Dear audience in the room and on the web, welcome to this press conference where Nordea will present our 2nd quarter result. My name is Rod Nalvi and I'm heading up the Investor Relations at Nordea. We will start with a presentation and a short Q and A session with our Group CEO and President, Casper van Kooskull. At 9, then there will be possibilities within the individual interviews with Casper. And then Torsten Heigen and me will conduct the Q and A session with analysts.
Casper, please?
Good morning, everybody, and welcome. Really pleased to have you all here. 2nd quarter, if I maybe give a little bit of just of a highlight. I think it's probably one of the first years since I've been with the bank for the last 6 years when we actually have a kind of a synchronized growth picture in all the Nordic countries. So we have actually a stable economic environment and stable backdrop.
And that actually means that the operating environment for all our businesses and all our home markets actually has been stable and that is actually reflected in the income that we have generated in the Q2. The Q2 actually comes in line with last year. And when I look at the first half of this year, we actually ahead 4% from last year. So overall, stable environment, stable income picture. What is characterizing in this second quarter is, of course, that we have had tremendous activity in our transformation program.
We have big group programs in simplification and transformation that we have talked about. And that, of course, is reflected in the cost picture as is and has been expected. So overall, I think we are developing the bank in the direction that we have been planning. Our credit quality and our capital positions have also improved. And particularly, I mentioned the positive economic backdrop, but I also have to highlight the fact that the geopolitical environment where we are in today, I think we can all agree is much more volatile.
I tend to use the expression we have economic a good position in economic environment, but we are actually living in a geopolitical recession And hence, actually, a vent risk on that side is quite big. And that's why our target, which has always been our objective, to improve the resilience of this bank and create real agility, which is really the part of our transformation program, is actually progressing according to plan. So I'm very proud of that. I for some, maybe I will disappoint you. We have not made a decision on domicile.
Why haven't we done it? This is a very important decision that we are making. It requires very thorough, deep analysis, which we
have been
doing. And with the recent information both in Denmark and Sweden, I think it is the right thing to do to take that time and I'm pretty confident that we will make a final decision in early September. What has been quite clear in that discussion and our analysis is that for us to get a and now we talk about really the oversight and regulatory environment. We do not talk about country economics because on that side, nothing will change. But we talk about oversight and regulation to get fair, stable and predictable regulatory and oversight environment, the banking union is an important probably the most important decision making factor that will play in here and has been in our discussion.
So I can say that and then we will, of course, analyze further what we have learned and what we will learn in the coming months and then we will make an aim to make a decision in early September. So that's where we are. If we look a little bit more in detail on the actual numbers, I already mentioned the word stable. I mean, when I look at the total revenue, actually, slightly ahead of last year. And as I said, the first half 4% ahead of last year's first half.
I think it is also good to mention that we have unusually many temporary issues or headwinds in Q2. So actually, the underlying top line actually doesn't reflect, I think, fully the performance in the first. So I'm actually I'm pleased with the first half and first and the second quarter. Margins are stable. And if anything, we have a positive bias on the margin side.
I think the story is more on cost, but the cost is something that we have been both planning and predicting. We have wanted to frontload our big transformation programs, group programs, which are both the system replacement, but also big investments into risk and compliance. And I think it has been the right thing to do. And we will not see the same growth in the second half. And hence, I think I can today kind of guide that the second full year 'seventeen will be probably 3% to 5% growth.
But then we will I'm pretty confident that we will have and we'll stick to the 2018 will be in line with 'sixteen. This is pretty much what we have been planning all along and comes according to my own expectations. Credit quality is improving. I already mentioned that. We are now at 13 basis points.
Still a lot of weight on the oil and offshore in that, but 13 basis points. And also looking ahead in the coming quarters, I think we will stay below the 16 basis points 10 year average that we have also in the coming quarters that are ahead of us. So overall, credit quality is improving. I think the most important real number here when I talk about resilience, talk about the future is our capital because this is about capital, resilience about capital. We now have core Tier 1 at 19.2.
And I think the number really to probably highlight is the fact that we've improved our Core Tier 1 ratio within one 12 month period, but almost 2.5% points. And I think that is really a number I think one should remember because it is about capital and capital resilience in an environment where we do have also geopolitical and event risk out there. If I look at some of the highlights of the income lines, net interest income, largely unchanged from last year. I think we have deposit margins improving. We have lending margins largely unchanged, and then we actually have funding costs coming down.
So overall, as I said, a positive bias also going forward on the margin side. As we have said and as we have expected, of the of the marketplace. We have also said that we highlight the discipline on this side and really a focus on risk and profitability. So risk profitability actually comes before volume growth itself. I do believe with the positive economic backdrop that we now have is that particularly on the corporate side, I think we will see more demand coming.
That's inevitable. It's actually been slower in the beginning, but I do see that actually coming. And then we do have both in treasury and FX kind of negatively affecting NII, But I think overall, I think I'm pleased with the NII. The real driver of I think the strongest driver of our top line is net fees and commission at a continues at a very good and high level. We actually have had growth in this on that line of 6% q on q, and it really is a reflection of the strong businesses that we have in wealth and also wholesale banking and also in our transaction banking payments and cards.
In asset under management, we are again at an all time high. A lot of good inflow coming in there. In the corporate advisory side, we have somewhat lower fees, but the activity level is still very high. And I think the testament of that is also that we have been again part of the largest 2 largest transaction as a book runner here in the Nordics. 1 was Alsel and the other one is the Munters IPO.
We've been part of those, again testament that we are really leading in this franchise in the region. So really, net fee commission income line, both Q2 and first half show a very solid development. Our net fair value comes pretty much in line with expectation. We have low volatility. So you've seen this more broadly and that, of course, affects.
So it's pretty much in line with last quarter and pretty much in line also with last year's first half. Good customer flow in particularly personal banking and commercial and business banking. We do have lower revenues here, particularly in the oil and offshore because that's related to some of the restructurings that have been done in that segment and hence it actually does affect the line, particularly in the second quarter, but overall, in line with expectations. I want to particularly mention once again the asset under management. We Q4, we did not have, given the fact that we actually closed our largest fund, did a soft closing on that, which was reflected and other things reflect the Q4, but we actually show now in both the first and second quarter that we have healthy volume growth in asset under management and again reaching an all time high on that side.
I think equally important is the fact that we also have good performance. So almost 90% of our composites have outperformed the benchmarks over a 3 year period. And of course, that is where you provide value to our customers. And that's a very important metrics that we are following. So both good inflow and good performance on that side.
Cost, I have already mentioned, but I think I'll mention it again. This is driven by our desire really to now invest in beefing up both risk compliance and investing in the big transformation that we do in the bank. So we have actually said that this would be the case. We are front loading that and we will start now seeing really a cost picture that will go start going down. And hence, I'm convinced and we will deliver full year cost growth below this 3% to 5%, as I said, and next year, we will have 'eighteen level at the same level as 2016.
I probably think that Q2 2017 is probably the peak of cost in a quarter, hopefully, for my time. Very importantly, asset quality. Credit quality remains solid. If anything, there is positive net migration, and this is both in retail and in corporate. The individual loan losses are at 11 basis points and collected at 2%, so 13% all in all.
And as I already mentioned, I expect us to be below the 16 basis point 10 year average also going forward. Again, oil and offshore has been probably the one sector which has the biggest weight in these in the provisioning, But I think that is I think it's well provisioned and in good shape as I see it now. When we look at the capital, the 2 almost 2.5%, 2.4% improvement in 12 month period is really the testament what I've always said. What do Nordea stand for? We stand for steady, low volatility and capital generation.
And I think this again, this quarter shows that. So we have now a situation where we are probably at the higher end of our management buffer. That's where we should be probably. So we are 150 basis points above the regulatory requirement. And I do expect, at least what I see today, that I don't see a big change going forward in terms of the requirements.
So I think we have a stable picture there as well. A little bit just mentioning a few milestones, a few important things that what's happening within the bank. You have all heard me talk about our core bank system replacement. We talked about us putting in place or starting the pilot last year. So we had up and running the new bank last year.
But now we have actually real deliveries in the sense of that we have now uploaded almost 4,000,000 customers to the new system in Finland. 4,000,000 customers is actually a midsized bank in itself. So we've done that. We have now also then new key software releases that we can put into the production environment, which means that later in the year, we can actually start offering savings products to Finnish customers on the new system. We, of course, going forward, we'll still synchronize the old and the new systems, But the fact is that now it is not anymore it's not in the past, it was PowerPoints, then it was pilot.
Today, it's real. And we will have big deliveries now coming late summer, early fall and towards the rest of the year. And of course, once we start this, then we start rolling into new products and new countries, product by product, country by country. So an uploading of almost 4,000,000 customers, that's a major achievement by a team that has done a tremendous job in actually achieving that. The other thing I just want to mention because you always hear me talk about it is risk and compliance.
Risk and compliance is really a key part of our group transformation. When you talk about compliance, we talk too much about just compliance. Compliance, particularly on the financial crime side, is about stopping criminals while giving a smooth experience to customers. This is a big shift that we are doing in the whole industry, and we are now investing and have been investing heavily. It's a lot about training people, putting new systems, taking incompetence in new systems and then really having clear personal accountability for this.
It is about being reliable, responsible and efficient on this side, so that we become actually safer for our customers and really a safe choice to our customers. That's the way we need to start talking about this because that's the role we want to take and responsibility. And we have invested heavily here. We'll continue to do that. And I think this is an important element for any financial institution going forward.
The requirements on this side will only go up. And I think we're in a good position to be really a solid lead on this side going forward. Another exciting thing is the fact that the mobile phone actually is starting to become really the entry point and the first choice for our customers to get into the bank. So this device actually becomes your first choice, almost your first choice for a branch. And we have today roughly $40,000,000 loggings a month into our mobile bank.
And we have now in test a new mobile bank that we will launch in Finland later this year and it has features that I think are pretty exciting where you can actually get an immediate meeting and advisory meeting on your mobile. You can get an immediate loan application. We get immediate feedback. It's really taking mobile banking to the next level. This is already in test.
We are testing this with a group of customers, a group of test people and we'll launch this later this year in Finland and then we will roll out it in other. We have also upgraded our existing mobile banking platforms with better features, but this is, of course, a bigger step and you will see much more of this coming, as I have said before. Another very kind of fundamental change in our banking picture is, I've talked in the past about open banking, but it is about how we collaborate with others, collaborate with particularly Fintechs and other service providers. We have gone in as the first ones into the Stockholm Fintech Hub, where we actually have 20 seats. We are in the Danish FinTech hub with 6 seats.
We're also in what they call the factory in Oslo, both the FinTech and the insurance tech, where we have been part of the accelerator program. This is banking in the future, working in collaboration with start new other service providers. And of course, here, the main objective is to deliver a better, faster, more interesting service to our customers. This is future banking. And I think setting this collaboration up is critical both in terms of changing our own approach, own culture, but also attracting in the right partners to work with us.
I mentioned the mobile open banking already earlier and then there we actually as I said already last time, we had more than 700 pre applications that came in to wanting to work with us on these types of issues. We are also now investing in artificial intelligence, again, with the main aim to improve the speed and level of customer service. We have a very exciting cooperation and partnering with an Estonian startup on artificial intelligence, field stream and these types of solutions will again speed up and improve customer service going forward. And I think maybe just to finish, if we talk about digital mobile and we talk about collaboration, fintech, maybe the last thing, which I think will be in a core element of banking and Nordea going forward, and that's sustainability. Sustainability in every way, incorporating sustainability in our core processes, sustainability in our services and our products.
And as one example of that is the green bond that we launched, the first green bond for us, a €500,000,000 green bond. And this is not only about doing the right thing. This is also financially savvy because this the funding cost for this green bond was actually below our senior unsecured funding cost. So I think it's efficient financing, doing the right thing and sending the right signal. So that I will finish with that, but that I think sustainability collaboration with Fintechs, digital, mobile, that's the banking future.
With that, I think I will take some questions.
Yes. Thank you, Jesper. So we have a few minutes for Q and A. I'll start with Peter, Magnus and then followed by Andreas.
Yes. Hi, good morning. Peter Rakeshoes from SEB. Just a question on the redomicile decision and that you're postponing it until September. Just for clarification, will we get a final decision in September?
Or could you very well postpone it somewhat longer in case new information comes out or perhaps you haven't gotten enough clarity on the banking union discussions?
I think we'll have enough clarity to make a decision in September.
So we will get a decision during September?
I think that's what I said.
Okay.
Then just in terms of the cost comments that you're making and the elevated project costs that you're seeing during the quarter relate to the IT investment program, but also compliance and so on. You mentioned that you've now boarded customers in Finland to the new platform. Does the higher cost level in Q2 have anything to do with the actual migration step? Not really. I mean, I think there's and that step?
Not really. I mean, I think there's and I wouldn't say cost overrun because we have actually deliberately front loaded our investments. And when we also invest in particularly risk and compliance, it is something that is not only in functions, it's actually when you actually upgrade the whole organizational level, that actually drives and that's a cost that we are I'm comfortable to doing because we're actually creating a more better, reliable, stable and resilient bank. So it is not in that sense an overhang. It's a front loading and it's doing the right thing and it's not related to that particular thing that you just mentioned.
Magnus, followed by Andreas.
Yes. Magnus Sander at ABG. I just I must ask what can possibly change in 1.5 months' time over the summer period in Sweden and Denmark for you to potentially come up with another decision on the 6th September than you could have taken today?
I think it is fair. We've done a lot of work, so we kind of know what the key drivers are. But I think these decisions and indications of some are firmer decisions, some are more indications are quite recent. And I think it is fair to understand those in detail and then take them into account. I think some of that has not been a surprise, some has been a surprise.
And I think it is the right thing to do. I mean, I think this is not something you want to rush. And if anything, this has been a very speedy process anyway. So I feel very comfortable that doing the right decision is more important than doing a quick decision and that's what we want to do. We want to do it thoroughly and emotionally and we want to do it what is right for the bank.
This has no I mean, I just emphasize again because there's a lot of misconception here. This has really no impact on our activity in any of our home markets, has no impact on our employees, has no impact on our customers, has no impact on the bank's commitment to the society more broadly in our for home markets, the way we pay fees, taxes, etcetera. So I think our presence, our commitment is completely unwavered in all our four markets, whatever decision we may do or not do.
Are there any more important factors than the fact that politicians in Denmark and Sweden all of a sudden has shipped in the potential to join the banking union, primarily very southern in Sweden, which in my personal view sounds very unlikely.
I am not speculating on that. I think we have now we have all the elements. That's why I'm to my level of confidence for September is the fact that I think we have all the elements there now.
Okay. Thank you.
Yes?
Sorry, it's Andreas Wolkensholm from Nextelm BNP Paribas. Sorry, I'm going to have to come back again to the headquarter. Given that we have an election in Sweden in a year's time and in Denmark within 2 years' time and what politicians are saying today about banking unions, I assume, could change within quite soon. So if you need to have a banking union, isn't Finland then the only option?
Is that a loaded question or?
That's a loaded question.
That's a loaded question. I think we'll take our time till September and actually make our decision there and then on the confidence level that we have on the options we have. I think we can do that and we can do it in an unemotional and in a pragmatic way and we will do it that way.
And then follow-up on that. When you've done the analysis now, what's the latest only view on if there will be any major cost savings or any capital arbitrage by moving away from Sweden?
I have always said that the capital we don't do capital arbitrage. I think what a banking union environment would give if that would then be because I said that's the single most, I think, important element. It's not the only element, but it is, of course, that then we get a stable, predictable environment where we have a level playing field with our European and broader peers. That is really where European Banking is taking place. Where the capital levels are, I mean, you know as well as I do, I don't know where they are and we are still not final.
You have elements out there that are still uncertain, so I will not speculate. What I want is level playing field, predictability and kind of a fairness that we operate. We have 4 home markets. All those 4 home markets are part of the single European market. And in that kind of environment, I think we should operate in an oversight and regulatory regime where the rules are predictable and the same.
And I hope that, that would be the case. I said that already when we started our branchification. I said that ideally, we should all have completely same rules wherever you are in Europe. That is actually, I think, the whole principle of the single market in goods and services that has been the whole principle of. And I think we see more Europe today.
I mean, we live in a this is not about Nordea now only. This is about a lot of change taking place on the European scene with Brexit taking place and so on. And in that world, we need stability and predictability.
Peter?
Thank you, Rodney. I'd like to come back to the cost guidance just to make it clear, if I understand you correctly, that the reason for raising cost guidance, could that essentially just be summed up by timing and front loading and the review of domiciles? So removing those two aspects, you would stick to your previous guidance.
Now when you say that I haven't made that kind of calculation, but you're probably that far off the truth. But I mean, I could probably agree with that, at least in large to a large extent, yes.
Okay. And then something you mentioned in your presentation that you would expect a more broad based credit demand to show from corporate. Is that something you're really kind of seeing in the books that will probably be visible from Q3? Or is it more based on leading indicators? I think
we see some in some markets already and particularly in the in our Corporate Business Banking side, more than in the large corporate. I think what has we have not really seen is the kind of the large corporate that much kind of volume growth or actually demand, I would expect some of it, but there may be different dynamics playing in as well. I mean, we are again, my geopolitical risk that is out there with different supply chains in the world, globalization, etcetera. So there may be a little bit different dynamic playing, but you would expect that when you have a synchronized growth picture in the Nordics that that also would somehow reflect more in demand. But again, I've always said we don't we run the bank in a sense that we don't set our plans that are predicated that, that growth has to come.
We will be able to operate and we've shown that we've been able to operate kind of without it.
So the final question for Kasper from Jan, please.
Jan Wolter, Kerst Viss. So yes, I think the redomicile is a big question. So I apologize for keeping you on that subject. But if we go 1 month or 2 months or 3 months or maybe even 6 months into the future, So the board will still have to take a decision on a view whether or not, for example, Denmark will join the banking union or not and not a fact, right? So that's my first question.
The Board still has to make that decision whether or not to redomicile to Finland, Denmark or stay in Sweden on a view whether or not Denmark will join. You don't expect to get clarity and that as a fact, I guess. Is that a fair sort of summary how the Board will have to
Let me answer it in a way that when we make whatever business decision that would be, be it acquisition, a merger, not that we have any merger, but acquisition, investment decisions, they are all based on lots of facts and assumptions that we and those assumptions, of course, you weigh probability. There is no difference here. That's the way you make the business decisions and you make them unemotionally, you base them on the fact and you do as good an analysis as possible. And then, of course, every decision has assumptions as part of a decision and this probably is no different. As long as you do thorough work, you do it unemotionally and you do it in the best interest of, in this case, the bank, the company.
On that note, we thank Casper for this Q and A. Thanks very much for coming. And those journalists now like to have individual interviews with Casper. Please follow our media presence here. And the rest of you are welcome to stay.
And then Thorsten Haggen our Deputy CEO and COO will come on stage. And then there will also be opportunities for telephone questions from the audience. Thank you, Kasper. Okay. Thank you.
So if we start here in the room with Nikolas followed by Mats.
Thank you. Nicolas Meikbes, DNB. First, a question on the net interest income development here in the quarter and starting off with if you can go through the bit of the margin development, starting with Sweden, in particular in Swedish Banking, there was an NII decline and you said that there's impact from lower margins here in the quarter. That stands quite in contrast to what the peers have been reporting today on the Swedish retail and mortgage side. If you could start with that and then possibly add some color also on the margin development you're seeing in the other Nordic countries?
Yes. We can come to Sweden also. I think in general, what we have discussed also earlier is that I think we have been pretty aggressive on repricing on mortgages. And I think that the market increasingly is not inviting for that because you get really punished on your volume to a degree that I think is not really sustainable. We have in specifically and in Sweden seen that the increased funding cost has not kind of we have not taken our full share of that.
We have a relatively good growth in Swedish mortgages as more as the best place in the Nordic currently. So, we still have the best growth in Sweden. I don't think we are gaining market share in Sweden, but we have had a period of significant repricing and I think we are retracting a little bit. So, I think in general, if you look on mortgage margins, Sweden, Denmark, Finland, I mean basically across the markets, I don't think you should expect more from here, from this level. I think, in general, the levels are okay.
I don't think you should expect a lot of growth higher. You can rather say our strategy now is to neutralize normalize or neutralize the development. So not a lot of margin improvements, not a lot of additional growth, I think. We are concerned about the growth in certain areas, also in real estate prices and so on. So, I don't think we are ready to do much more in either ways, you can say.
So that's how I see the market side. So there will be growth in some of the markets and the growth is picking up as much as we have expected in Denmark and Finland. I think it will come slightly down in Norway and Sweden. So relatively modest expectations from the market side for the rest of the year. If we are talking NIM on the corporate side, I think as Kasper alluded to, I think we have had quite a period of volume decreases.
I think on the positive side is that if you look on the total corporate book looking forward, I'm not sure we will see a lot of growth, but I don't think we will see a decrease anymore. So I think we have come to a point where the corporate book will either be flat or start to increase slightly. And it will go, I think, with small improvements in margins looking into the rest of the year. So, a mixed picture, but on the corporate side, I think soon to turn into slightly positive, I. E, no drag from volumes anymore.
And I think the picture is fairly the same for the markets. There's more nuances, of course. And we have also seen deposit margin increasing consecutively, and I still think we will see that with unchanged rates, based on rates unchanged. Norway have been the best up until now, but I think most markets will now flatten somewhat. So not so much to expect from NII, but of course, again, year over year, it will be a slightly positive effect.
And for Sweden specifically, please remember that we had actually €3,000,000 year to date adjustment of the resolution fees that impacted the Personal Banking Sweden.
And on the maybe just on the comment of NII, I'm remembering the point Casper Triedrum made on Q2 being a tricky quarter. We were actually hit by a number of different elements that I would say is close to non recurring. And we have a number of periodization issues and we have a number of type of one offs. On NII, I would say it would equal to around €25,000,000 So I would say the right number looking into Q3 would be somewhat like €25,000,000 higher. And if we take them kind of, I would say, we have periodization issues on NIFI and commission income in the magnitude of 15.
On cost, we have had a number of elements and maybe we can take that upfront. First of all, we had around €30,000,000 I would call type of one off or non recurrent. Some of them was slightly expected, some of them not. Around 15 relates to Luxembourg to certain type of IT projects and certain compliance related matters and the other around 15 relates to a closure of a big mandatory IT project run by wholesale Banking. On top of that, I think we have discussed very much our costs related to group projects and compliance and risk and I think the total cost was €149,000,000 just in Q2.
This is my personal observation about what was expected and not because we have not discussed it with you, but Maria. When I look into the number, I would say, especially around the group projects, which is a majority of the 149,000,000, I would probably have expected us to be around 15,000,000 lower at this point in time. 2017 is the peak year for group projects. And as Kasper said, one should always be careful because there is, of course, always some volatility. But I think, for sure, Q2 seems to mark a turning point in terms of absolute costs.
So I think for a foreseeable future, I think we will see a downward trend from this level, of course, with some volatility, but the trend will clearly be downward from here. That will be driven by the group projects gradually coming down. Investments in compliance and risk function has kind of also peaked. There will be some full year effects, but basically the ramp up has more or less come to an end. Other type of heavy investments, actually not in the co banking program because that runs exactly on budget to the question before, but we have also had significant investments in other type of projects like mobile bank, PSD2 related open banking platform, cyber, information security, etcetera, and they are have also had a high level.
Some of that will continue. So, when you look on the numbers and then finally, by the way, I think we had €25,000,000 in tax, right? That was a periodization effect. So if you sum some of these one off nonrecurrent type of elements, it could actually come close to €100,000,000 which partly explain why Q2 ended up being slightly more negative than I think we have ourselves expected because some of this was not expected. And looking into the guidance, yes, but I think as we discussed last quarter and actually the quarter before, we have not done many of these group projects before.
And remember, not only do we do the same programs to anyone else like MiFID, like PSD2, like RADA, etcetera, but on top of that, we do a huge co replacement program, huge investments in the payment side, huge investments in the mobile side. And you all know that our complexity is slightly higher than the average Nordic bank. So, there is an element of front loading in many of these investments because the foundational layers or the integration layers you need to build before you really start rolling out products is a heavy investment. Effort wise, I would say we are more than halfway through all of the investments, right? So we have done a lot of all the foundational investments in many of these projects.
And that is often where a lot of the risks are sitting. So a big part of the risk is taken out. And that's also why we dare being relatively confident when we talk about the cost guidance. And I know we have maybe disappointed you somewhat, but in all honesty, the level of investments happening in Nordea is second to no bank in Europe. So, we are managing an investment budget that are on sites on banks 4 times bigger than Nordea and we do it more or less at budget and then you sometimes have a miss of €15,000,000 €20,000,000 So please remember the context.
So it's an enormous change in transformation program we are running on top of what you can say normal banks or what banks normally are running at the moment. Well, now I entered into a long speech. I actually completely forgotten where I came from. But anyway, important messages. Thank you, Guilherme.
And now Interkos, just a follow-up on that one as well. I appreciate that there are some front loading and some costs that will taper off in the second half of this year. But still it seems like you're saying that there is some high cost level in the group projects that you compared to what you expected previously. So with that in mind, how confident are you that the cost guidance or flat cost for 2018 versus 2016 will still be accomplished?
Yes, but I'm confident because the 2018 target has been, you can say, the hard target internally, while the 2017 has been seen as more of where we have the highest risk, right, because you have a lot of the ramp up, you have a lot of the scoping and mapping of many of the initiatives also happening. You have foundational investments are tough because that is where you handle the complexity. When you have done that, it's just big efforts. So a lot of the rollout now is of course a massive effort to start rolling out the products on the co banking part, but a lot of the risk has been taken out and a lot of uncertainty, thereby, has been reduced. And while we are investing a lot of money in building new, we are of course also keen on securing that.
We always have a strong pipeline of initiatives that takes down cost. So, the underlying cost and then much more in control, you can say that the swing factor is around the massive group projects of which also had a lot of capitalized price. So the activity level is much higher than reflected in the P and L, of course. So we are talking about, you can say, the investment budget is twice the size of normal. So it's not around €400,000,000 €500,000,000 it's closer to €1,000,000,000 And that is, of course, that's of course a signal of the activity level.
But I would say the risk is coming down. 2017 has been seen as the kind of the residual. 2018 is seen as a hard target. The necessary programs to deliver is ramping up. We have some and we are ramping up new.
So I'm relatively confident, of course. No one can give guarantees, but I'm relatively more confident on 2018. And I think we have always said that 2017 is a little special year. Remembering also in the guidance now, we are including the reason for the range is also that as we are now to take a decision in September, we might expect we already have some costs related to domicile and there will be more if and when we decide in September or we will decide in the September, but based a little on the decision that will be cost associated to that. That's also some of the reason for the range of on the cost guidance now, which was not foreseen, of course, when we started the year.
So Mats followed by Jens and then we go to the telephone conference.
Yes, good morning. Mats here, Radnoria. Terribly sorry to go back to the relocation question again. If you can just update me on the technicals, you previously said like 6 to 9 months would be the time horizon. If you decide to stay in Sweden in September and then the Swedish government comes out with something terrible next spring.
Could you still, I mean, tear that decision up in next summer and still manage to get out before 2019? Or have you done some of the groundwork in terms of shortening the time horizon?
Oh, yes. And I think, again, here I understand you that you are impatient and don't understand we are not ready to take a decision. This started somewhat we started somewhat unprepared. It's a massive undertaking. Legal due diligence, operational due diligence, financial due diligence, political due diligence, and I mean, we have not it's not that many months ago.
And this is a decision for the future. I mean we are not going to decide domiciles kind of every second year. So, this is kind of for the rest of our life until something really fundamentally different should happen. So, I think you have to understand that the number of issues that, of course, you want to investigate further. Then to Casper's point, we can continue to have unclarity forever because if you look on the list of issues, you will never have full certainty.
And who knows what happens in 1, 2, 3 years. So, the exercise is partly huge and comprehensive and partly has to build on some kind of assessment because as this is a future that reach out 15, 20, 25 years. And you can imagine if we were to do the exercise 2 years from now, yes, then it would look slightly different. So, all of this is what I think we have to have respect for when taking this decision. It's a big decision for Nordea.
But we don't want to live in uncertainty. So we have kind of also set a hard deadline for ourselves that September has to be the decision point because you can continue forever elaborating on this topic. And a lot of work is going into planning for this. It will be a tight schedule to do it within 6 months, 9 months, but that is still the kind of the type of frame we are talking about that we will need probably 9 months after decision. Okay.
Thank you.
Jens?
Thanks. So first of all, we might be a bit picky, but when it comes back to the cost side, front loading to me sounds like you're taking costs now that you won't be taking in the future but you're sort of keeping your 2018 cost guidance the same. Are you taking costs from 'nineteen, 'twenty or is it actually more of a cost overrun perhaps?
I think that when you start looking into matters like compliance and IT resilience And you remember how regulatory requirements has been a somewhat drift in the threshold for that. And the same goes, if you look into the digital world, the threshold for what is required technology wise or data wise or cybersecurity wise for a big bank. So I think what have happened when we have started this is when you look into the 2 key drivers that will impact future banking, you realize that as we are now anyway looking into each application, into each interface, into each data source model, into whatever, Why are we going only for minimum viable when we know I mean, you don't need to look many years ahead and then you can say, okay, but this level yes, it is fit for purpose right now, but not for where we think the threshold will be just 5 years from now. And that is what have happened and this is the kind of understanding we have been asking for a while that we are undertaking so major transformational matters and when you then start looking really into it and you start your mapping the exercise, then of course you start asking these questions to yourself because then but because coming back and redo in 5 years.
Also realize and we have asked for patience because it is a tedious exercise and you can get a little fatigue because every time you look of course and you ask the question, the question always is, you should the requirements probably would be even higher because data and technology is a core capability of the future, no doubt. And not only do we need to fix it, the old legacy, but the new thing you want to build, you can there's a big range you can decide upon, and we are not trying to go play with everything because that, of course, gets excessively expensive. But on that scale, we have clearly moved up compared to basically where we started, you can say. So that is and that could be I mean, you can spend as much money as you would like. So this is really a complicated exercise of finding the right spot because with IT, you can spend 1,000,000,000 and that's what I mean by the gold plating.
So, we're not trying to gold plate, but we are clearly moving up our ambitions and that has been a little of a moving target, you can say. So, that is in reality what is happening and it's happening in many dimensions.
Thanks. And then just a question on capital. And Kasper was saying that you believe the requirements will now be fairly stable. You're at the upper end or above you at the upper end of your management buffer. Have you got some more clarity in terms of what you wanted to do in terms of distribution via buybacks, special dividends?
Or is it too much of a gray zone still with Basel IV coming up maybe in a few years' time, etcetera?
I think for the first time in many years, if we look from a perspective of the requirements set by our local regulators that we have more certainty and more stability than for a long time if we look on SREP or capital requirements per se. So I think the around 17.5% capital requirement seems to be relatively solid to expect also by the end of the year. So it gives us we don't need to be as worried as we have normally been on handling SREP requirements, additional requirements. I think, Basel is it's hard, right, because it would be beneficial if we could get a clear decision there also. I don't know.
I have lost kind of I don't know where they will make a final decision. It will be super helpful also from repricing point of view and from planning point of view in many dimensions that we could get some clearer. I don't see any reason I mean, I think we have decided a good dividend policy. So, it gives us sufficient flexibility. We are pretty confident that we can deliver on our dividend policy for this year as the capital outlook is looking.
So not only do we have, I think, relatively stable capital requirement outlook, I think also we are slightly more positive on the PD ADF implementation in Pillar 1, where we have talked about a net negative effect. It doesn't look as bad anymore. Then, of course, in Q4, to deliver on the dividend policy, we will have to top off quite a lot on dividends, so there will be an impact there, of course. But underlying capital looks pretty positive. But how much we then step up on dividend?
That's, of course, not something we will decide now.
Please remember, the 19.2 percent, then we have accrued 70% of the profit for dividend. And that means that for the 1st 6 months have annualized have accrued €27,000,000 approximately. And obviously, our dividend policy says something else. So you have to take into account for every cent we need to accrue more, EUR0.01 we need to accrue more that takes out some 3 basis points. So just when you do the math, please remember that.
Okay.
Do
The first one is on the fee income and the Asset Management business, where I see that flows and net money growth remained quite low compared to what we've seen in the past and your guidance is as well. So when do you think that or when do you expect a little bit more flows to come? Can we think about the end of the year? Or the initiatives that you've taken will fit through the next years?
Yes, it's a good question of course. I mean we are relatively confident that we will reach a level of 4%, 5% annualized inflow. When exactly it will happen is a good question. I think we have a pretty good pipeline also of both existing and new products and quite a lot of investments are going into building more. So, the development we have seen, I see no reason for that not to continue, so that we gradually build a strong pipeline again and we'll get back to that level.
I'm not sure it's realistic to expect it by the end of the year, but I mean, we have pretty positive expectations for this growth also in 2018. So, let's see how we come into 2018.
All right. Thank you.
And the second question is also a
follow-up on costs again. So the delta between the 2% 5% growth is quite a large range. So is this delta corresponding to the cost you would incur if you change domicile? Is there anything else?
Part of the reason for the I mean, you could have made the range slightly less wide if we had not had the domicile question ahead of us. So, that's part of the explanation because there is quite a lot of additional efforts to be made. So that's part of it. Part of it is also just realizing that as we have as you have all pointed out, it is with an element of uncertainty. It has been with an element of uncertainty up until now.
And now we don't want to disappoint you again. Oh, well, let's do it now then and talk about a range where we feel comfortable that gives us enough flexibility to be within that.
And the base is the clean costs of 2016 of 4,886,000,000? So we're moving the positive one off?
Yes, I think that we will probably also incur domicile cost in 'eighteen. And I don't think we have even discussed whether or not that is included or not in the original flat target, but that
No, but I think what is your question was
No, just about the base.
Yes, the baseline. That is on the reported cost either for the €800,000,000 That's the baseline.
Okay. Thank you. And the final question I have is just on loan loss provision where I understood your more positive guidance. Do we talk about an undershooting of provisions or something more in line with the 10 basis points that you had in the
past? But if second half year needs to come in below, then of course, you can start calculating. I mean, the short story here is that we are more or less work all our way through the troubled portfolio, I. E. The shipping and offshore portfolio.
We are more or less restructuring the majority of it now. So risk has come down significantly and that is what we are trying to portray. The rest of the portfolio looks pretty solid and stable. So, it's hard to be really concerned, I would argue. And then, of course, the number will yes, it will be lower, but
I mean, if you look at the situation in this quarter, we had a very, very few number of exposures. We had basically one in It's a housing and durables. We had 4 in wholesale banking. We had 1 in Russia. We had some in Denmark related to house prices.
So they are very, very concentrated. So the quality of the book looks very strong.
Okay. Thank you very much.
Any more questions from the telephone conference?
We'll now take our next question from Riccardo Rovere from Mediobanca.
Yes, good morning. Good morning to everybody. Two questions, if I may. The first one is, it's not clear to me the amount of one off that you mentioned, if any, in NII and in cost in the second quarter. So if you can just clarify that.
I understood something like €15,000,000 related to the termination of a mandatory IT contract, but not sure I got it correctly. The second question I have is on sorry to get back on the headquarter move. Have you kind of I would imagine, yes, have you started talking eventually with the ECB or the Danish FSA? Do you have an idea how long would it take for them to give you a brand new swap ratio? And have you had any discussion with them on how they would eventually treat your risk weighted assets, which remain well below European average, at least in the euro area?
Thanks.
Yes. On the first, I think I can confirm that I think for understanding the current costs and NII, I mean, I think we could we talk about €25,000,000 on NII that are nonrecurring and therefore you can say you could enjoy it for. I think we are coming with a new and higher guidance of course, but there was an element of €30,000,000 which you rightfully understood that are nonrecurring. So just to indicate that the run rate is not as bad as it looks, you can say, the underlying run rate. On the question around capital, but and I assume it's a domicile related one, I assume, but I mean, please understand that we have now communicated a clear indication that banking unit is much preferred.
The kind of conversation you have is on different levels and until you make a clear application, of course, you will get into another type of discussion. So, that's part of the exercise now is of course assessing based on the information we have and the moment we have made more decision and made more formal applications, then of course you will enter another level of discussion. So there will be an element of uncertainty and assessment included, not knowing exactly what the kind of how any transition requirements will look like and the period and so on. So we have to more or less assess on information that you also have. Of course, we have had dialogues, but the kind of questions you referred to that probably requires a more formal application and a more formal process to be able to answer fully.
Yes, yes. Okay. I understand. I understand. Just to get back on the first question.
It's €25,000,000 NII €30,000,000 on cost. Is that correct?
Yes.
Okay. Thanks.
Okay. Let's go back to the audience here. Jaeme Magnus or Andreas, you choose. And then followed by PDK.
Okay. Thank you. Just a few follow ups. Just on these periodization issues, are they anywhere else in NII but in Wholesale Banking
other? No, that was a fee. That's on the fee side. Yes. There's 15 in fees in Wholesale Banking.
Yes.
And then it's 10 on the NII, right?
No, €25,000,000 €25,000,000 in total. Okay. No, €25,000,000 on NII in total, yes, and €15,000,000 in fees.
Okay. Thanks. And doesn't that mean that Q1 was stronger? Yes. Yes, okay.
Thanks.
And look at the first half of
the year. You should look at them both together, the first half ton, to get the correct run rate. Okay. And just how much costs have you taken for the domicile review so far? Is it significant?
I mean, you mean up until now or Yes, up until now. No, but that's still not a significant number as a lot of you can say, well, it's hard to calculate. There's a lot of internal resources. And of course, we have I don't think we have even seen the full invoices yet. We have had a number of people helping us, but I still think that is not the main driver yet for the cost run rate, you can say.
And just a follow-up on if I asked a question like this, are you as comfortable today with the 2018 guidance on costs as you were 6 months ago?
I'm probably slightly more confident than I was 6 months ago because I back to the point that a lot of the things we are doing, we have not done before or actually no bank have done before. So, of course, that is why I have I think we have indicated that 2017 was that was the tricky year and that's why we have always there being a bit more tough on the 2018 because 2017 was the and as I said, much of the costs are peaking now also in the project. So, as we have now moved our way into that and know more and are capable of scoping more concretely and we have executed a lot of these foundational efforts. I would say that what I try to do, the risk has come down slightly. So, I would say on balance and then I think we have ramped up quite a good pipeline of cost mitigation type of activities and new ones that we hopefully will be start executing in the autumn that will have effect in 2018.
So yes, I would on balance, I would say I'm more confident now than 6 months ago.
Okay. And just finally on capital, are you prepared to say anything about the potential impact from IFRS 9?
Well, I think we have said before that, that is most likely in the insignificant type of area.
Okay. Thank you.
So, we're still not sleepless about it.
It's Andreas from Exane again. Coming back to a few follow ups. Just on cost for 2018, you were talking quickly about it, but I don't think you was clear that. Is that 2018 target including a potential move?
But it's
what is a lot of money?
Well, your guidance for this year increased by 1 percentage point. You said that the move was a part of it. So, is it 1 percentage point to 'eighteen we should think about?
It depends. I mean, if we when we now take a decision in September, I would expect us to ramp up fast. I think we are talking about less than 1%.
Okay, fine.
And I don't think we have fully included because the original target, of course, was set before. So, maybe we can say more about that in Q3 because there we will also be ready to talk much more about the kind of pipeline of plans we now have for doing more on mitigating costs, right? So maybe if we can postpone that kind of final decision on that 2/23.
Then on NII, I mean, the first half of NII is annualizing roughly in the same level as 2016. I think you sound more cautious on volumes and more cautious on margins today than you did in Q1. So is flat NII from last year now the best outlook?
Are you meaning to
For this year, full year compared to 2016?
No, I still think we will have NII slightly up this year compared to 'sixteen. If I look, yes.
Okay. Slightly up.
Slightly up, yes.
And then last, just quickly on the coverage ratio, fell 4 percentage points. And that one big provision charge you took this I would think about 1 big Norwegian. You must have classified as NPL before. So what are the drivers? Is it shipping or is it other sectors?
No, it is 2 exposures, 1 within what we define as consumer durables and the other one is within oil and offshore.
Any view on how low your coverage ratio, you're happy to bring it below 40% as it fell 4 percentage points in the quarter?
I mean, if you look at the whole movement this quarter, it basically came from these 2 who were covered with collaterals. So the coverage ratio for those 2 were very low compared to the average. So I mean it very much depends on what's happening going forward and what kind of loans we are impairing, but we are very confident that these two coverage are enough. Thanks. Peter K.
Yes. Thanks. Peter K. From SEB. A few questions from my side.
First of all, on NII with treasury has been strong a few quarters ago and then declining sequentially the last two quarters. Could you just give a comment on your outlook there, what your expectations are?
No, I think this was a I mean, if Q1 was a really strong one, then Q2 was a weak one. So I think for forecast purpose, something more in between.
Okay. So, it could potentially rebound in Q3?
But you know how it is with treasury, but I mean I think I cannot comment much closer. It was very strong and then it was not so strong. So I think they can do better kind of if you look into I don't think you can use Q2 as the base for forecasting. I would use something slightly higher.
Okay. Then in terms of on the trading line, you commented that with an offshore restructurings impacted the customer activity negatively. Is there any communication between the net gains and losses line and the low loan losses that we're seeing in the quarter that perhaps basis swaps settled the impact negatively on the income side, which mitigated some uptick on the loan loss side. Is there any communication there?
Yes. If you look at the business unit shipping oil and offshore, if you look at the net fair value result, it was minus 37 and usually that is a plus, not much, but 5.10. So the reason it's negative now is because of debt restructuring or customer exposure. So coming back to the temporary headwinds, you have that as well in net fair value and that relates to debt restructuring. So you can say from a theoretical IFRS perspective, it is definitely a net fair value result, but you can include that in the restructuring of customer exposures.
Okay.
Very clear. Then just on Russia, when you had your business area there in London, Martin Paschen, Head of Wholesale Banking mentioned that the Russian operations should be largely flat going forward in terms of loan book, but was down roughly 14% sequentially now in the quarter. What kind of levels should we be expecting going forward and will that be a drag on NII going forward as well?
Not as much as I think indicated by the Q2 number. So I think that was again a you should probably use a slightly higher for forecast purposes.
Okay. Thank you.
But the strategy in Russia is still that we are focusing on the Nordic customers acting in Russia. And that means that it could be slightly lower than today, but we're not talking big volumes.
Yes, volume wise, but I mean for NII purpose, I think the number is slightly you should not use Q240 as the baseline.
Do we have any more questions from the telephone conference?
Yes. We'll have a question from Rajesh Kumar from Societe Generale. Please go ahead.
Hi, good morning all. Thanks for taking my question. Rajesh from Societe and Credit Research. Can I get some more color on your funding plan? Do you intend to issue any sub debt in rest of 2017 or say H1 'eighteen?
And what about senior? I mean, you have a large maturity coming up in October. So fair to say you will look to refinance that? And finally, on any update on nonpreferred senior? Where are we on timing wise?
These are my questions.
No. But I think that if you look kind of without being too specific on timing of any issuance, then if you look ahead, you can say in general, we don't have a lot of I mean, of course, we have a refinancing need, but we don't have a lot of net new funding needs if you look ahead as volume is still looking very low volume growth. We might over the next kind of 18 months need to do a little 81. We will not need to do a lot of classical senior unsecured, but of course, we will gradually move into replacing some of the senior Skrull with the non preferred, at least as it looks now. And nothing of it is dramatic.
So if anything, I think we will continue to see for quite some while, I mean, the cost of funds in general coming down. So from a funding perspective, I don't think there's any big issues out there to highlight actually.
Okay. That's very clear. Thank you.
Any more questions from the telephone?
Yes. We'll now take our next question from Karim Bertoni from Bellevue Asset Management.
Yes. Good morning. Thank you for taking my question. My question relates to costs. And I understand that currently, you have potentially some IT project, but also some, let's say, more labor intensive projects working at the same time to be to enable you to be in compliance and to improve your compliance system, etcetera.
You gave us a view on 2018 with cost unchanged compared to 2016. But I'd like to understand if we could imagine that going forward, as you replace more, let's say, labor by capital or IT, if you want, we could expect further decrease in costs and at the same time, having the automatic compliance system working on decreasing your costs going further?
No, but I think the transformation you are alluding to is exactly part of this discussion about how you should think about your scope of your investments because ultimately, of course, a lot of current operational tasks, whether or not they're sitting in KYC work or transaction monitoring or section screening or PIP or what have you work or it's in normal operations, I think we will see a dramatic change over the next 5 years where these processes will either be moved to our operation centers outside the Nordic or will be fully automated or roboticized or whatever you will call it. So you will see a I think you over the next 5 years will see a dramatic change from, you can say, classical staff cost, especially on the operational side to partly replaced by higher technology cost, but net of this, of course, a far more efficient operation of a bank. What the net effect will be, that is exactly what we will try to come back and say more of in Q3. But this is part of the preparations and planning we are doing now. So I think you're right.
Directionally, that is what we will see a lot of more of.
Okay. Thanks very much.
Any more from the telephone conference?
Yes. We'll now take our next question from Yaffi Tan from Citigroup.
Hi. I have a first question is on capital. I think you mentioned that the capital requirement under your expectation for this quarter is 17.7, that is 20 bps above the estimates for Q1. What is driving this 20 bps increase? And if I understand correctly, there is still a few buffers that is currently in place for Nordea that could come down in coming quarters.
Is there an indication of the timing where we could expect that Nordea's capital requirement started to fall? That's the first question.
On the first question, I think the main driver has been that you have this effect when you we have quite a lot of Pillar 2 and when REA coming down, you have a you can say a calculation effect on your capital requirement. So it's not that I set new and higher requirements. It's a simple it's a mathematical effect you can say when RWA comes down as it does with almost CHF 4,000,000,000. On the add ons, we still do believe that we in the autumn, we'll be told that we can lift the so called branchification add on we got equivalent to around 22 basis points. But we might also but we might also expect to raise discussions on other big add ons.
I will then be more skeptical to whether or not that can we can manage to get that fully into this year's SREP, but whether or not that will be next year's SREP and that would mainly be on the governance related add on. So that I mean, at least I think we should have a scope for next year's airstrip realistically. So I think and we also have other add ons we are trying to address. But for this year, I think the expectation should be on the Brentification one, and I don't think we can expect that much more.
Thank you for that. That's very clear. And then second question is around banking union. You mentioned that this is the ultimate most important criteria for your redomicide decision. What are the benefits of banking union besides, I would say, more stable prediction of capital and all the regular changes?
The country have any discretion as to capital requirement in the banking union? And if that's the case, how do you think about it?
No, I think the banking union preference that we have come to is driven by more on if you look upon it strategically, I think Nordea's history have shown that, I mean, and the discussions that have taken place is that we are odd animal in the Nordic as we have equal sized operations in each of the 4 markets. We are domestic SIFI in each of the 4 markets. We are increasingly focusing on making one operating model. So increasingly, we internally, there is not 4 markets. There is one node there and it goes into the governance, it goes into operations and systems and the way we address the market and so on.
And I think the development will only continue. So I think that and that has basically been in the heritage of Nordea that we wanted to become this one bank across the Nordic internally and customers should of course perceive us as a local bank. But I think in general, the requirement for that is of course that we from a regulatory point of view are also then you can say, ideally is treated with one point of contact. And resolution wise, you can also argue that Nordea has become so big that for any single market in the Nordic, I think the discussions and you can listen to all the central banks, there is a concern about resolution when you add the full Nordea balance sheet to any individual country. So I think we have more from a strategic perspective come to the conclusion that the most relevant home for a big one bank as we have to come after the branchification is the banking union.
So it's mainly been driven from these type of considerations. And then of course, there's a number of more technical issues pertaining to moving to banking union. But that has kind of been the overall assessment. So it's to get the same kind of benefits we are looking for internally. You can say, if you look on the full value chain of what is relevant for running a big complex bank like Nordea, then expanding that, that has led us to this conclusion rather than kind of from the bottom up or technical side.
Does that answers your question?
Yes, yes, it does. It's very clear. And the last question is a clarification on the cost guidance. Can you just confirm that the 3% to 5% cost guidance does not include the cost to relocate if you do decide to relocate?
Well, if I hear you correctly, I think I need to I think the 3.25 does include the decision to redomicile. So, when we take the decision in September and we will have cost as a result of that, that will be included in the 325.
But technically, you will not move until 2018, right, even if you were to decide to move the action to move, cost related to that would more happen in 2018 rather than 2017. Is that
correct? Yes, because I think even at best 9 months is even come up is even a pretty ambitious timetable. So, it will not be if we take the decision and when we take the decision in September, it's not realistic that we will have a closure of that before sometimes into 2018. So, it will happen sometimes in 2018.
And there will be additional costs in 'eighteen related to moving, right?
That will be cost in 'seventeen and they are included in the guidance and there is cost in 'eighteen and we will come back in Q3 whether or not that's included in the flat 2016 or 2018 target. But that will be some, but they will significant. Well, that will be a decision, but we will come back with that.
Okay. So, if we go back to the room, we have from Andreas followed by Jan.
Thanks. Just a quick follow-up on the move. You say that it whatever happens, it won't happen until somewhere later on in 'eighteen. Does that mean that next year would pay the 12.5 basis points resolution fee?
No, because next year we will yes, well, but only on the Swedish exposure, yes, but only on Sweden.
A big increase will that be?
But I actually don't think net it will be an increase. I think the net resolution and deposit fees next year.
It's a 50,000,000 plus.
Oh, yes, but for
The net increase.
Yes. Okay. That will be a net increase, yes.
The net increase is roughly SEK 50,000,000. Yes. Okay. But then obviously the increase in Sweden will be a lot bigger, but then others will disappear. Jan, please?
Hi, Walter. On the NII and the one offs there, a couple of detailed questions perhaps. But when you say that you have NOK 25,000,000 or so in one offs in Q2, so does that mean that we should adjust the Q3 NII up with that amount roughly, so everything else equal? We should add them back, right? That's the way we should look at it.
I will say the starting point is SEK 25,000,000 higher, yes.
Thank you. And then on the funding cost and NSFR, would you expect funding costs to come down in the second half, amped by lower NSFR or expensive maturities which are refinanced with cheaper wholesale debt or deposits? So how do you view the funding cost half on half, so to speak? Thank you.
Then I can't recall. But I think that was continued to come down somewhat in the second half. And you're right that NSFR is not driving up costs. I think we have not disclosed other than we are clearly compliant with NSFR already now. So it gives room for optimizing, you can say, and it still does.
Thanks. And on the SREP, I believe, if I remember correctly, you did get that letter in July last year. Have you gotten the shop already now? So you know whether or not the Pillar 2 buffer for the branchification, if that goes out or not, but you will not talk about it until later. Is that the way?
We have received the draft letter, which we cannot draw any conclusions before sometimes in October. But it could be filtered into the discussions we have had around capital and capital requirement without being too specific.
Sure. And then maybe I missed the detail, but did you say exactly how much the resolution from Delta was Q on Q? Maybe I missed that in the report.
3. We did a year to date correction in the personal bank in Sweden of €3,000,000
And that's also for the group? That's what we discussed.
More or less so, yes. So it's a small number.
Yes. Okay. Thank you.
We got a small positive year to date correction in Finland, but that was very small. Any more questions from the room?
Not more on costs.
Any more questions from the telephone conference? Yes.
We'll take our next question from Amal Shah from Redburn.
Hi, good morning. This is Amal Shah from Redburn. So if you could one on cost. So now that you're front loaded of the cost, what is the full cost of the simplification and the core banking platform programs? I think you previously mentioned it was around SEK 1,100,000,000.
And then the second question, so you mentioned you received a draft Schrep letter. Is that related to the LGD and CCF capital provisioning that you've taken? Thank you.
On the first question, yes, I can confirm the budget is still €1,100,000,000 and we are actually running slightly better than the budget. And on the second question, no, it's not related. To the SREP letter.
Okay. So, what is the reason for taking the provision then?
But that's part of the annual validation process. So that's our estimate.
That will be
back in Q3.
We'll now take the next question from Vivek Khadem from JPMorgan.
We have room for one more question. So that's going to be the final one, please.
Hi, good morning. So one quick question. You mentioned that you saw positive net rating migration in Q2 in both retail and corporate portfolio. Can you provide some more color on the geographies and industries, which were the main driver of the positive migration?
Are you on the capital side now? You're talking about rating migration in the corporate portfolio?
Yes. Yes, yes, yes.
That I actually can't recall. I think we have no, I can't recall to be honest.
Bear with me a second.
But it's actually not the capital is not so much it's true that we also have rating migration effects, but they are minor compared to some of the other effects. We have that segment, yes.
Are there any trends that you are seeing in terms of like industries or is it just
There's nothing surprising in it. So and there is nothing major I can say. So, this is not the major driver. It's true that we have some migration effects. The total migration effect on RIA is 0.4, so it's 40 basis points, I.
E. On RIA. So it's not a huge effect and it's actually mainly driven by a mix effect in the institutional portfolio and some positive yes.
Okay. Thanks. Thank you.
So that was the last question for this session. Please remember that we have an open breakfast in London tomorrow at 8 a. M. You're most welcome if you're in London. You're most welcome also if you're not in London.
That's going to be challenging. So thanks very much and don't hesitate to call us if you have any further questions. Thank you.