Good morning, and welcome to this presentation of the 4th quarter and the full year results 2017 for Nordea Bank. My name is Rodnar Bien, 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 Kosko. Then there will be opportunities for the journalists to have individual interviews with Casper.
And for the number nerds, we will have an in-depth Q and A session with Thorsten Haggen Jorgensen, our group COO and Deputy CEO. So Casper, please welcome. The stage is yours.
Good to have you here. Another quarter, another year. Time runs fast. Let me start with hopefully getting the presentation up in the proper way, which is there. Let me start by not getting the presentation up in the right way.
How does this actually move? It's not moving. Yes, I'm pressing the green button, not an elegant start. Press the green button and nothing happens. No worries, we'll get there.
Apologies for that.
Should we try that?
Let me just start first by summarizing the both the quarter and the full year, what I see as the kind of key highlights. And of course, we need to start with the kind of economic environment. I think I said last time I stood here is that the 7 years or 7 plus years I've been with Nordea, this is really the first time when we have seen pretty solid synchronized growth in all of our 4 home markets, first time really in 7 years. That means also that in our core business, we've had pretty stable and both margins and volumes, so nothing dramatic there. We have and we've been pretty clear that we have over the last 2 years really derisked the bank.
We have actually reduced exposures in some of our more risky segments such as shipping and offshore and in Russia. And overall, we have been de risking. That, of course, has impacted revenue, no doubt. But 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. And that probably is one of the features, particularly in the Q4, where we have a meaningfully weaker fair value line, mostly also driven by some fair value adjustments. So when I look at maybe the profit development, I have to say I'm not satisfied. Having said that, I don't putting in the context of the transformation that we're going through, I'm not concerned and I actually expect really profit to start improving given all the actions that we are taking in 2018.
What we have been doing in the last 2 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, etcetera. 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. So I'm extremely pleased where we are and really coming to this step of driving them back forward.
When we look at the efficiency, the cost that I have said, we have invested heavily in the last 2 years, I already see in the Q4 the turn in cost. I mean, 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 SEK4.9 billion and then of course a gradual decline to SEK4.8 percent. I'll come into these numbers in more detail, but I think the important thing here is to know that these are P and L costs that when you look at cash cost and particularly the 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 and don't see any going forward any change on that trend either.
And 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 our 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 strong bank. That also gives us the confidence to deliver on our dividend policy. 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, and of course, the AGM in March should and hopefully will approve it.
But 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. So that's kind of the highlight of 2017, highlight also of the last quarter.
So I think we're moving into 'eighteen 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 kind of numbers, kind of highlight, yes, income has been under pressure. We see full year decline, slight decline at 3% towards last year. NII is roughly flat, but here we have to remember the thing I already said. We have derisked the bank and that of course is reflected in the NII line.
And then the other thing of course we have to remember, we are also not consolidating our Baltic operations anymore. So that is also an impact something that impacts that line. Very healthy growth in the fee and commission line. And of course, the fair value line, particularly when you look at the Q4, you see a very big difference to last year. So the fair value volatility is something that you see here.
On expenses, we did predict and promise a total year expense growth between 3% 5%, so we kind of bang in the middle of that. And most importantly, we actually now see also a turn with a quite a meaningful decline quarter on quarter in terms of last quarter last year and last quarter in 2016. And of course, the one I already said, a very, very strong solid CET1 ratio of 19.5%. Those really are the kind of the number highlights that I would put forward. If you look at a little bit more detail, the net interest income, a 5% decline, but again, mostly driven by the factors I already said because when we look at in more detail and if you take out the derisking of what we have done particularly in the segments that we kind of 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 2 years in our core business of 5%. So we actually grow in a healthy way in the core business, but really that shift in derisking 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, so healthy numbers there. Somewhat lower fee commission in the payments and card side.
And 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. So I'm pleased with those numbers. Then on still on fee commission, when we look at kind of 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. And then also we have closed our Zurich branch, which also has some impact. But solid growth in our international institutional business. And I think the most important thing or most the thing that I'm most proud of is actually the fact that when you look at a 3 year period, 92% our composites outperformed the benchmarks. And 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 then look at the fair value, when you look at that, you really see the big swing, particularly Q4 in 2017 versus Q4 in 2016, mostly actually driven by fair value adjustments. I mean that delta between the two quarters is some $170,000,000 which probably explains the large part of that swing. That is part of the nature of the business. And then, 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. So 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 twenty seventeen, and then we curtailed that in the second half and then particularly in the Q4, 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, 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 and L level, we have said that we will be at €4,900,000,000 in 2018 and take down cost by €300,000,000 until 2021.
But then we would then look at if you take out kind of depreciation and amortizations, then we actually will decrease by €600,000,000 But we will also reduce and we can reduce now also our cash spend on the investments. So we will actually be generating almost CHF 1,000,000,000 by end of 2021, more than CHF 1,000,000,000 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 random capital generation given what we are now doing. So I think there's been maybe a little bit too much focus just on P and 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. And 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%. But here I want to emphasize the fact that we have already included an Article 3 buffer and are already taking out the taking into account the rea increase that we will have with the Finnish mortgage flows that are coming in 'eighteen. So that is already calculated into the number of €9,195,000,000 So we are well prepared for that. And 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.
It 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 50,000,000 and 150,000,000. We are at 100 and almost 190,000,000. So I think again healthy buffer to take the business forward.
And that gives us, of course, the confidence to 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. And of course, that is a dividend policy that we will also follow going forward. So 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?
And what we have done is, I think, maybe not always come into focus is that we have actually used the last 2 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. We in our technology infrastructure, changing the whole IT approach, the models, IT remediation. So this is something that we have said we would do, we have done. And by building a more robust, more resilient bank, we can then take the next step.
In addition to that, of course, we have derisked 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, 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 current, you really need to have, in a way, deal with some of the legacy issues that we all we as a bank and Oil Bank have. And we actually are. We're 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. And we are now in a very heavy execution phase already. We are on budget, and we are now in January, February really heavily moving into the kind of loan and deposit side in Finland.
And of course, we'll continue the rollout. So 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, much faster to customer demands. So a very important part of our transformation. That will actually allow us to become much and as I said, more rollout, more things. We have now rolled out, and it's not only when the platform is in place, it's already today.
We have now rolled out a new mobile banking fendant 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 external. We did the Apple Pay last year with peer to peer payment providers, Vipps in Norway, Mobile Pay in Denmark, Sirto in Finland and Oswell Swisher in this is the future.
This is the future that we now will more and more frequently roll out new services and products. And 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 1 Nordea. And 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 1 operating core bank system. We will then 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 4 home markets. We need to be in that peer group of large European banks. This is not about a so called Landskomp, as we say here in Sweden. Very confident this is the right thing for the bank to do.
And of course, this is something for the shareholders to approve in March when we get to the AGM. Actually, I've had many, many discussions with shareholders. I feel very positive about this because this is the right thing for the bank, right thing for its customers, its employees and its shareholders. But it's really important and strategic and a part of actually building One Nordea. Customers.
I mean, I think the most important thing we have is our customers. And I 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 kind of segments where we are, particularly our most demanding customers. Looking at Wholesale Banking, we are the Nordic champion in all the key segments that are important in Wholesale Banking, be it equities, fixed income securities, risk management. We're also one of the leaders in green bonds.
That actually speaks, right? We have continued to keep our position, if anything, strengthen our position. And 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 to what our customers believe and think of us. When we also look at many of the other areas, we have again, we are one of our very demanding customers.
We look at our private banking, the kind of rewards they are getting. Also in transaction banking, which I think is a very important element for banking going forward with all the payment, it is the 2nd 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. Because 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.
So we actually show that we can do that. So I think this is having said that, am I satisfied with customer satisfaction? Of course not. We are working on that. But everything we are doing now and accelerating has only one purpose, and that is actually customer satisfaction.
And to do that, I think it is important that we are 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 incubators, internal incubators, our fintech hubs that we now are part of, but we also do it with partners. This is now much more a business where you need to collaborate. And I think the important thing has been that we should be the partner of a choice to FinTech Companies and other players when they want to do business in the Nordic region. And I think we've shown that.
And that is actually a very important part. It's an early part, but it's a very important part of the strategy going forward that we can collaborate with others, open banking, mobile pay 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 being there and 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. And then lastly but not least, I already mentioned, 92% have, in terms of fund performance, have on a 3 year basis, have actually beat the composite benchmarks in Sweden, in Norway and in Denmark.
When we look at our performance on those funds, it's we also show you need to provide value to customers and this is actually providing value when you are. And it's interesting thing here also in terms of sustainability, ESG is the first time an ESG fund is the top performer. I think that's something to really, 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's the way it should be.
With that, I actually want to thank you all. I know we have 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. But with that, I just want to conclude and thank you all for coming and look forward to seeing you in 3 months.
Thank you, Kasper. So those of you who are looking for interviews, please follow Kasper and Mr. Neline. And then the rest of you who are interested in number crunching, please stay. So we will wait till everyone has left.
So we start with Andreas, followed by Magnus and Peter.
Thank you. It's Andreas from Exane BNP Paribas. On your comments on margins, I remember in Q3, you said that margins are stable across the board and now you say that you see margin pressure in all business areas. So something must have changed quite significantly in the quarter. And then when I look at the different retail divisions, you are your NII is declining faster than your loan growth in all countries apart from Sweden.
So can you tell us what the margin is really doing in Denmark, Finland and Norway? Where is this big margin pressure coming from?
No, but I think overall, personally, I'm probably most disappointed about Denmark. So 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 more listed 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. So we have that effect there. I think what have also happened is that we have had a relatively good development in Norway onto November, where we saw an increase in the competition there. 1 of the key players lowered their margins.
We have, in Sweden, seen, as you have probably followed, we have seen a lack of momentum that we want to tune somewhat to secure that there is a better level of volume and business momentum. So we have also taken an initiative on the pricing side in Sweden. So you can say since last time, if anything, Denmark have come out slightly worse. Competition has picked up in Norway, and we have ourselves taken decisions. We've been talking margins only in Sweden.
So that's probably the key changes since Q3.
And then 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 and I see how much Russia has been shrinking and then 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 NII, we take that in isolation, than we did in Q3. I think we have we can have slight hope that the intensifying competition we have seen in Norway now we do have a higher countercyclical buffer in Norway. So let's see if that will not have an effect. We have the risk weight flows in Finland. Let's see if that could have an effect.
So I'm slightly more positive hopefully for Finland. But all in all, taking into account NIM and everything looks at best flattish, I agree with that full year 2017 over 2018. If we then look on the volumes, you can say that first of all, I think we are 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 the 2018 we for the 1st 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, So 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, etcetera.
So maybe the volume effect will be slightly more positive, 2017 versus 2018. And then not least, you can say in wholesale Banking, I think we are more or less done with Russia. I think there might be a slightly more to do with the shipping oil and offshore portfolio, IED selection. But I think in general, the activity level in Hotel Banking is good. So yes, the juries is still out there.
So NIM might not contribute on average that much, but volume could be a more positive contributor than we saw in 2017. So I will not rule out that the combination of that will be yes, I mean volume is not something we fully control, but after all that, that would be how I would look on NII. And then 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 troughs still some growth in savings related fees, broadly defined. Still having a strong corporate pipeline, so there will still be fees there. And then I think as we have also tried to outline on the payments lending related and so on top of fees, Maybe Q4 was not a fully representative one.
And then 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. So all of this in combination is why we dare believe in slightly higher revenues.
So I should also sorry, I forgot to welcome the telephone conference. So you would, of course, also have the opportunity to ask questions. But now it's Magnus turns, followed by Peter and then Jan Botten.
Yes. Magnus Anders from 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. So just on NII, in addition to those volume margin discussion, if you could 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?
Yes. But I think that I think we if you should talk in headline terms, I would say it's close to neutral. So we will have deposit guarantee scheme fees and resolution fees up in the magnitude of plusminus €100,000,000 We will have cost of funds down and more or less at the same level. And then we will have no one really knows what treasury is all, but if anything, it might be slightly weaker. So neutral to slightly negative, but not really significant.
And the derisk
in there on the volume side of shipping oil offshore book, is that should that flatten out year on year? Or
I think still we have in the level of €1,000,000,000 of derisking to do in the shipping oil and offshore portfolio. But then I think that, that is basically what is if you look full year 2017 or 2018, that's really probably net what we have to do on derisking that I would say is left because I think the net effects are around that level.
Okay. So that and then you have some on Russia still?
No. No, I think actually that if I mean, I think we structurally have done the derisking we want to do in Russia. So Russia could be everything from 0 to slightly plus.
And then on mortgage volumes in Sweden, we've all seen in the statistics that the last 2 months you had net outflows and the stock ish stock was shrinking. You lowered your price by 6 basis points for 3 month loans to list price. And we've seen in the reported figures that you're around 12 basis points above the market. There might be mix differences, of course, etcetera. Do you think is that enough to regain flows?
Or will that be 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.
But 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, either focus on customer, customer service, on the customer features and pricing. So this is what I call adjuning. So we try all kind of different measures to improve the momentum in Sweden. Hopefully, on the back of our AGM, it will also normalize a little and all the good underlying efforts will start materializing.
So I think it's more signal of the fact that we are very conscious now and of course, I mean, of the 5 core focus areas a bank can have income, cost, credit, capital and transformation. I think we can actually tick 4 of them, right? So on 4 of them, I think the outlook is really, really good. Then we have income and now you can say, as I think we can also take on transformation related risk, what it does to the bank, execution risk and so on. I think we saw the peak in Q3.
So of course, I think we are pretty good at moving them the focus to where and where is now the concern area. And out of the 5, we have talked about all of them in the last couple of years. Now I agree we are moving the attention to the income side. So 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 and want to see some good development there.
And finally then just on your trading income or net fair value line. With what you see now, January, it sounds like January started a bit better. This is still 350 to 400 we should see as a normalized quarterly level in this environment?
I think we have said between 300,000,000 and 400,000,000 and I think this was clearly an outlier, and we hope that will also be an outlier in a seamless outlier in 2018. Okay.
Thank you.
So now it's Peter followed by Jan, and then we will let the telephone conference in.
Yes. Peter Kessel from SEB. First of all, a question on payments and cards, which was down I think the combination was down from 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, I mean, slightly higher than expected expenses and slightly lower than expected income. And I think we could not really find a trend pattern in that. So no, not really.
But so the Q4 level should be the run rate going forward? Is that
I hope not on that specific type of fees, no?
Okay. Then just going to kind of the dividend and the payout ratio on a reported basis, it's on 90%. But as Kasper mentioned before, we should also look at kind of the cash generation of the business. And if I actually include intangibles, then the payout ratio is 100 we look at that one? You mentioned that it they will begin to decline until 2021.
But for 'eighteen, how should we see that trend?
Yes. If we assume that our capitalization ratio stays unchanged, then the gross spend, I. E. The portfolio that Casper showed before, we will probably come in at least €100,000,000 less. So we will certainly spend at least €100,000,000 less there.
So that will contribute right as depreciation are going up with something like €70,000,000 in 2018 compared to 2017. So it tells about, I think, the total increase in intangibles was €500,000,000 plus, so it will be lower with a magnitude of €150,000,000 1,000,000. So it is a we start seeing now the increase in intangibles coming down in 'eighteen.
Then 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? And if you go back, I think it was some 2 years ago, you did synthetic risk transfer and so on. And are there various things that you're looking at there that you could elaborate a bit on going into 'eighteen, 'nineteen?
Well, we have a pipeline of 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 that's not the highest priority. I would rather put it that way. If you look on securitization deals, then there might be other, what I would call, tuning high activities.
Okay. Thanks.
So now it's Jan, followed by the telephone conference.
Jan Motta, Credit Suisse. So if I could just return very quickly there to the NII. Did you say that Russia now that cut down of the book is more or less down? I think the NII in the Q4 was around €17,000,000 or so. So is that done now?
Or could we see that coming down further, do you think?
Well, I mean, I would say, if you look on if you look at it's not the biggest book in the world. We more or less have the type of customers we want now. We more or less have we have done the derisking, you can say fundamentally what we want to do. Then, 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 and 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.
So derisking is done.
Okay. And on the shipping offshore book, I think you've previously talked about $1,000,000,000 or so. We just still Yes, you could see further deleveraging of that book. Is that still valid for 2018? So we should see that headwind coming through, okay.
Yes.
Yes. And then the other question you had was around the dividend level here. We are now roughly 90% pay up ratio. And I think the company has highlighted a couple of times here today and previously that the cash generation is stronger than the P and L profit, obviously. But is that relevant?
I'm thinking, is it really possible to pay out more than 100% of your P and L profit? How do you think about that concept really? And if not
But that's a fantastic division of labor we have with our owners and our Board because management are not speculating on that at all, can assure you. We are hopefully seen by the owners as generating an optionality of they have the problem of excess capital. And 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. So please, operator, if you can allow some questions.
Yes. Thank you, sir. We will now take our first question from Willy Salerno 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're mentioning some asset sales, the international price banking and also not doing any more second securitization. And I was wondering if you were already thinking about those potential asset sales when guiding for the revenue trends in 2018?
No. I mean, we yes, we have announced the debt collection portfolio in Denmark, which will have an effect of around €50,000,000 And we have announced the effects of the life and pension deal in Denmark. But that, I think, is the effect that we have mentioned that will impact 2018.
So we never comment on market rumors or speculations? Yes. No.
Okay. Thank you
very much.
And still on the revenue side, the fee income, one of the main drivers, the AUM outlook. And this year was pretty muted. And 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, but 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. And then we would have a period where we would have a more have a slightly lower level than normalization due to the soft closure and due to also the fact that we have been spent quite some time on the MiFID implementations. So 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. But as we have said all along, it will take some time to get back to that level. But in general, the distribution capabilities are unchanged, strong.
And as Keesper has also alluded to, the investment performance capabilities are also continuing strong. So we are not, you can say, structurally concerned.
Okay. Thank you very much.
Thank you, madam. Our next question comes from Vivek Gautam from JPMorgan. Please go ahead. Your line is open.
Hi, good morning, Thompson. Good morning, Rodney. I have two The first one is on costs. That's a quick one. The guidance of $4,900,000,000 for 2018, is that mark to market for the current FX?
And does that assume that €50,000,000 benefit from the sale of Danish Life and Pension? That's the first one. And then the second one on the capital point, I'm not very clear. So when you say annual capital generation is expected to improve by 75 to 80 bps, that is relative to 2017, which was a heavy investment year, isn't it? And separately, if I just look at the absolute capital generation, because your intangibles are going to increase until 2021, your the capital generation is going to be lower than the P and L retained earnings, even though it's that even though a delta between capital generation and P and L earnings will reduce from here, but it will still be negative until 2020 one.
These are my two questions, please.
If I start on the latter part because I'm not quite sure I fully understood the first question. But on the capital generation, it's strong for several reasons. So 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. So in general and we can of course put all kind numbers around it, but in general, I think we will see a continuous 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.
Capital generation would be lower than the P and L on a stated P and L, if I'm right on that point? Yes. Yes, yes. Okay. And then the first question was basically the $4,900,000,000 guidance.
Clearly since you have given the guidance, the FX has moved in favor basically Swedish kroner and Norwegian kroner has depreciated. So is it mark to mother? The €4,900,000,000 guidance, is it mark to market for that, the reiteration? And then the $50,000,000 that you will $50,000,000 cost that will go away because of the sale of Danish Life and Pension, Is that also included in the 4.9 percent? So 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 at that number, which is approximately 4.9%. And I think that we will not go and change that number all the time. So approximately 4.9% is still approximately 4 0.9 percent. And then there is Life and then there's all kind of other things and FX. There are the at the end of 'eighteen, we will we can 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. So this 1,000 consultants we talked about, we have actually managed to take down a majority of those already before we ended 2017. So we 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 close the year. We have around 1200 in process for first half year, and we have close to the same for second half year, which is already also planned for. So 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. And 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 and so that all these customer all these cost actions do not have any significant impact on income.
So let's see where all this leave us, but we are pretty confident on the cost target we have set out for 2018.
And if I
just add, the divestment of NLP Denmark, that will have an impact on cost base annualized of around €55,000,000 and on revenues around 125,000,000 euros That's on an annual base. Then approximately 3 quarter of that will come in 'eighteen because we expect to close the deal sometime Q1.
And that is on top of the 4.9 percent, so 4.9 percent is pre that?
Yes. But I mean, it's not really meaningful to change guidance for those small numbers.
Yes. Okay.
But you
can say the €4,900,000,000
Thank you.
But you can say the 40% was not known. The plan is the same. So we are doing all the actions we had already planned for and maybe some more and that is with LAP Denmark or not. So we are not deviating from the plan to
Thank you. Thank you. Our next question comes from Kim Bergoglouy from Deutsche Bank. Please go ahead. Your line is open.
Yes. Hello. Can you hear me?
Yes. Loud and clear.
So most of my questions
have been answered. But if you could could you talk a little bit more and give us a little bit more detail on the NPL sale in Denmark? So what kind what portfolio is that? And just so we can get sort of an idea of what it issued disposing, I think it's about €500,000,000 isn't it?
I think it's a broad collection of Danish exposures. But do you know the details of the composition of it? I think it's a broad I mean, basically, you can say the old retail banking scope, so that will probably be mainly within the SME space, I would think. And so I would my guess would be a majority is the SME of SME portfolio type of.
Okay. Thank you.
So can we put the telephone conference on hold, and then we'll continue here in the audience? So gents, please, followed by Mats.
Yes. Jens staff pilot is now ongoing. Can you give us a little bit of a flavor of what's how that's 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 how we're talking 2018, 2019, 2020 and so
But it's actually not a staff pilot anymore now. It's a full scale implementation that will go live in February. So that will be all finished customers that will be offered the new type of functionality coming from the platform relating to certain savings products and mobile following Q2. So that's a real 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. So we will get the full real proof of concept, you can say, very, very soon. And as I said, it then continues with more savings products to real 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. And then we are ramping up the other components in the Terminus package, you can say, is loan products, and that will be piloted during 2018 to for real rollout in 2019. And there's also a collateral system component in the rollout.
And we will also, in one country, have the 1st real implementation, hopefully, in 2018 on that. So you start now seeing in 2018 the first real rollouts to end customers and with associated benefits both for customers and for internal handling.
Okay. So from sort of a numbers point of view, is it too optimistic to expect that this will have an effect on already 2019?
If it's in terms of?
In terms of I guess, there's 2 benefits with the new system. 1, it should be quicker and 2, it should be cheaper. Yes. And will we see that sort of more towards the effect on the sort of income statement towards the end of the year, sort of 2020, 2021? But
it's also when you hit real customers, you will know more. So there is a big difference from running pilots to running full. So we will have full scale, you can say, proof of concept. How does how is this now received by Finnish customers? We will know that and we will report.
And it also shows us how exactly are the benefits in terms of cost and efficiency internally, right? So 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. But 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. And then just one question on margins. So we talked about that a little bit earlier where you see margins coming down in most of the segments. If we it's probably not unreasonable to expect slower volume growth for the market in Norway and Sweden for 2018 than maybe 2017.
So is this a sign of what's to come, sort of even further falling margins in your businesses? Again, in particular talking about the falling margins.
We are saying that all margins are falling. I think we are seeing that we have intensified 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 CPB space, I don't think we see relatively stable margin development. Same goes for shipping, same goes for some of the wholesale portfolio. So it's and that's why I'm saying NIM is flattish, I would say, into 2018. So I'm not saying that I think that margins are looking that bad. But of course, the improvements we have seen 2016 to 2017, I'm probably not going to repeat itself 2017 to 2018 on there.
So we will probably have a more neutral effect from margins. Then we do probably have a slightly more positive view on the volume side, not only markets related because we don't as such are occupied with market shares and remembering a lot of what we have seen is by design, right? So shipping is by design, RoHS is by design, etcetera. Remic and there are all kind of decisions. Now we have also decided that in a number of areas, we want to see somewhat more business momentum.
And let's see if we're actually successful with generating that.
Okay. Thank you. Can I 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 somewhat new? It's a usual suspect.
Thank you. Matsir, Al, Handelsbanken. Just a follow-up, I guess, on all this income growth in 2018 because we said NII will be flattish, you won't see any increase in rea. You are derisking the portfolio, and we see that lending commissions are going down, etcetera. So where should we really see revenue growth coming from in 2018 if you are derisking in terms of trading commissions and the lending book?
But I don't think we are de risking that much. And so I think as I said, I think there are other I mean, 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 €1,000,000,000 in shipping and as we are done with Russia, etcetera, etcetera. So I think that the volume component might turn positive if you look on NII for 2018. There might be some fees, maybe not a lot of growth, but some. And then I would argue that the full year net fair value results, it should not be impossible to at least match it in 2018.
And please remember also that the we will now have 2, I think, somewhat promising other income type of drivers, alumina and our continued shares in Life and Pension Denmark. So we have 2 good engines that will contribute some. So I don't think we are saying that we see an enormous amount of revenue growth 2018 over 2017. But I would based on this walkthrough, I would not rule out that there be some. Okay.
Thanks. And on Luminor, we may add that, I mean, in this quarter, we had a fairly low contribution for them because they have the transaction costs and M and A you to an investor presentation by the management team of Luminor. But we will come back with an exact time, at the beginning of April. Please.
Niklasnik Vliss from DNB. First, a question on the capital. You're now 190 bps above your minimum requirements, so a bit outside your targeted management buffer. Should we still see that management buffer as your target level to be in the longer term? Or are there other considerations that would kind of justify a more cautious view than that buffer?
Yes, 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. So I think the issue is, of course, that if we look on our capital requirements and so on, where we have now have a somewhat more stable period, think you should also remember that we are in an important transition from one regulator to another. And that is an issue we, of course, need to be prudent around. So 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.
And then we have updated our view on Basel and so on. That also looks more positive. So 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.
And then a question on Swedish mortgages again. Now you lowered the list price on your shortest relations by 6 basis points. Should we think of that as kind of indicative of what also will be the delta on your actual negotiated rates in the front book? That's my first question.
Yes. And please remember, that is on the 3 month only, and then we have smaller on the fixed rates. So it's around 70% of the mortgage book are variable. So you will see that filtering through in the 1st and second
quarter. And then also if you could give some so what will be the impact on this on the back book?
No, I mean, you have on the negotiated rate, you have a discount on the list price. So you will follow also on the negotiated rate, so it will filter through fairly quickly.
Okay. Thank you.
Please, Robyns. Thank you. Of course, there's a lot of uncertainties regarding the change of regulatory later now, but 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, but the Basel Bul obviously have an impact on our REA. So but far less than we expected earlier. So we see even with the full implementation of the capital flow, we are still seeing a very stable outlook. And based on certain relatively conservative assumptions around other type of requirements and how the underlying will develop that we will not be in a situation where we will not have excess capital in even in the full capital flow implementation period.
So we welcome the telephone conference before going back to the audience. We have some questions there. So operator, please.
Thank you. So 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. So 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? And the loan loss question, you provide a 9 basis points Q4 loss. Do you see any unusual write backs in the year? 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?
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. So visibility there is up, also seen by the shift in collective and dividend provision. Also a familiar area is Danish Agriculture, which is maybe slightly up. But in general, if you look on the totality of portfolio, it's really hard to be super pessimistic.
And with all the de risking we have been doing, I think also if there might be a cycle development that would go for slightly higher, I mean, 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 as such give very detailed guidance other than saying that we are very comfortable looking into 'eighteen, and that we will probably stay below the long term average in 'eighteen.
If I may add as well, Adrian, that in this quarter, you see unusually high reversals, 11 basis points, but you also see unusually high individual provisions. And that's basically that we have in the offshore, now that we have more certainty how the credit quality looks like there, we have moved from collective provisions, which we have released into individual provisions. So that is what happened in this quarter.
And on capital, the SREP increase?
The SREP increase, I think there has been more or less that was you talk of
I don't think we have No, it's not SREP. It's the countercyclical buffer in Norway.
Yes. But that I think we have that is publicly
So that's the difference between 17.6% and 17.4%.
Perfect. Thank you.
And please remember that we have an article buffer where we have now covered for the risk weighted floors in Finland already now. So please, operator?
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 talked about a slight increase. Is that including or excluding the positive effect from the sale of the Danish pension business and the NPL portfolio because clearly those alone would account for some 3% or something like that? And then secondly, just to come back and maybe ask in another way on your AUM outlook.
I mean, you specifically said through the weak net flows is related to the soft close of the stable return fund and to sort of MiFID II implementation is something that everyone has faced. I mean, has that been more disruptive to you than to others? And then secondly, on the stable return front, if I'm not mistaken, I mean, that's less than 10% of group AUM. Is that really the driver of the weak inflows? Maybe if you can provide some more commentary on that.
Yes. So I think on the first one, that was on the overall income outlook, and this is underlying. So of course, we will have positive contribution from the life and pension deal that are higher than the, you can say, the underlying income effect from that announced effects of the gains related to the life and pension deal and gains related to the debt collection portfolio in Denmark. Then there was AUM. Yes.
The inflow. And I mean, I buy the argument of MiFID. That is that's the feedback I receive when I asked when I asked about why we don't see more inflows. So that's the right 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 affluent space. So a number of customers has been moved from the Private Banking area to premium segment area within Personal banking. And there might be as part of the relatively extensive work done on MiFID implementation. So it might be combination of the 2 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. So it's back to the fact that we continue to develop new and well performing products and the underlying distribution capacity is unchanged. So and then, of course, you can say we have seen certain movements on the type of products that are most in favor.
So I agree with you that on net inflow outlook, I don't think we are saying that we will not have a 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.
And you're absolutely right on the AUM that the stable return front, I think it's on 5%, 6%. But in terms of flow, in especially 'fifteen, 'sixteen, it was the majority of the flow. So it has impacted the flow, but not AUM so much.
Thank you. Our next question comes from Riccardo Rovere from Mediobanca. Please go ahead. Your line is open.
Good morning. 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? So without the 9 months of the Baltic operations? This is my first question. The second question I have is again, sorry, on payout.
90 percent 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? This 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? And the third question I have is on Ria.
You expect this to be kind of flattish. Is that because you Nordea will continue to set itself on a new 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.
So if we start on the rear side. So first of all, we also have we have, as you know, the related to the Polish deal, which was also imminent in Q4 actually. So we will, during this year, have a positive effect from kind of finally closing the both the funding and the risk sharing agreement related to that. So there are different positive elements that are not you can say 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 go for a lot of REA.
I think we will also see that the corporate activity is picking up, but it's still a good element of bond financing. And I think that also if we look on the lesser and lesser deselection effect in wholesale and partly in CPB, it is somewhat backloaded. So the positive volume effect will probably be higher in second half year than in first half year. And then there are all kind of other effects on the RIA. We are not seeing a lot of expectations for a lot of increases in RIA as we have already as part of the Article 3 buffer.
You have the RIA effect from Finnish market risk has already been taken. And we have for €900,000,000 equivalent and the €600,000,000 equivalent in the Article 3 buffer relates to the type of REA inflation you would typically see from the model validation. So, there is not a lot of things bringing REA up other than mortgage and an expectation for some corporate exposure growth, maybe more in the second half than first half. So that, I hope, was the real outlook. And then what now I have forgotten?
The payout ratio in relation to the credit quality in Swedish housing markets.
Yes. I'm exactly maybe you take that one.
Thank you very much. No, I think you should always be the most concerned where there are no concerns in the market, so to say. And there are no concerns in the market right now. So what we are we are very mindful. So that means that we have been mindful of kind of the Swedish mortgage.
We have derisked Russian 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 sort of, say, sloppy at this part of the cycle. So we're 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. And that also enable us to fulfill the dividend policy through the cycle.
So we have this through the cycle thinking bonus when it comes to dividend and when it comes to credit quality. So 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. And on the NII guidance, whether this includes or excludes the Baltic operations on 2018 versus 2017. So on this guidance, should we exclude the kind of €30,000,000 per quarter, if I remember correctly, from the Baltic operations from 2017?
Yes. You actually have on our website, there you can see the impact of the Baltic deconsolidation. So the 1st 3 quarters of 2017, we had EUR 140,000,000 of revenues. And when we guide for the revenue outlook for 2018, then we have sort of, say, adjusted for that. So it's the underlying business we are talking about.
Our next question comes from Namita Samtani from Macquarie.
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 part of
the book that you want
to grow in 20 18? And my second question is on impaired loans. Given that impaired loans increased quarter on quarter, do you find it prudent that the provisioning ratio has 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 €40,000,000,000 as far as I recall, and 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. So 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 as where I think more or less is where we want it to be.
And then the first question was?
On the impaired loans?
I need to write down what we can normally do because no, but I think you cannot read anything. I mean, 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. We have, I think, in general, I think managed well our credit book and the provisioning rate you have as long as I recall being in the level of 38% to 45%. And so I don't think you should read any extraordinary into that.
The provisioning ratio is highly depending on the collaterals that we have. And given that we have very strong collaterals, we can also allow ourselves to have a lower provisioning ratio.
Okay. Thanks very much.
Thank you. Our next question comes from Amal Shah from Redburn. Please go ahead. Your line is open. Hi,
good morning. I have a question on the core banking platform. So you previously said that by the end of 2017, all the Finnish customers would move on to the tuning of savings products. But today, you're saying this will happen later this year. So does this mean that the project is suffering delays?
No, I don't think the co banking program is suffering delays. I think we said in Q3 that the expected migration was moved from December to January, February, terms of terms of that we are now 3 years into the program, we're talking about a and actually, we couldn't do it in January due to the full year closure, etcetera. So de facto, we are talking about a delay of 4, 5 weeks in this type of program, which I think is not a major change. And 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.
So I don't think it offers anything. What I think is what will be very interesting is, of course, to now see the successful, hopefully, migration and then start evaluating how well it works vis a vis customers and so on.
Okay. And 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've got to not grow too much as you want to be cautious or mindful?
Yes. We are very cautious and mindful. And if you look on the bigger picture, I think we have derisked 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 have might have lacked a little business momentum. And as part of a broad suite of actions, we have included what I will call a tuning on the pricing size to hopefully encourage a bit more of business momentum. So 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 Paolina Sokolova from Barclays. Please go ahead, madam. Your line is open.
Hi. Thank you for taking my questions. Just coming back to the NII and the derisking exercise you've been carrying out over the past 2 years, could you please give us a better sense for timing? So you mentioned that you have $1,000,000,000 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.
Well, in many ways, I think it never ends. But 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. But I think what we 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. So that the net probably negative volume effect we have seen from CPB in the past years probably will look somewhat more neutral, maybe even to slightly plus in 2018. So the journey will continue, but the effect on volume will be less and less, I think, in 2018.
Thank you. And 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? Or 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 724 to make a successful completion of the move by Q3 2018, and 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.
Yes. Good 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?
I mean, you mentioned things are picking up, but still quite sluggish. But is there any very different color across geographies in 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? And then thirdly and finally, on the transformation, obviously, we see that this I mean, this is more about sort of cost cutting efficiency improving the customer experience. But 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?
I mean, what's how should we think about that, if at all? Thank you.
No. But if I start in the with the corporate demand, I think and 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. So that I don't think there's any very clear picture there other than that.
I think on transformation, what's that question, transformation? Yes. I think what we are trying to describe is that we have a very well calibrated plan. So taking out consultants is very much a result of the fact that we are also we have seen the peak of transformation projects, especially many of the remediation related projects. So we need less consultants.
We do ramp up with other type of consultants, in Poland. We do ramp up with robotics. So we'll go from around 200 to around 1,000 in 2018. So that the tasks of serving customers in a good way are not disappearing. They are replaced.
And we have seen significant improvements in the way of working. So we are applying new type of working, Airline, what have you. So the intention is, of course, that customers should not be 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. So 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 do we have done 300, we will do 1200 and we will do another maybe more or less the same.
In second half year, the reason why we are facing it is, of course, that we're also facing in we are facing in robotics. We are facing in new ways of working. We are facing in more digital solution, more self serving of customers, etcetera, etcetera. So exactly strike the balance between rolling out efficiency, taking down cost and serving customers hopefully even better at the same time. It is possible and that's at least what we are trying to achieve.
And that's why I'm saying I don't think the transformation of cost per se now looking ahead will have a negative income or cost ramifications. On the contrary, while it might have had that has 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 have in some countries heard 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, and 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? And could you say anything about that process?
The conversations have But I think we will refrain from coming that much more in the details of the process. So the moment we know more and can say more, we will do that. But yes, the process has started. And we expect, of course, that in advance of 1st October, we will know more and then we will inform.
And 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 October, but exactly when, I don't know. Okay.
Thank you.
Thank you. We have two follow-up questions from the audience. So first, it's Andreas, followed by Peter.
Yes. Thanks. It's Andreas. Sorry, it's been a lot of questions. But on Swedish mortgage volumes, you say that you want to grow a bit faster.
Could you
tell us
what's your 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 momentum is coming slightly down. So this is more on a relative I mean, we want to with our customers mainly and potential new customers to see some more momentum. But in general, I would say the sentiment seems to be that they're coming slightly down, the market per se. Peter?
Yes. Follow-up questions from me as well. Just 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 Because I mean, there's a lot of calibrations were going on. So excess capital means that we are above the requirements.
Okay. So it's above 0 then in terms of buffer, it's not above the management buffer, 150 basis points?
I don't think we will come closer than we will be above in the whole period, we will with the current plans, we will not look into a you can say a need for any extraordinary measures or whatever. We will look in the forecast, we will look fine, you can say, 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, would require more, you can say, active measures.
Okay. And then just one clarification. You mentioned staff reductions, mentioning 300 internals that you removed before Q or during Q4, 1200 in process for first half 'eighteen, 1200 for second half. Is that those FTEs or is that consultants as well? This is only FTEs.
On top of that, you have 850 already out, plus at least 400 more coming.
Okay. Because in the past, I think during Q3, you mentioned that you'll remove the 4,000 FTs on a gradual basis until 2021. But now it seems like you will produce it by 2,700 by during 2018?
It's now I think now it goes really fast. So I said 1200 in first half and I said probably somewhat less, slightly less than in second half. But you are right that this is a in terms of action somewhat of a front loading of the plan we presented in Q3.
So when I look at the Feet number by end 2018, what number how much lower should it be versus end 'seventeen? It depends on
how many we are hiring.
Yes. Because, Peter, there are 2 important things. First of all, we said at least 4,000, and that's 2 important words. Secondly, that's the net number. So as Torsten said, we will also recruit people.
So now we're talking about the gross. And 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, that is in the plan, right? That's the actions we are taking. Then we try to be as careful as possible by hiring. But in certain areas, it is a you can say, it is a also a restructuring.
So there's absolutely areas where you need less people, then there is areas where you need more and you so 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. So the Polish workforce will increase net by probably around 400 in that period. So 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 January. Yes, it is.
And as I said, please feel free to call us anytime. Thanks very much. Thank you.