic bank in this area, DCM and corporate finance, as the leading wholesale bank of the region, which also reflects the numbers. I'm pleased with those numbers. Still on fee and commission, when we look at the asset under management, it's largely unchanged. Here, there is some flow which is negative because we have some structural changes.
We have actually moved some of our savings from our wealth business to our personal banking business, which affects that. Also we have closed our Zurich branch, which also has some impact. Solid growth in our international institutional business. I think the most important thing, or the thing that I'm most proud of, is actually the fact that when you look at a three-year period, 92% our composites outperformed the benchmarks. That actually speaks something also for active management that we have always said has a place in the investment community. Very, very solid performance throughout all our activities. Something I'm extremely pleased of. When I look at the fair value, when you look at that, you really see the big swing, particularly fourth quarter in 2017 versus fourth quarter in 2016. Mostly actually driven by fair value adjustments.
I mean, that delta between the two quarters is some EUR 170 million, which probably explains the large part of that swing. That is part of the nature of the business. Of course, I have mentioned already the extremely low volatility. On this area, when I just look at how the year has started, the month of January is already different from what we saw in the last quarter of last year. I already see a better picture on this side. Key driver, we're not unique there. I think that's something that has been a feature of the marketplace. Cost, I already mentioned, but something that we really should look at. Those cost increases that we said and we predicted between 3%-5%. Now we come with the cost increase bang in the middle.
We actually had cost growth at much faster level in the first half of 2017, and then we've curtailed that in the second half, and then particularly in the fourth quarter, which we actually said we would do, and actually come in line with what we had promised. When we look at where the cost growth comes from, it is about, again, building a more robust, resilient bank, actually dealing with the legacy, which we now can start then focusing on the future. It is a cost growth that actually I've always said, we want to do it, and we will do it, and we have done it, and now we can start focusing on the transformation, driving down cost, and of course, delivering more to our customers.
When we look at the cost, maybe more from that plan that we have to 2021, yes, on a P&L level, we have said that we will be at EUR 4.9 in 2018 and take down cost by EUR 300 million until 2021. When we look at if you take out depreciation and amortizations, then we actually will decrease by EUR 600 million. We will also reduce, and we can reduce now also our cash spend on the investments. We will actually be generating almost EUR 1 billion by end of 2021, more than EUR 1 billion in cash cost, which of course, will be a very strong capital generation coming from these improvements of anywhere between 75 to 80 basis points per annum capital generation, given what we are now doing.
I think there's been maybe a little bit too much focus just on P&L cost development, rather than looking at what we really are doing in terms of cash cost and how we actually now developing the bank. That's something I just wanted to highlight. Credit quality, not much more to say. I think the trend is very clear. The credit book is very solid. It's improving. When I also look now going forward, I don't actually see any change in, at least in the coming, of course, nobody can see too far out, but at least when I look at the coming quarters, don't see any change in the credit and credit quality picture. The Common Tier 1 development, a healthy improvement from 9.2% to 9.5%.
Here I want to emphasize the fact that we have already included an Article 3 buffer and are already taking into account the REA increase that we will have with the Finnish mortgage floors that are coming in 2018. That is already calculated into the number of 9.5%. We are well prepared for that. I think I, again, want to highlight the thing that we did late last year, the issuance of an Additional Tier 1 instrument at a record low rate of 3.5%. That is the lowest you've seen, and this is an instrument that is very close to capital. Tells something about what the market says and believes about the solidity, the strength of Nordea and its franchise. It's not only the capital level, but also the buffer.
We are now meaningfully above the buffer that we have said that we would operate between 50 and 150. We are at almost 190. I think, again, healthy buffer to take the business forward. That gives us, of course, the confidence for the board to propose to the shareholders an increase in the dividend, in line with what we had said that we have a progressive dividend policy. Of course, that is a dividend policy that we will also follow going forward. That's basically, I guess, the key highlights of the numbers, the key numbers and the key development. If I then may use some words on the transformation itself, what are we doing? What's actually now happening and what have we done?
What we have done is, I think, maybe not always come into focus, is that we have actually used the last two years in a major ramp-up in building, as I said, a more robust, more resilient bank. Big investments in compliance and operational risk, which we have done in financial crime. In our technology infrastructure, changing the whole IT approach, the models, IT remediation. This is something that we have said we would do, we have done. By building a more robust, more resilient bank, we can then take the next step. In addition to that, of course, we have de-risked the bank, as I said, we've simplified the bank, and we have fundamentally built a stronger bank from the balance sheet point of view. A very good position to then take the bank forward in the transformation.
I think I've always said, to be able to do transformation, to focus on credit, you really need to have, in a way, deal with some of the legacy issues that we as a bank and all bank have. We actually are not fully there, of course, yet, but I think a big, big heavy lifting has been done in the last two years, which gives us then the confidence to now move forward. In terms of our core bank platform, I think it's there to, of course, ultimately make us a much more fast-moving, agile bank. With much lower cost to run, i.e. efficiency, improved operational risk, and of course, ultimately, better customer satisfaction with much faster rollout of new products and services. We are now in a very heavy execution phase already.
We are on budget. We are now in January, February, really heavily moving into the loan and deposit side in Finland. Of course, we'll continue the rollout. This is now reality, and is actually one of the core, not the only thing, but it's really at the core of making us a truly digital bank. Lower operational risk, much higher efficiency, but most importantly, we'll be able to react much faster to customer demands. A very important part of our transformation. That will actually allow us to become much faster, as I said, more rollout, more things we have now rolled out. It's not only when the platform is in place, it's already today. We have now rolled out a new mobile bank in Finland that will be rolled out in the other countries in 2018. We have launched the open banking platform.
We have the chatbots in place. We have very good cooperation with, and collaboration with the external. We did the Apple Pay last year with peer-to-peer payment providers, Vipps in Norway, MobilePay in Denmark, Siirto in Finland, Swish here. This is the future that we now will more and more frequently roll out new services and products. We will, of course, as I said, it is now on a more accelerated basis that we can move forward. The legal structure change that we did at the beginning of this year was an important part of actually building One Nordea. In that context, you also need to see the bank's proposed move to the Banking Union. This is not about Finland versus Sweden or Sweden versus Finland.
This is about actually moving the bank now that has changed its legal structure, branchified it, so that we can operate as one bank, eventually also with one operating core bank system. We will move under a oversight and regulatory regime, which actually has the stability, predictability, and the level playing field, which we need to have as a bank with four home markets. We need to be in that peer group of large European banks. This is not about a so-called landskamp, as we say here in Sweden. Very confident this is the right thing for the bank to do. Of course, this is something for the shareholders to approve in March when we get to the AGM.
Actually, I've had many discussions with shareholders, feel very positive about this because this is the right thing for the bank, the right thing for its customers, its employees, and its shareholders. It's really important and strategic, and a part of actually building One Nordea. Customers. I think the most important thing we have is our customers, and we always talk about where are you, customer satisfaction, and I have to emphasize again, both to you and all our internal people, that when we look at our segments where we are, particularly our most demanding customers, looking at wholesale bank, we are the Nordic champion in all the key segments that are important in wholesale banking, be it equities, fixed-income securities, risk management, also one of the leaders in green bonds. That actually speaks. We have continued to keep our position, if anything, strengthened our position.
As I've always said, in this business, it is important to be one of the, if not the leader, and we are the leader. Very important for revenue and profit generation. Very proud of that, and that of course, is a testament what our customers believe and think of us. When we also look at many of the other areas we have, again, one of our very demanding customers, we look at our private banking with the kind of rewards they're getting. Also in transaction banking, which I think is a very important element in for banking going forward with all the payment. It is the second year in a row where we are again, voted as the best transaction bank in the region.
Same thing, as I said, in the large corporate, again, we have been voted by our customers as the leading bank in the region, and so on. We're also willing to give value to our customers because we have also been selected as the price cutter. Price cutter being actually giving better prices, challenging the online brokers. When we actually deal with customers and making ourselves more efficient, it is about giving more value to customers, more value in terms of service, but also more value in terms of price. We actually show that we can do that. I think this is Having said that, am I satisfied with customer satisfaction overall? Of course not. We are working on that. Everything we are doing now and accelerating has only one purpose, and that is actually customer satisfaction.
To do that, I think it is important to understand that we're moving into a new world where we're not going to do it only by ourselves. Yes, I think we have put the right things in place to be more innovative through both Nordea Ventures, our internal incubators, our fintech hubs that we now are part of. We also do it with partners. This is now much more a business where you need to collaborate. I think the important thing here has been that we should be the partner of choice to fintech companies and other players when they want to do business in the Nordic region. I think we've shown that. That is actually a very important part.
It is an early part, but it is a very important part of the strategy going forward, that we can collaborate with others, open banking, MobilePay as an example. We can collaborate with others to create better customer propositions, and in a way, win together. Collaboration is the key, and I think wanting to be and being the preferred partner in a region like this is actually a very important element to put in place, which I think we are in good progress in doing. Lastly but not least, I already mentioned 92%, in terms of fund performance, on a three-year basis, have actually beat the composite benchmarks, in Sweden, in Norway, and in Denmark. When we look at our performance on those funds, we also show you need to provide value to customers, and this is actually providing value when you are.
It is interesting thing here also in terms of sustainability, ESG. It is the first time an ESG fund is the top performer. I think that is something really to note. Sustainability, social responsibility, a fund top performer actually tells you something about where we should be and where the future should be. That is the way it should be. With that, I actually want to thank you all. Rodney is showing that we need to rush, because we will have many journalists that we will have to address. Torsten will address all the analysts here with detailed questions. With that, I just want to conclude and thank you all for coming, and look forward to seeing you in three months.
Thank you, Casper. Those of you who are looking for interviews, please follow Casper and Mr. Nylén. The rest of you who are interested in number crunching, please stay. We will wait till everyone has left. We start with Andreas, followed by Magnus and Peter.
Thank you. It is Andreas from Exane BNP Paribas. On your comments on margins, I remember in Q3, you said that margins are stable across the board, now you say that you see margin pressure in all business areas. Something must have changed quite significantly in the quarter. When I look at the different retail divisions, your NII is declining faster than your loan growth in all countries apart from Sweden. Can you tell us what the margin is really doing in Denmark, Finland, and Norway? Where is this big margin pressure coming from?
I think overall, personally, I'm probably most disappointed about Denmark. I think that we see the development in Denmark have been probably a little of the surprise, which is a combination of, in general, quite a lot of margin pressure across most products, but also that we have seen a mix effect in Denmark that are slightly higher, you can say, than we have maybe wished for. We have that effect there. I think what have also happened is that we have had a relatively good development in Norway until November, where we saw an increase in the competition there. One of the key players lowered their margins. We have, in Sweden, as you have probably followed, seen a lack of momentum that we want to tune somewhat to secure that there is a better level of volume and business momentum.
We have also taken an initiative on the pricing side in Sweden. You can say since last time, if anything, Denmark have come out slightly worse. Competition has picked up in Norway, we have ourselves taken decisions, if we talk margins only, in Sweden. That's probably the key changes since Q3.
Casper writes in his statement that he expects a slight growth in revenues in 2018. Could you tell us, because when I look at NII and the progression over the year, I see how much Russia's been shrinking, I see the decline in the key divisions, do you see any chance at all that NII could be growing?
I think I will put it in the way that I do think that we see now some slightly higher pressure on NIM, if we take that in isolation, than we did in Q3. I think we can have slight hope that the intensifying competition we have seen in Norway now, we do have a higher countercyclical buffer in Norway, let's see if that will not have an effect. We have the risk weight floors in Finland. Let's see if that could have an effect. I'm slightly more positive, hopefully, for Finland. All in all, taking into account NIM and everything looks, at best, flattish. I agree with that full year, 2017 over 2018. We then look on the volumes, you can say that
First of all, I think we have reason to believe, as I think we also discussed in Q3, that in general, the focus we have had in 2017 and in 2016 has been somewhat inward-focused in all the transformation. I think we have seen the peak of transformation. I think we have seen now, 2018, with the first full year, where all the investments we have done recently will now start contributing. Even the biggest and most long-term strategic program is set to deliver a true customer functionality here in February, i.e., the core banking program, mobile rollouts, payment-related rollouts. We have reason to believe that if you look on volume, the volume component on the personal banking side, everything else equal, I think we are set for seeing somewhat better momentum.
If we look on the CBB side, I think the deselection there will continue, but also there you see support by the rollout of new functionalities and digital solution, et cetera. Maybe the volume effect will be slightly more positive, 2017 versus 2018. Not least, you can say in wholesale banking, I think we are more or less done with Russia. I think there might be slightly more to do with the shipping oil and offshore portfolio, i.e., deselection. I think in general, the activity level in wholesale banking is good. Yeah, the jury is still out there, NIM might not contribute on average that much, but volume could be a more positive contributor than we saw in 2017. I would not rule out that the combination of that will be Yeah.
Volume is not something we fully control, but after all, that would be how I would look on NII. When we talk about slightly higher revenues, of course, it's also based on the fact that we do expect maybe not that much, but some growth in fees, still some growth in savings-related fees, broadly defined. Still having a strong corporate pipeline, there will still be fees there. I think, as we have also tried to outline on the payments, lending-related and so on type of fees, maybe Q4 was not a fully representative one. Finally, net fair value. The underlying activities in Q4 was actually okay. No one knows, of course, but I can at least say that January has started somewhat better than Q4 maybe fully reflects also on the trading activities.
All of that in combination is why we dare believe in slightly higher revenues.
I should also, sorry, I forgot to welcome the telephone conference.
Oh.
You would, of course, also have the opportunity to ask questions. Now it's Magnus turns, followed by Peter, and then John Walter.
Yes. Hi. Magnus Andersson, ABG. I also think the income side here is what is most interesting, and I also think it looks a bit potentially challenging to achieve underlying income growth year on year in 2018. Just on NII, in addition to those volume margin discussion, if you add the impact of the resolution fund fee, potentially lower funding costs on treasury, where do you see that ending up year on year in 2018 versus 2017?
Yeah, I think if you should talk in headline terms, I would say it's close to neutral. We will have the post guarantee scheme fees and resolution fees up in the magnitude of plus minus EUR 100 million.
We will have cost of funds down and more or less at the same level.
We will have, no one really knows the treasury result, but if anything, it might be slightly weaker. Neutral to slightly negative, but not really significant.
The de-risking there on the volume side of shipping oil offshore book, should that flatten out year-over-year or?
I think still we have in the level of EUR 1 billion of de-risking to do in the shipping oil and offshore portfolio. I think that is basically what is, if you look full year 2017 or 2018, that's really probably net what we have to do on de-risking that I would say is left, because I think the net effects are around that level.
Okay. That, then you have some on Russia still?
No.
Nothing in Russia to be done.
I think we structurally have done the de-risking we want to do in Russia. Russia could be everything from zero to slightly plus.
On mortgage volumes in Sweden, we've all seen in the statistics that the last two months you had net outflows and the stock was shrinking. You lowered your price by six basis points for three-month loans, your list price. We've seen in the reported figures that you're around 12 basis points above the market. There might be mix differences, of course, et cetera. Do you think is that enough to regain flows or will you evaluate that and potentially do more? How do you think about it? Because it's a quite important product for the retail segment.
Sure. I think many elements goes into, I think, hopefully improving the business momentum also in Sweden, where many measures are taken. A lot of the measures are related to, of course, the customer experience, i.e., the focus on customer service, other customer features, and pricing. This is what I call attuning. We try all kind of different measures to improve the momentum in Sweden. Hopefully on the back of our ATM, it will also normalize a little and all the good underlying efforts will start materializing. I think it's more a signal of the fact that we are very conscious now. Of course, of the five core focus areas a bank can have, income, cost, credit, capital, and transformation, I think we can actually tick four of them. On four of them, I think the outlook is really good.
We have income, now you can say, as I think we can also tick on transformation-related risk, what it does to the bank, execution risk and so on. I think we saw the peak in Q3. Of course, I think we are pretty good at moving then the focus to where is now the concern area. Out of the five, we have talked about all of them the last couple of years. Now, I agree, we are moving the attention to the income side. Hopefully we will start to see the benefit of all of that, including being ready to tune, you can say, also on prices if needed to generate a bit more momentum. We want to optimize NII, want to see some good development there.
Finally, just on your trading income or net fair value line, with what you've seen now, it sounds like January started a bit better. Is it still EUR 350 million to EUR 400 million we should see as a normalized quarterly level in this environment?
I think we have said between EUR 300 million and EUR 400 million, I think this was clearly an outlier, we hope that will also be an outlier, I've seen this an outlier in 2018.
Okay. Thank you.
Now it's Peter followed by John, and then we will let the telephone conference in.
Yes. Hi, Peter Kessiakoff from SEB. First of all, a question on payments and cards, which was down, I think the combination was down some 10% Q on Q in Q4, if you have any comments there, was there anything in particular that happened?
No, because it was in a combination of slightly higher than expected expenses and slightly lower than expected income. I think we could not really find a trend pattern in that. No, not really.
The Q4 level should be the run rate going forward. Is that?
I hope not, on that specific type of fees, no.
Okay. Just going to the dividend, the payout ratio on a reported basis it's on 90%, but as Casper mentioned before, we should also look at the cash generation of the business. If I actually include intangibles, the payout ratio's 100% or slightly above for 2017. Going into 2018, the level of intangibles, how should we look at that one? You mentioned that they will begin to decline until 2021. For 2018, how should we see that trend?
If we assume that our capitalization ratio stays unchanged, the growth spend, i.e., the portfolio that Casper showed before, we will probably come in at least EUR 100 million less. We will simply spend at least EUR 100 million less there. That will contribute right as depreciation now going up with something like EUR 70 million in 2018 compared to 2017. It tells about, I think the total increase in intangibles was EUR 500 million plus, we will be lower with a magnitude of EUR 150 million. We start seeing now the increase in intangibles coming down in 2018.
You're mentioning that you're selling portfolios of non-performing loans in Denmark that will be coming in during early 2018, hopefully. Are there any more similar initiatives that you're looking at? If you go back, I think it was some two years ago, you did the synthetic risk transfer and so on. Are there various things that you're looking at there that you could elaborate a bit on going into 2018, 2019?
Well, we have a pipeline of that kind of initiative, but if you look on securitization type of deals, I'm not sure you will see a lot of activities necessarily in 2018. We have the optionality, so we have a good pipeline you can say. We can do it if we deem it relevant, but right now I think that's not the highest priority. I would rather put it that way. If you look into the securitization deals, there might be other what I would call tuning our activities.
Okay, thanks.
Now it's John, followed by the telephone conference.
Hi, John Walter, Credit Suisse. If I could just return very quickly there to the NII. Did you say that Russia now are, that cut down of the book is more or less down? I think the NII in the fourth quarter was around EUR 17 million or so. Is that done now, or could we see that coming down further, do you think?
Well, I would say it's not the biggest book in the world.
No.
We more or less have the type of customers we want now. We have done the de-risking, you can say, fundamentally we want to do. Of course, the type of business that the customers we now have, that they will do in 2018, we don't really know. What I'm saying, I will not rule out that you should not see it as a new strategy if the volume goes slightly up, because now we are more or less to the core where we want to be, and then we will develop from there. De-risking is done.
Okay. Thank you. On the shipping offshore book, I think you've previously talked about EUR 1 billion or so.
Which is still the same.
You could see further de-leveraging of that book. Is that still valid for 2018? We should see that headwind coming through okay?
Yes.
The other question I had was around the dividend level. We are now roughly 90% payout ratio, I think the company has highlighted a couple of times here today and previously that the cash generation is stronger than the P&L profit, obviously.
Is that relevant? I'm thinking, is it really possible to pay out more than 100% of your P&L profit? How do you think about that concept, really?
That's a fantastic division of labor we have with our owners and our board, because management are not speculating on that at all, I can assure you. We are hopefully seen by the owners as generating an optionality of, they have a problem of excess capital. As I said, I think the capital outlook, in general, is very strong and very positive, and then someone else will decide how to handle that.
Okay. Thank you.
I think we have the telephone conference on board, please, operator, if you can allow some questions.
Yes. Thank you, sir. Ladies and gentlemen, if you wish to ask a question, it is star one on your telephone keypad. We will now take our first question from Willis Palermo from Goldman Sachs. Please go ahead. Your line is open.
Hi. Good morning, and thanks for the presentation. I have two questions. The first one is on the recent news report that we are mentioning some asset sales. The international private banking. Also not doing any more second securitization. I was wondering if you were already thinking about those potential asset sales when guiding for the revenue trends in 2018.
No. Yes, we have announced the debt collection portfolio in Denmark, which will have an effect of around EUR 50 million. We have announced the effect of the life and pension deal in Denmark. That I think is the effect that we have mentioned that will impact 2018.
We never comment on market rumors or speculations.
No. Exactly.
Okay. Thank you very much.
That's the end.
Still on the revenue side.
Okay, that was a great question.
The Fincom, one of the main drivers, the AUM outlook, this year was pretty muted. You mentioned in the past having taken many initiatives to improve the inflows. Where do you stand on those? You still have to work a bit more on it, or should we expect a pickup in 2018?
I think we hopefully will still see some good net inflow during 2018. I think what we have discussed for quite some time is that we would see an effect of the very good growth we had in net inflow for quite some time. Then we would have a period where we would have a slightly lower level than normalization due to the soft closure. Due to also the fact that we have spent quite some time on the MiFID implementations. We expect that net inflow will be positive in 2018, and we expect that we gradually will approach the, what we call it, the more normalized level of 3%, 4% net inflow. As we have said all along, it will take some time to get back to that level.
In general, the distribution capabilities are unchanged, strong, and as Casper has also alluded to, the investment performance capabilities are also continuing strong. We are not, you can say, structurally concerned.
Okay. Thank you very much.
Thank you, Madam. Our next question comes from Vivek Gautam from JP Morgan. Please go ahead. Your line is open.
Hi. Morning, Torsten. Morning, Rodney. I have two questions, please. The first one is on cost. That's a quick one. The guidance of EUR 4.9 billion for 2018, is that mark-to-market for the current effects? Does that assume that EUR 50 million benefit from the sale of Danish life and pension? That's the first one. The second one, on the capital point, I am not very clear. When you say annual capital generation is expected to improve by 75 to 80 basis points, that is relative to 2017, which was a heavy investment year, isn't it? Separately, if I just look at the absolute capital generation, because your intangibles are going to increase until 2021, the capital generation is going to be lower than the P&L retained earnings, even though delta between capital generation and P&L earnings will reduce from here. It will still be negative until 2021.
These are my two questions, please.
If I start on the latter part, because I am not quite sure I fully understood the first question. On the capital generation, it's strong for several reasons. First of all, as you rightfully said, the quite significant drag from increase in intangibles we have seen the last couple of years will start now becoming less. The overall strategy we are pursuing are not calling for that much capital. In general, and we can of course put all kind of numbers around it. In general, I think we will see a continued strength of the capital generation, supported mainly by depreciations coming down, but also the fact that we don't see any REA inflation looking ahead.
And-
Sorry, yes.
Just on that one. The intangibles going up would still mean that the capital generation would be lower than the PNL on a stated PNL, if I'm right on that point.
Yeah.
The first question was basically the EUR 4.9 billion guidance. Clearly, since you have given the guidance, the FX has moved in favor, basically Swedish krona and Norwegian krona has depreciated. The EUR 4.9 billion guidance, is it marked to market for that, the reiteration? The EUR 50 million cost that will go away because of the sale of NLP Denmark. Is that also included in the EUR 4.9? Is it all inclusive number, or do we have to adjust for FX and the sale?
I think that we have chosen to say about 2019 a number, which was approximately EUR 4.9, and I think that we will not go and change that number all the time. Approximately EUR 4.9 is still approximately EUR 4.9, and then there is life, and then there's all kind of other things in the FX. At the end of 2018, we can start discussing it. In general, I would say that the cost outlook looks pretty strong. I think we have taken quite a number of actions in terms of front-loading, and securing that we will see a clear development in the cost run rate. This 1,000 consultants we talked about, we have actually managed to take down a majority of those already before we ended 2017. Since the peak of Nordic consultants, we are down with 850.
More than 400 is set to leave within relatively short into 2018. We have taken out 300 internals in Q4 just before we closed the year. We have around 1,200 in process for first half year, and we have close to the same for second half year, which is already also planned for. You can say in general, the cost outlook is, I think now substantiated by a number of concrete actions already taken, which I think is the important part of it. Then we have secured that we are ramping up all the needed activities to improve efficiency, i.e. be able to meet all the customer requirements and so on, so that all these cost actions do not have any significant impact on income. Let's see where all this leave us, but we are pretty confident on the cost target we have set out for 2018.
If I just add that, Vivek. If I just add, the divestment of NLP Denmark, that will have an impact on cost base annualized of around EUR 55 million, and on revenues around EUR 125. That's on an annual basis. Approximately three quarter of that will come in 2018 because we expect to close the deal sometimes first quarter. That is on top of the 4.9. 4.9 is pre that. It's not really meaningful to change guidance for those small numbers. You can see rounded to 4.9. Thank you.
You can say the 40 was not known. The plan is the same.
Yeah.
We are doing all the actions we had already planned for and maybe some more, and that is with NLP Denmark or not. We are not deviating from the plan due to that.
Thank you.
Thank you. Our next question comes from Kim Bergoe from Deutsche Bank. Please go ahead. Your line is open. Kim Bergoe, your line is open. If you can please ensure that the mute button is not on. We cannot hear you at all.
Yeah. Hello, can you hear me?
Yes. Loud and clear.
Most of my questions have been answered. Could you talk a little bit more, and give us a little bit more detail on the NPL sale in Denmark? What kind, what portfolio is that? And just so we can get sort of an idea of what it is you're disposing. I think it's about EUR 500 million, isn't it?
I think it's a broad collection of Danish exposures. Do you know the details of the composition of it?
No.
I think it's a broad, basically you can say the old retail banking scope, so that will probably be mainly within the SME space, I would think. My guess would be a majority is the SME portfolio type of.
Okay. Thank you.
Can we put the telephone conference on hold and then we continue here in the audience. Jens, please, followed by Matt.
Yes. Hi, Jens Hallén from Carnegie. We start maybe with the new platform. I think you're still talking about the Finnish staff pilot is now ongoing. Can you give us a little bit of a flavor how that's going? When are we going to see this being transferred over to external customers. You have a slide, I think on slide 18, where you see the development. Can you give us a little bit of a hint, at least, on are we talking 2018, 2019, 2020 and so on?
It's actually not a soft pilot anymore now. It's a full-scale implementation that will go live in February. That will be all Finnish customers that will be offered the new type of functionality coming from the platform relating to certain savings products, and mobile following Q2. That's the first real product for real customers with real functionality. Hopefully, that will be super well received by customers, and it will be super well received because it's basically a fully automated process. No manual intervention is needed. We will get the full real proof of concept, you can say, very soon. As I said, it then continues with more savings products to all Finnish household customers, followed by savings products for all corporate customers in Finland, followed by a rollout of the same basic savings products to real customers in Denmark.
We are ramping up the other components in the Temenos package, you can say, is loan products, and that will be piloted during 2018 for real rollout in 2019. There's also a collateral system component in the rollout. We will also, in one country, have the first real implementation, hopefully in 2018 on that. You start now seeing in 2018 the first real rollout to end customers and with associated benefits. Both for customers and for internal handling.
Okay. From a numbers point of view, is it too optimistic to expect that this will have an effect on already 2019?
Effect in terms of?
In terms of, I guess, there is two benefits with the new system. One, it should be quicker, and two, it should be cheaper.
Yes.
Will we see that more towards the effect on the income statement towards the end of the year, 2020, 2021? Do you think it is?
Of course, when you hit real customers, you will know more.
Okay.
There's a big difference from running pilots to running full. We will have full scale, you can say proof of concept. How is this now received by Finnish customers? We will know that, and we will report. It will also show us how exactly are the benefits in terms of cost and efficiency internally, right? How much easier is it to serve customers by these products, by the new platform? We will also learn as we go along. I promise you we will come back and tell about the experiences.
Okay.
Right now, of course, it has been for preparations. Now we are moving into real life, and then it becomes easier to tell the exact effects.
Okay, fair enough. Then just one question on margins. We talked about that a little bit earlier, where we see margins coming down in most of the segments. It's probably not unreasonable to expect slower volume growth for the market in Norway and Sweden for 2018 than maybe 2017. Is this a sign of what's to come? Sort of even further falling margins in your businesses?
I don't think we are.
I guess the margins
saying that all margins are falling. I think we are seeing that we have an intensified competition right now in Norway. We are tuning our prices in Sweden. Denmark looks a little difficult. I think in Finland we look slightly more positive. On the CBB space, I don't think we see relatively stable margin development. Same goes for shipping, same goes for some of the wholesale portfolio. That's why I'm saying NIM is flattish, I would say, into 2018.
I'm not saying that I think that margins are looking that bad, but of course, the improvements we have seen, 2016 to 2017, are probably not going to repeat itself 2017 to 2018. We will probably have a more neutral effect from margins. We do probably have a slightly more positive view on the volume side, not only markets related because we don't as such occupy with market shares. Remembering a lot of what we have seen is by design, right?
Shipping is by design, voices by design, et cetera. Remake. They're all kind of decisions. We have also decided that in a number of areas, we want to see somewhat more business momentum. Let's see if we are successful with generating that.
Okay. Thank you. Can I also ask, so who was pushing down margins in Norway?
Sorry?
You were talking about there was one competitor particularly that was pushing down margins in Norway. Is that the large incumbent or someone new?
It's the usual suspect.
Thanks.
Please.
Thank you. Matthew from Handelsbanken. Just a follow-up, I guess, on all this income growth in 2018. We said the NII will be flattish. You won't see any increase in REA. You are de-risking the portfolio, and we see that lending commissions are going down, et cetera. Where should we really see revenue growth coming from in 2018 if you are de-risking in terms of trading commissions and the lending book?
I don't think we are de-risking that much. I think there are other type If you look on our core portfolio, so core household, core SME, and core wholesale portfolio, I think we are slightly more positive to start seeing some more momentum there, despite the EUR 1 billion in shipping and as we are done with Russia, et cetera. I think that the volume component might turn positive if you look on an eye for 2018. There might be some fees, maybe not a lot of growth, but some. I would argue that the full year net fair value results, it should not be impossible to at least match in '18. Please remember also that we will now have two, I think, somewhat promising other income type of drivers, Luminor and our continued shares in Life and Pension Denmark.
We have two good engines that will contribute some. I don't think we are saying that we see an enormous amount of revenue growth '18 over '17. Based on this walkthrough, I would not rule out that there will be some.
Okay, thanks.
On Luminor, we may add that in this quarter had a fairly low contribution for them because they have the transaction costs and M&A costs. That will improve going forward. In the beginning of April, we are happy to invite you to an investor presentation by the management team of Luminor. We will come back with the exact time, but the beginning of April. Please.
Nicolas McBeath from DNB. First, a question on the capital. You're now 190 basis points above your minimum requirements, a bit outside your targeted management buffer. Should we still see that management buffer as your target level to be in the longer term? Are there other considerations that would justify a more cautious view than that buffer?
I would say that is from a run the bank point of view that I see no reason to change the level of management buffer. I think the issue is of course that if we look on our capital requirements and so on, where we now have a somewhat more stable period, I think you should remember that we are in an important transition from one regulator to another. That is an issue we, of course, need to be prudent around. We want to wait and see what that means in terms of, I think, being able to recommend any other type of stance on how to view the size of the management buffer. I can say again, in general, we will wait and see what that leads to. Then we have updated our view on Basel and so on. That also looks more positive.
That's what I'm saying, that if you take the big picture, capital outlook is stronger and more positive than for a very long time.
Question on Swedish mortgages again. Now you lowered the list price on your shortest durations by six basis points. Should we think of that as indicative of what also will be the delta on your actual negotiated rates in the front book? That is my first question.
Yes. Please remember, that is on the three-month only. We have smaller on the fixed rates. It is around 70% of the mortgage book are variable. You will see that filtering through in the first and second quarter.
Also if you could give some guidance of what will be the impact from this on the back book.
You have on the negotiated rate, you have a discount on the list price. You will follow also on the negotiated rate. It will filter through fairly quickly.
Okay. Thank you.
Please, Robin.
Thank you. Of course, there's a lot of uncertainties regarding the change of regulatory later and all. Can you give us some flavor on the impact of the potential impact of the Basel IV framework that was laid out in December?
No, the Basel will obviously have an impact on our REA. Far less than we expected earlier. We see even with the full implementation of the capital floor, we are still seeing a very stable outlook. Based on certain relatively conservative assumptions around other type of requirements and how we underlying will develop, that we will not be in a situation where we will not have excess capital even in the full capital floor implementation period.
We welcome the telephone conference before going back to the audience. We have some questions there. Operator, please.
Thank you. Our next question from the telephone comes from Adrian Chigi from RBC. Please go ahead. Your line is open.
Hi there. Thank you very much for taking my questions. I have two questions, one follow-up on capital and one on loan losses. On capital, your SREP increased 20 basis points quarter-on-quarter. Is this the regulator adjusting anything for the uncertainty on the headquarter move, or is there any other reason behind this? The loan loss question, you provide a nine basis points Q4 loss. Do you see any unusual write-backs in here? You mentioned you don't see any concerns on the horizon, yet you reiterate the 16 basis points are slightly below in terms of outlook. Why not be a little bit more optimistic here? Thank you.
On the loan loss provision side I think in general, also there, the outlook is very solid and stable. I think we have worked further our way through the shipping oil and offshore-related portfolio. Visibility there is up, also seen by the shift in collective and individual provision. Also a familiar area is Danish agriculture, which is maybe slightly up. In general, if you look on the totality of portfolio, it's really hard to be super pessimistic. With all the de-risking we have been doing, I think also if there might be cycle developments that would call for slightly higher. I think in all aspects, I think we feel very well prepared looking ahead on credit quality, and it's not really the area we are mainly concerned about at this point in time.
I don't think we are supposed to give very detailed guidance other than saying that we are very comfortable looking into 2018, and that we will probably stay below the long-term average in 2018.
If I may add as well, Adrian, that in this quarter you see unusually high reversals, 11 basis points. We also see unusually high individual provisions, that is basically that we have in the offshore, now that we have a more certainty how the credit quality looks like there. We have moved from collective provisions, which we have released, into individual provisions. That is what happened this quarter.
Thank you. On capital, the SREP increase?
The SREP increase, I think that has been more or less.
It's not SREP, it's the countercyclical buffer in Norway.
Yeah. That I think we have.
That's the difference between 17.6 and the 17.4.
Perfect. Thank you.
Please remember that we have an Article 3 buffer where we have now covered for the risk weight floors in Finland already now. Please, operator.
Thank you.
Thank you. Our next question comes from Johan Ekblom from UBS. Please go ahead, your line is open.
Thank you. Just two questions, if I may. Firstly, on the revenue guidance, you talk about a slight increase. Is that including or excluding the positive effect from the sale of the Danish pension business and the NPL portfolio? Clearly those alone would account for some 3% or something like that. Secondly, just to come back and maybe ask in another way on your AUM outlook. You specifically said the weak net flows is related to the soft close of the Stable Return Fund, and to MiFID II implementation. Presumably MiFID II implementation is something that everyone has faced. Has that been more disruptive to you than to others? Secondly, on the Stable Return Fund, if I'm not mistaken, that's less than 10% of group AUM. Is that really the driver of the weak inflows?
Maybe if you can provide some more comment around that.
Yes. I think on the first one, that was on the overall income outlook, and this is underlying. Of course we will have positive contribution from the life and pension deal that are higher than the underlying income effect from that particular deal. I talk about underlying income. We have the announced effects of the gains related to the life and pension deal and gains related to the debt collection portfolio in Denmark. There was AUM.
Yes. The inflow.
I buy the argument on MiFID. That's the feedback I receive when I ask about why we don't see more inflows. That's the answer I get, and I had the same question. I think there can be different approaches. One of the issues that have happened is also that there has been quite a lot of resegmentation work going on in the affluence space. A number of customers has been moved from the private banking area to premium segment area within personal banking. That might be as part of the relatively extensive work done on MiFID implementation. It might be the combination of the two that has meant that we have seen, especially also on the private banking side, somewhat less inflow than we had hoped. That is the type of explanation we get. Is that a structural effect? I don't think so.
It's back to the fact that we continue to develop new and well-performing products, and the underlying distribution capacity is unchanged. Then, of course, you can say we have seen certain movement on the type of products that are most in favor. I agree with you that on net inflow outlook, I don't think we are saying that we will have a couple of quarters where we will probably don't see that much, and then we do expect when we look into the pipeline and the underlying factors to see some pickup in net inflow as we move ahead.
You're absolutely right on the AUM that the Stable Return Fund, I think it's on 5%, 6%. In terms of flow in especially 2015, 2016, it was the majority of the flow. It has impacted the flow, but not AUM so much.
Thank you.
Next question, please.
Thank you. Our next question comes from Ricardo Rovere from Mediobanca. Please go ahead. Your line is open.
Good morning to everybody. I hope you can hear me well. Three questions if I may. The first one is on NII. If I got it correctly, you stated that you expect NII to be kind of flattish 2018 versus 2017. Is this broad guidance including the deconsolidation of the Baltic operations or not? Without the nine months of the Baltic operations? This is my first question. The second question I have is, again, sorry, on payout. 90% is more a conceptual question. Why such a high payout if there are concerns on real estate prices in Sweden and not just in Sweden? If there is any risk there, and if there is no risk in that, why is the bank not growing at all in a region where, let's say, most of the banks outside Scandinavia would consider as a kind of wonderland?
The third question I have is on REA. You expect this to be kind of flattish. Is that because Nordea will continue to set itself on a no-growth mode or because of a different business of the loan book, maybe more mortgages, less corporate, or because you expect the model validation? What is driving flat REA? Thanks.
If we start on the REA side. First of all, we also have, as you know, related to the Polish deal, which was also imminent in Q4, actually. We will, during this year, have a positive effect from finally closing both the funding and the risk sharing agreement related to that. There are different positive elements that you cannot read as the underlying. The underlying is, of course, that the main growth will be most likely as it has been on the mortgage book, but doesn't call for a lot of REA. I think that also if we look on the lesser and lesser deselection effect in wholesale and partly in CBB, it is somewhat backloaded.
The positive volume effect will probably be higher in second half year than in first half year. There are all kind of other effects on the REA. We are not seeing a lot of expectations for a lot of increases in REA as we have already as part of our Article 3 buffer. You have the REA effect from Finnish market risk has already been taken, and we have for EUR 900 million equivalent and the EUR 600 million equivalent in the Article 3 buffer relates to the type of REA inflation you would typically see from the model validation. There is not a lot of things bringing REA up other than mortgage and expecting for some corporate exposure growth, maybe more in the second half than first half. That, I hope, was the REA outlook. What now I have forgotten.
The payout ratio in relation to the credit quality in Swedish housing markets.
Yeah. Maybe you take that one.
Thank you very much. I think you should always be the most concerned where there are no concerns in the market, so to say. There are no concerns in the market right now. We are very mindful. That means that we have been mindful when it comes to Swedish mortgage. We have de-risked Russia and shipping oil and offshore. We think it's a very good time to do that now, so we don't get carried away and get, so to say, sloppy at this part of the cycle. We are always looking through the cycle, and we will definitely argue that we have now created the opportunity to have a better through the cycle credit quality. That also enable us to fulfill the dividend policy through the cycle.
We have this through the cycle thinking both when it comes to dividends and when it comes to credit quality. When it comes to the Swedish mortgage, you're absolutely right that we have grown slow in the market, and we have been mindful, and that also means that we are very confident when it comes to our credit quality.
Okay, thanks. On the NII guidance, whether this includes or excludes the Baltic operations on 2018 versus 2017. On this guidance, should we exclude the kind of EUR 30 million per quarter, if I remember correctly, from the Baltic operations from 2017?
Yeah, you actually have on our website. There you can see the impact of the Baltic deconsolidation. The first three quarters of 2017, we had EUR 140 million of revenues. When we guide for the revenue outlook for 2018, we have sort of adjusted for that. It's the underlying business we are talking about.
Okay. Thanks.
Thank you. Our next question comes from Namita Samtani from Barclays. Please go ahead. Your line is open.
Good morning. I've got two questions. The first is on real estate management lending. Could you talk about your lending upside there by region and also by the different segments? Is this a part of the book that you want to grow in 2018? My second question is on impaired loans. Given that impaired loans increased quarter-on-quarter, do you find it prudent that the provisioning ratio's gone down from 41% to 38%? Thank you.
I think if you look on our REMIC book, which is the one we have discussed the most in terms of risk management, I think that it currently stands at around EUR 40 billion, as far as I recall. I don't think we have any ambitions of growing it. The book is, you can say, is somewhat higher in Norway and partly in Denmark. I think in general, we have tried to manage it somewhat down, especially in Norway. I think the composition we have now is more or less where we want to be. What we have also said last time is that what we are more now monitoring more closely is the property developer space, partly also construction-related customers rather than the REMIC portfolio, such where I think more or less is where we want it to be. Then the first question was?
On the impaired loans.
Yeah. I need to write down what we say normally too, because I think you cannot read anything. That was a few customers, well-known, and I think the provisioning ratio have been in the level of. I don't think 38 is outside the. We have, I think in general, managed well our credit book, and the provisioning ratio has, as long as I recall, been in the level of 38 to 45%. I don't think you should read any extraordinary into that.
The provisioning ratio is highly depending on the collaterals that we have. Given that we have very strong collaterals, we can also allow ourselves to have a lower provisioning ratio.
Okay, thank you very much.
Thank you. Our next question comes from Amal Shah from Redburn. Please go ahead, your line is open.
Oh, hi. Good morning. I have a question on the core banking platform. You previously said that by the end of 2017, all the Finnish customers would move on to the two new savings products. Today you're saying this will happen later this year. Does this mean that the project is suffering delays?
No, I don't think the core banking program is suffering delays. I think we said in Q3 that the expected migration was moved from December to January, February, expected to happen within a month. This is, in terms of that we are now 3 years into the program, we couldn't do it in January due to the full year closure, et cetera. De facto, we're talking about a delay of 4, 5 weeks, in this type of program, which I think is not a major change. As I said, the rollout we are also describing is more or less according to plan. The program is still running at budget, no deviations. I don't think it suffers anything.
I think it will be very interesting is, of course, to now see the successful, hopefully, migration and then start evaluating how well it works with these customers and so on.
Okay, thank you. Just another question on the Swedish mortgage rates. Can you maybe lay out exactly what the rationale for lowering the mortgage rates is? Especially as you've been saying that you'd rather not grow too much as you want to be cautious or mindful.
If you look on the bigger picture, I think we have de-risked the bank significantly. I don't think we are particularly concerned about mortgages in Sweden. We have been a little concerned about the underlying business momentum in Sweden. There have been a number of issues explaining why we might have lacked a little business momentum. As part of a broad suite of actions, we have included what I would call a tuning on the pricing side to hopefully encourage a bit more of a business momentum. I don't think we are taking any big risk associated with that. I think from a franchise point of view, I think there will be a risk not to address the lack of momentum, and that is the main purpose of the action.
Okay, thank you.
Thank you. Our next question comes from Paulina Sokolova from Barclays. Please go ahead, madam. Your line is open.
Hi, thank you for taking my question. Just coming back to the NII and the de-risking exercise you've been carrying out over the past two years, could you please give us a better sense for timing? You mentioned that you have EUR 1 billion more of shrinkage to do in oil and offshore, but maybe if you could comment on when the deselection process in CBB is likely to end as well, that would be great.
In many ways, I think it never ends. Of course, we have had a specific aim to address a tail of the portfolio, which has been very much in focus in 2017, and I think it will continue in 2018. I think what we are saying is that even if we look on the CBB franchise, there is also a big core of customers, where we actually do have very good momentum also. The net, probably negative volume effect we have seen from CBB in the past years, probably will look somewhat more neutral, maybe even to slightly plus in 2018. The journey will continue, but the effect on volume will be less and less, I think, in 2018.
Thank you. Just one more question, if I may, on your planned relocation to Finland. Is there a chance that in the future you consider moving back to Sweden if Sweden joins the Banking Union? For now, should we view this decision to move to Finland as permanent as far as you can see?
I don't think permanent exists or guarantees either. I can guarantee you that we are working 7/24 to make a successful completion of the move by Q3 2018. Then we take it from there.
Thank you.
Thank you. Our next question comes from Bruce Hamilton from Morgan Stanley. Please go ahead. Your line is open.
Morning, guys. Thanks for taking the questions. Just three quick ones. Firstly, just on outside the sort of deselection process, on the corporate side, how are you thinking about demand across the different geographies? You mentioned things are picking up, but still quite sluggish. Is there any very different color across the geographies and between large corporate and SME? Secondly, just a bit more color on the Danish pressures. This sounds like it's principally on pricing in mortgages, or is it also on the corporate book, or is it something more sort of Nordea specific, just to fully understand? Then thirdly and finally, on the transformation, obviously we see that this is more about sort of cost-cutting efficiency, improving the customer experience. How should we think about this seeding the top line?
Is there a way to think about this, or is it just going to be a function of improved customer satisfaction eventually driving a pickup in market share in mortgages? How should we think about that, if at all? Thank you.
Nobody. If I start with the corporate demand, I think, that was a little the point I was trying to make about maybe we will see slightly more during the second half of this year. There has been a somewhat subdued demand for corporate borrowing in general. I think more or less across the countries, and also across the segments. I don't think there's any very clear picture there other than that. I think on the transformation. Was that the question, transformation for us?
Yes.
I think what we are trying to describe is that we have a very well-calibrated plan. Taking out consultants is very much a result of the fact that we have seen the peak of transformation projects, especially many of the remediation-related projects. We need less consultants. We do ramp up with other type of consultants, partly in Poland. We do ramp up with robotics. We'll go from around 200 to around 1,000 in 2018. That the tasks of serving customers in a good way are not disappearing. They're actually replaced. We have seen significant improvements in the way of working. We are applying new type of working, Agile, what have you. The intention is, of course, that customers should not suffer anything, that the customer experience should improve, the customer satisfaction should improve.
I think we have seen in Q4, which is an internal measure of our own customers' engagement with Nordea, that we have seen, hopefully an inflection point and start seeing some improvements. All the efforts of improving customer satisfaction at the same time of becoming more efficient, that balance has been found, which is also why we have done 300, we will do 1,200, and we will do another maybe more or less the same in second half of the year. The reason why we are phasing it is, of course, that we are also phasing in robotics, we are phasing in new ways of working, we are phasing in more digital solution, more self-serving of customers, et cetera. Exactly strike the balance between rolling out efficiency, taking down cost, and serving customers, hopefully even better at the same time.
It is possible, that's at least what we are trying to achieve. That's why I'm saying I don't think the transformation or cost per se now looking ahead will have a negative income or cost implication. On the contrary, where that might have been the case looking in 2016 and 2017, in hindsight at least, that a lot of the transformation might have hurt customer satisfaction or had in some countries hurt customer satisfaction and potentially therefore also income.
Thank you. Do we have any further questions from the telephone conference?
Thank you, sir. Yes, we do have one last question from the telephone line. It comes from Jacob Kruse from Autonomous. Please go ahead, sir. Your line is open.
Hi. Thank you. Just one question. Can I ask, the review of your risk weights by the ECB and your new regulators, has that begun? Could you say anything about that process? Thank you.
The conversations have absolutely begun. The process have started. In general, the process with ECB, including discussion on models and reviews, et cetera, I think we will refrain from coming that much more on the details of the process. The moment we know more and can say more, we will do that. Yes, the process has started, we expect, of course, that in advance of 1st of October, we will know more, then we will inform.
More precisely, do you think it's going to be as late as that, or do you think you will be able to update earlier than October?
I very much hope we will be able to inform somewhat before 1st of October, but exactly when, I don't know.
Okay. Thank you.
Thank you. We have two follow-up questions from the audience. First it's Andreas, followed by Peter.
Yeah. Thanks. It's Andreas. Sorry, it's been a lot of questions, on Swedish mortgage volumes, you say that you want to grow a bit faster. Could you tell us what's the signs you see from the market? Do we see any slowdown or housing transaction coming down? What's your view on volume growth in the Swedish market for this year?
I think maybe in general, the overall market momentum is coming slightly down. This is more on a relative-- We want to, with our customers mainly and potential new customers, to see some more momentum. In general, I would say that the sentiment seems to be that they're coming slightly down. The market per se.
Peter?
Yes. Follow-up questions from me as well. You mentioned on a question on Basel IV, you mentioned that also after full implementation, you see that you have excess cash.
Does that mean above 150 basis points capital buffer? Is that
It means that we have excess capital. There a lot of calibrations were going on.
Excess capital means that we are above the requirements.
It is above zero in terms of buffer, not above the management buffer, 150 basis points.
I do not think we could come closer than we will be above in the whole period. We will with the current plans, we will not look into a need for any extraordinary measures or whatever. We will look in the forecast. We will look fine. Which has not been the case, of course, because some of the initial proposals show pretty dramatic effects that would require, which we have done before also, it would require more active measures.
Just one clarification. You mentioned staff reductions, mentioning 300 internals that you removed before or during Q4, 1,200 in process for first half 2018, 1,200 for second half. Are those FTEs or is that consultants as well?
This is only FTEs.
Okay.
On top of that, you have 850 already out, plus at least 400 more coming.
Okay, in the past, I think during Q3, you mentioned that you'll remove the 4,000 FTEs on a gradual basis until 2021, now it seems like you will reduce it by 2,700 by during 2018.
No, I think now it goes really fast. I said 1,200 in first half, I said probably somewhat less, slightly less than in second half. You are right that this is a in terms of action, somewhat of a front-loading of the plan we presented in Q3.
When I look at FTE number by end 2018, what number, how much lower should it be versus end 2017?
Depends on how many we are hiring.
Yeah, because Peter, there are two important things. First of all, we said at least 4,000.
That's two important words. Second, that's the net number. As Torsten say, we will also recruit people. Now we're talking about the gross, the gross number will be bigger than the net number.
The gross number will be far bigger. The reason why I mainly talk about that is in the plan. That's the actions we are taking. We try to be as careful as possible by hiring. In certain areas, it is a, you can say, it is also a restructuring. There's absolutely areas where you need less people, then there is areas where you need more. You will see, for example, also there will be as part of this, I can tell you there will be an increase in Poland, for example. The Polish workforce will increase net by probably around 400 in that period.
I think if I can ask without giving also now specific guidance on total FTE number, I think total FTEs will clearly be down, if I can put it that way. Net.
Okay. I see my analyst colleagues looking at me fearing I'm going to ask another question. I think I'll stop there, actually.
Thanks very much for coming and showing interest. Please feel free to call us if you have any further questions. There will also be an afternoon tea session in London. I think it's 31st of January. Yes, it is. As I said, please feel free to call us any time. Thanks very much.
Thank you.