Dear audience in the room and on the web, welcome to this press conference where Nordea will present our second quarter result. My name is Rodney Alfvén, I'm heading up the investor relations at Nordea. We will start with a presentation and a short Q&A session with our Group CEO and President, Casper von Koskull. At 9:00 A.M., there will be possibilities with individual interviews with Casper, and Torsten Hagen Jørgensen and me will conduct the Q&A session with analysts. Casper, please.
Good morning, everybody, and welcome. Really pleased to have you all here. Second 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 synchronized growth picture in all the Nordic countries. We have actually a stable economic environment and stable backdrop. 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 second quarter. The second quarter actually comes in line with last year. When I look at the first half of this year, we're actually ahead 4% from last year. 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. 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. Particularly, I mentioned the positive economic backdrop, but I also have to highlight the fact that the geopolitical environment where we're in today, I think we can all agree, is much more volatile. I tend to use the expression, we have a good position in economic environment, but we're actually living in a geopolitical recession, and hence actually event risk on that side is quite big.
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. I'm very proud of that. 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. 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. Now we talk about really the oversight and regulatory environment.
We do not talk about country economics, because on that side, nothing will change. 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. I can say that, and then we will, of course, analyze further what we have learnt and what we will learn in the coming months, and then we will make an aim to make a decision in early September. That's where we are. If we look a little bit more in detail on the actual numbers, I already mentioned the word stable. When I look at the total revenue, actually are slightly ahead of last year. And as I said, the first half, 4% ahead of last year's first half.
It is also good to mention that we have unusually many temporary issues or headwinds in second quarter. The underlying top line actually does not reflect, I think, fully the performance in the first. I'm pleased with the first half 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 front-load our big transformation programs, group programs, which are both the system replacement but also big investments into risk and compliance. It has been the right thing to do, and we will not see the same growth in the second half.
Hence, I can today guide that the second full year 2017 will be probably 3%-5% growth. I'm pretty confident that we will have and we'll stick to 2018 will be in line with 2016. 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. Overall, credit quality is improving. The real number here when I talk about resilience, talk about the future, is our capital.
This is about capital, resilience is about capital. We now have our 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, by almost 2.5 percentage points. And I think that is really a number that 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. Overall, as I said, a positive bias also going forward on the margin side.
As we have said and as we have expected, our volume growth has been very low. I think that's something that we have said. It is not only a question of the marketplace. We have also said that we highlight the discipline on this side and really a focus on risk and profitability. 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. It's inevitable. It's actually been slower in the beginning. I do see that actually coming. We do have both in treasury and FX negatively affecting NII. I think overall, I think I'm pleased with the NII. The real driver, I think the strongest driver of our top line is net fees and commission.
Continues at a very good and high level. We actually have had growth in this on that line of 6% Q on Q. 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. The activity level is still very high. I think the testament of that is also that we have been again part of the two largest transaction as a book runner here in the Nordics. One was Ahlsell and the other one's the Munters IPO. We've been part of those. Again, testament that we are really leading in this franchise in the region.
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. You've seen this more broadly. That of course affects. 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. It actually does affect the line, particularly in the second quarter. Overall, in line with expectations. I want to particularly mention once again the asset under management.
Fourth quarter, we did not have, given the fact that we actually closed our largest fund, did a soft closing on that, which also reflect the fourth quarter. 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. Almost 90% of our composites have outperformed the benchmarks over a three-year period. Of course, that is where you provide value to our customers. That's a very important metrics that we are following. Both good inflow and good performance on that side. Cost, I have already mentioned. 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. We have actually said that this would be the case. We are front-loading that, we will start now seeing really a cost picture that will start going down. I'm convinced, we will deliver full-year cost growth below this 3%-5%, as I said. Next year we will have 2018 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 collective at two, so 13 all in all. As I already mentioned, I expect us to be below the 16 basis points 10-year average also going forward. Again, oil and offshore has been probably the one sector which has the biggest weight in the provisioning. I think it's well-provisioned and in good shape as I see it now. When we look at the capital, the two and almost two and a half, 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. I think this again, this quarter shows that. We have now a situation where we are probably at the higher end of our management buffer. That's where we should be, probably.
We are 150 basis points above the regulatory requirement. I do expect, at least what I see today, that I don't see a big change going forward in terms of the requirements. I think we have a stable picture there as well. 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. We had up and running the new bank last year. Now we have actually real deliveries in the sense of that we have now uploaded almost 4 million customers to the new system in Finland. 4 million customers is actually a midsize bank in itself. 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, will still synchronize the old and the new systems, 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. We will have big deliveries now coming late summer, early fall, and towards the rest of the year. Of course, once we start this, then we start rolling into new products and new countries, product by product, country by country. An uploading of almost 4 million 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. We are now investing and have been investing heavily. It's a lot about training people, putting new systems, taking in competencies, 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. We have invested heavily here. We'll continue to do that. 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. This device actually becomes almost your first choice for a branch. We have today roughly 40 million logins a month into our mobile bank. We have now in test a new mobile bank that we will launch in Finland later this year.
It has features that I think are pretty exciting, where you can actually get an immediate meeting, an 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. We'll launch this later this year in Finland, and then we will roll out in other. We have also upgraded our existing mobile banking platforms with better features. This is of course a bigger step, and you'll see much more of this coming, as I've said before. Another very fundamental change in our banking picture is, I've talked in the past about open banking. 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 six seats. We're also in what they call TheFactory in Oslo, both the Fintech and the Insurtech, where we have been part of their accelerator program. This is banking in the future, working in collaboration with startups, other service providers. Of course, here the main objective is to Deliver a better, faster, more interesting service to our customers. This is future banking. 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 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, Fieldstream, and these types of solutions will, again, speed up and improve customer service going forward. 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 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.
As one example of that is the green bond that we launched, the first green bond for us, a 500 million EUR green bond. This is not only about doing the right thing, this is also financially savvy because the funding cost for this green bond was actually below our senior unsecured funding cost. I think it's efficient financing, doing the right thing, and sending the right signal. I will finish with 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, Casper. We have a few minutes for Q&A. I start with Peter, Magnus, and then followed by Andreas.
Yes. Hi, good morning. Peter Kessiakoff 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.
We will get a decision during September?
I think that's what I said.
Okay. Just in terms of the cost comments that you're making and the elevated project costs that you're seeing during the quarter relating 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 of customers from the old platform to the new one, which is typically where banks see cost overruns when they're doing that step?
Not really. I wouldn't say cost overrun because we have actually deliberately front-loaded our investments. When we also invest in particularly risk and compliance, it is something that is not only in functions, it's when you actually upgrade the whole organizational level. That's a cost that we are comfortable to doing because we are actually creating a more, better, reliable, stable, and resilient bank. It is not, in that sense, an overrun. 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.
Okay, thanks.
Magnus, followed by Andreas.
Yes. Hi, Magnus Andersson at ABG. I must ask, what can possibly change in one and a half months' time over the summer period in Sweden and Denmark for you to potentially come up with another decision on the 6th of September than you could have taken today?
I think it is fair. We've done a lot of work, so we know what the key drivers are. I think these decisions and indications of some firmer decisions, some are more indications, are quite recent. 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 think this is not something you want to rush, and if anything, this has been a very speedy process anyway. I feel very comfortable that doing the right decision is more important than doing a quick decision. 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.
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. This 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 four home markets, the way we pay fees, taxes, et cetera. 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 have stepped in the potential to join the banking union, primarily very sudden in Sweden, which in my personal view sounds very unlikely?
I am not speculating on that. I think we have now all the elements. That's why 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 Håkansson from Exane BNP Paribas. Sorry, I'm going to have to come back again to the headquarter. Given that we have an election in Sweden a year's time and in Denmark within 2 years' time, and what politicians are saying today about banking unions, I assume could change quite soon. If you need to have a banking union, isn't Finland then the only option?
Is that a loaded question or?
That's the 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.
Follow up on that. When you've done the analysis now, what's the latest on a view on if there will be any major cost savings or any capital arbitrage by moving away from Sweden?
I have always said that we don't do capital arbitrage. I think what a banking union environment would give, if that would then be Because as 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, 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 fairness that we operate. We have four home markets. All those four home markets are part of the single European market.
In that kind of environment, I think we should operate in an oversight and regulatory regime where the rules are predictable and the same. 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 I think we see more Europe today. 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. In that world, we need stability and predictability.
Peter? Okay.
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, front loading and the review of domicile? Removing those two aspects, you would stick to your previous guidance.
When you say that, I haven't made that kind of calculator. You're probably not that far off the truth, but I could probably agree with that, at least to a larger extent, yes.
Okay. 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 seeing in the books that will probably be visible from Q3? Is it more based on leading indicators?
I think we see some in some markets already, particularly in our corporate business banking side, more than in the large corporate. I think what we have not really seen is the large corporate, that much volume growth or actually demand. I would expect some of it. There may be different dynamics playing in as well. Again, my geopolitical risk that is out there with different supply chains in the world, globalization, et cetera. 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. Again, I've always said 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, we've shown that we've been able to operate without it.
The final question for Casper from Jan, please.
Hi. Walter Kurtz. I think the re-domicile is a big question, apologize for keeping you on that subject. If we go one month or two month or three month or maybe even six months into the future. 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? That's my first question, the board still has to make that decision whether or not to re-domicile to Finland, Denmark or stay in Sweden on a view whether or not Denmark will join. You don't expect to get clarity on that as a fact, I guess. Is that a fair summary how the board will have to?
Let me answer it in a way that when we make business decisions, whatever business decision that would be it an acquisition, a merger. Not that we have anybody, but acquisition, investment decisions, they're all based on lots of facts and assumptions. 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 facts, and you do as good an analysis as possible. Then, of course, every
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&A. Thanks very much for coming. Those journalists who now like to have individual interviews with Casper, please follow our media persons here. The rest of you are welcome to stay. Then Torsten Hagen Jørgensen, our Deputy CEO and COO, will come on stage, and then there will also be opportunities for telephone questions from the audience. Thank you, Casper.
Yeah.
If you'd like to ask a question on the telephone, please press star one.
We'll just wait a few more seconds.
One.
Okay. Thank you. If we start here in the room with Nicolas, followed by Mats.
Thank you. Nicolas McBeath, 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, particularly in Swedish banking. There was an NII decline, and you say that there is impact from lower margins here in the quarter. That stands quite in contrast to what 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.
Yeah. 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. 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, specifically in Sweden, seen that the increased funding cost, we have not taken our full share of that. We have a relatively good growth in Swedish mortgages as well as the best place in the Nordic currently. 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.
I think in general, if you look on mortgage margins, Sweden, Denmark, Finland, 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 normalize or neutralize the development. 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. I don't think we are ready to do much more in either way, you can say. That's how I see the market side. There will be growth in some of the markets, and the growth is not picking up as much as we have expected in Denmark and Finland.
I think it will come slightly down in Norway and Sweden. 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 Casper 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. I think we have come to a point where the corporate book will either be flat or start to increase slightly. It will go, I think, with small improvements in margins looking into the rest of the year. A mixed picture, but on the corporate side, I think soon to turn into slightly positive, i.e.
no drag from volumes anymore. I think the picture is fairly the same for the markets. There are small 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. Not so much to expect from NII, but of course again, year-over-year, it will be a slightly positive effect.
For Sweden specifically, please remember that we had actually EUR 3 million year-to-date adjustment of the resolution fees that impacted the personal bank in Sweden.
Maybe just on the comment of NII, I'm remembering the point that Casper tried to make 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 on NII. We have a number of periodization issues, and we have a number of type of one-offs. On NII, I would say it would equals around EUR 25 million. I would say the right number looking into Q3 would be somewhat like EUR 25 million higher. If we take them, I would say we have periodization issues on net fee and commission income in the making quarter '15. On cost, we have had a number of elements, maybe we can take that up front. First of all, we had around EUR 30 million, I would call type of one-off or non-recurrent.
Some of them was slightly expected, some of them not. Around EUR 15 relates to Luxembourg, to certain type of IT projects and certain compliance related matters, and the other around EUR 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, I think the total cost was EUR 149 million just in Q2. This is my personal observation about what was expected or not, because we have not discussed it with you. When I look into the number, I would say, especially around the group projects, which is a majority of the EUR 149 million, I would probably have expected us to be around EUR 15 million lower at this point in time. 2017 is the peak year for group projects.
As Casper 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. I think for the 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 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 core banking program because that runs exactly on budget to the question before.
We have also had significant investments in other type of projects like mobile bank, PSD2-related open banking platform, cyber, information security, et cetera, they have also had a high level. Some of that will continue. When you look on the numbers, then finally, by the way, I think we had EUR 25 million in tax, right? That was a periodization effect. If you sum some of these one-off non-recurrent type of elements, you can actually come close to EUR 100 million, which partly explain why Q2 ended up being slightly more negative than I think we have ourself expected. Because some of this was not expected. Looking into the guidance. I think as we discussed last quarter and actually the quarter before, we have not done many of these group projects before.
Remember, not only do we do the same programs anyone else, like MiFID, like PSD2, like RADAR, et cetera. On top of that, we do a huge core replacement program, huge investments in the payment side, huge investments in the mobile side. You all know that our complexity is slightly higher than the average Nordic bank. 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? We have done all the foundational investments in many of these projects. That is often where a lot of the risk are sitting. A big part of the risk is taken out.
That's also why we dare being relatively confident when we talk about the cost guidance. I know we have maybe disappointed you somewhat, in all honesty, the level of investments happening in Nordea is second to no bank in Europe. We are managing an investment budget that are in size on banks four times bigger than Nordea, and we do it more or less at budget. Then you sometimes have a miss of EUR 15 million, EUR 20 million. Please remember the context. 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. Yeah, now I entered into a long speech. I actually have completely forgotten where I came from. Anyway, important messages.
[inaudible] to follow up on that one as well. I appreciate that there are some front-loading and some cost that will taper off in the second half of this year. Still, it seems like you're saying that there is some high cost level in the group projects compared to what you expected previously. With that in mind, how confident are you that the cost guidance of flat cost for 2018 versus 2016 will still be accomplished?
Yeah, I'm confident because the 2018 target has been, you can say, the hard target internally, where 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. Foundational investments are tough because that is where you handle the complexity. When you have done that, it's just big efforts. A lot of the rollout now is, of course, a massive effort to start rolling out the products on the core banking part. A lot of the risk has been taken out, and a lot of uncertainty thereby has been reduced.
While we are investing a lot of money in building new, we of course also are keen on securing that we always have a strong pipeline of initiatives that takes down cost. The underlying cost is much more in control, you can say. The swing factor is around the massive group projects, of which also a lot of capitalized. The activity level is much higher than reflected in the P&L, of course. We are talking about, you can say, the investment budget is twice the size of normal, so it's not around 400 or 500, it's closer to EUR 1 billion. That's of course, a signal of the activity level. I would say the risk is coming down. 2017 has been seen as the residual. 2018 is seen as a hard target. The necessary programs to deliver is ramping up.
We have some, we are ramping up new. I'm relatively confident, of course. No one can give guarantees, I'm relatively more confident on 2018. 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 already have some costs related to domicile, and there will be more if and when we decide in September, or we will decide in September, but based a little on the decision, there will be cost associated to that. That's also some of the reason for the range on the cost guidance now, which was not foreseen, of course, when we started the year.
Thanks.
Mats, followed by Jens, then we go to the telephone conference.
Yes. Good morning. Mats, Nordea. Terribly sorry to go back to the relocation question again. If you can just update me on the technicals. You previously said six to nine months would be the time horizon. If you decide to stay in Sweden in September, then the Swedish government comes out with something terrible next spring, could you still tear that decision up in next summer and still manage to get out before 2019? Have you done some of the groundwork in terms of shortening the time horizon?
Oh, yes. I think, again, here, I understand that you are impatient and don't understand we are not ready to take a decision. We started somewhat unprepared. It is a massive undertaking. Legal due diligence, operational due diligence, financial due diligence, political due diligence. It is not that many months ago, this is a decision for the future. We are not going to decide domicile every second year. This is for the rest of our life until something really fundamentally different should happen. I think you have to understand that the number of issues that, of course, you want to investigate further. 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 one, two, three years.
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. You can imagine if we were to do the exercise two years from now, then it would look slightly different. All of this is what I think we have to have respect for when taking this decision. It is a big decision for Nordea. We don't want to live in uncertainty, so we have also set a hard deadline for ourselves that September has to be the decision point, because you can continue forever elaborating on this topic. A lot of work is going into planning for this.
It will be a tight schedule to do it within six, nine months, but that is still the type of frame we are talking about, that we will need probably nine months after a decision.
Okay. Thank you.
Jens.
Thanks. First of all, it 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-
That's true
2018 cost guidance the same. Are you taking costs from 2019, 2020, 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. 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. I think what have happened when we have started this is, when you look into the two 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. You don't need to look many years ahead, and then you can say, "Okay, but this level." Yeah.
It is fit for purpose right now, but not for where we think the threshold will be just five years from now. That is what has happened. This is the kind of understanding we have been asking for a while, that we are undertaking some major transformational matters. 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. Coming back and redo in five years. We 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, the requirement's probably even higher. Because data and technology is a core capability of the future, no doubt.
Not only do we need to fix the old legacy, but the new thing you want to build. There's a big range you can decide upon, and we are not trying to gold plate everything because that, of course, gets excessively expensive. On that scale, we have clearly moved up compared to basically where we started, you can say. You can spend as much money as you would like. This is really a complicated exercise of finding the right spot, because with IT, you can spend billions, and that's what I mean by the gold plating. We're not trying to gold plate, but we are clearly moving up our ambitions. That has been a little of a moving target, you can say. That is relatively what is happening, and it's happening in many dimensions.
Okay, thanks. Then just a question on capital. Casper was saying that you believe the requirements will now be fairly stable. You're at the upper end or above the upper end of your management buffer. Have you got some more clarity in terms of what you want 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, et cetera?
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. I think the around 17.5% capital requirement seems to be relatively solid to expect also by the end of the year. We don't need to be as worried as we have normally been on handling SREP requirements, additional requirements. I think Basel is hard because it would be beneficial if we could get a clear decision there also. I don't know. I have lost I don't know when they will make a final decision. It would 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 think we have decided a good dividend policy, 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. Not only do we have, I think, relatively stable capital requirement outlook, I think also we are slightly more positive on the PD add-on implementation in Pillar 1, where we have talked about a net negative effect that doesn't look as bad anymore. Of course, in Q4 to deliver on the dividend policy, we will have to chop off quite a lot on dividends. There will be an impact there, of course. Underlying capital looks pretty positive. How much we then step up on dividend, that's of course not something we will decide now.
Please remember, the 19.2, then we have accrued 70% of the profit for dividend. That means that for the first six months have accrued EUR 0.27 approximately. Obviously our dividend policy says something else. You have to take into account for every EUR 0.01 we need to accrue more, EUR 0.01 we need to accrue more. That takes out some three basis points. Just when you do the math, please remember that.
Yeah.
Thanks.
Okay, do we have any questions from the telephone conference, please?
As a reminder, please press star one. We'll take our first question from Willis Palerm from Goldman Sachs.
Good morning. Thanks for taking my questions. The first one is on the fee income and the asset management business, where I see that flows and net new money growth remained quite low compared to what we've seen in the past and your guidances as well. 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 initiative that you've taken will feed through the next years?
Yeah, it's a good question, of course. 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. 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 we have pretty positive expectations for this growth also in 2018. Let's see how we come into 2018.
All right. Thank you. The second question is also a follow-up on costs again. The delta between the 2%-5% growth is quite a large range. Is this delta corresponding to the cost you would incur if you change domicile?
Yeah.
Is there anything else or
You could have made the range slightly less wide if we had not had the domicile question ahead of us. That's part of the explanation. There is quite a lot of additional efforts to be made. That's part of it. Part of it is also just realizing that as you have all pointed out, it has been with an element of uncertainty up until now, and now we don't want to disappoint you again. 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.
The base is the clean cost of 2016 of EUR 4,886.
Yes.
We're moving the positive one-off.
Yes, I think that we will probably also incur domicile cost in 2018, and I don't think we have even discussed whether or not that is included or not in the original flat target.
No, is the question was that about.
No, just about the base.
Yeah, the baseline. That is on the reported cost, i.e., the EUR 4,800.
Yes.
That's the baseline.
Okay. Thank you. The final question I have is just on non-U.S. 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?
If second half year needs to come in below, then of course you can start calculating. 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. Risk has come down significantly, and that is what we are trying to portray. The rest of the portfolio looks pretty solid and stable. It's hard to be really concerned, I would argue. Of course, the number it will be lower.
If you look at the situation in this quarter, we had a very few number of exposures. We had basically one in consumer durables. We had four in Wholesale Banking. We had one in Russia. We had some in Denmark related to house prices. They are very concentrated, so the quality of the book looks very strong.
Okay. Thank you very much.
Any more question from the telephone conference?
We'll now take our next question from Riccardo Rivera from Mediobanca.
Yes, 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. If you can just clarify that. I understood something like EUR 15 million related to Luxembourg, then another EUR 15 million 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 quarter 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 SREP ratio?
Have you had any discussion with them on how they would eventually treat your risk-weighted assets, which remain well below the European average, at least in the Euro area? Thanks.
On the first, I can confirm that for understanding the current cost and NII, we talk about EUR 25 million on NII that are non-recurrent, 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 EUR 30 million, which you rightfully understood, that are non-recurrent. 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, it's a domicile-related one, I assume. Please understand that we have now communicated a clear indication that banking union is much preferred. The kind of conversation you have is on different levels. Until you make a clear application, of course, you will get into another type of discussion.
That's part of the exercise now is, of course, assessing based on the information we have. The moment we have made more decision and made more formal applications, then of course you will enter another level of discussion. There will be an element of uncertainty, and assessment included, not knowing exactly how any transition requirements will look like, and the period, and so on. 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 refer to, that probably requires a more formal application and a more formal process to be able to answer fully.
Yeah. Okay. I understand. Just to get back on the first question. It's EUR 25 million in NII and EUR 30 million on cost. Is that correct?
Yes.
Okay, thanks.
Let's go back to the audience here. Magnus or Andreas, you choose, and then followed by PDK.
Thank you. Just a few follow-ups just on this prioritization issues. Are they anywhere else in NII but in Wholesale Banking, other?
That was a fee. That's on the fee side.
Yeah.
There's 15 in fees in Wholesale Banking. Yes.
Yeah, it's EUR 10 on the NII, right?
No, EUR 25.
EUR 25 in total. Okay. Thanks.
No, EUR 25 on NII in total, yeah, EUR 15 in fees.
Okay, thanks. Doesn't that mean that Q1 was stronger than-
Yes.
Yeah, okay. Thanks.
You should look at the first quarter line
Look the strongest. You should look at them both together, the first half then, to get the correct run rate. Okay. Just how much costs have you taken for the domicile review so far? Is it significant?
You mean up until now?
Yeah, up until now.
No, that's still not a significant number as a lot of, you can say, well, it's hard to calculate. It's a lot of internal resources, and of course, 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.
Okay. Just a follow-up on, if I ask the question like this, are you as comfortable today with the 2018 guidance on costs as you were six months ago?
I'm probably slightly more confident than I was six months ago because back to the point that a lot of the things we are doing, we have not done before. Actually, no bank have done before. Of course, that is why I think we have indicated that 2017 was the tricky year. That's why we have always there been 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. 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 the foundational efforts, I would say that what I try to allude, the risk has come down slightly. I would say on balance.
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. Yeah, on balance, I would say I'm more confident now than six months ago.
Okay. Just finally, on capital, are we 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.
Still not sleepless about it.
Hi, it's Andreas from Exane again. Coming back to a few follow-ups. Just on cost for 2018, you were talking quickly about it, I don't think you were clear. Is that 2018 target including a potential move?
It's what is a lot of money?
your guidance for this year increased by one percentage point. You said that the move was a part of it. Is it one percentage point for 2018 we should think about?
It depends. 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.
I don't think we have fully included, because the original target of course was set before. 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. Maybe if we can postpone that kind of final decision on that to Q3.
That's fine. On NII, 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. Is flat NII from last year now the best outlook?
You mean into
For this year, full year compared to 2016.
No, I still think we will have NII slightly up this year compared to 2016 if I look. Yeah.
Okay, slightly up.
Slightly up, yes.
Last, just quickly on the coverage ratio fell four percentage points, and that one big provision charge you took this, I was thinking about one big Norwegian. You must have classified as NPL before. What are the drivers? Is it shipping or is it other sectors?
No, it is two exposures. One within what we define as consumer durables, the other one is within oil and offshore.
If you, on how low your coverage ratio, you're happy to bring it below 40% as it fell four percentage points in the quarter?
If you look at the whole movement this quarter, it basically came from these two who were covered with collaterals. The coverage ratio for those two were very low compared to the average. It very much depends on what's happening going forward and what kind of loans we are impairing. 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 that 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?
I think if Q1 was a really strong one, Q2 was a weak one. I think for forecast purpose, something more in between.
It could potentially rebound in Q3?
You know how it is with treasury, I think I cannot comment much closer. It was very strong, it was not so strong. I think they can do better if you look into I don't think you can use Q2 as the base for forecasting. I would use something slightly higher.
In terms of on the trading line, you commented that oil and 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 for settlement impacted negatively on the income side, which mitigated some uptick on the loan loss side. Is there any communication there?
Yeah. If you look at the business unit shipping oil and offshore, if you look at the net fair value result there, it was -EUR 37, and usually that is a plus, not much, but EUR 510. The reason it's negative now is because of debt restructuring of customer exposure. Coming back to the temporary headwinds, you have that as well in net fair value, and that relates to debt restructuring. 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 mentally.
Okay. Very clear. Just on Russia, when you had your business area day in London, Martin Persson, 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. I think that was, again, you should probably use a slightly higher for forecast purposes.
Okay. Thank you.
The strategy in Russia is still that we are focusing on the Nordic customers active in Russia, and that means that it could be slightly lower than today, we're not talking big numbers.
Yeah. Volume-wise.
Yes.
For NII purpose.
Yes
You should not use Q2 fully as the baseline.
Do we have any more questions from the telephone conference?
Yes. We have a question from Brajesh Kumar from Societe Generale. Please go ahead.
Hi. Good morning, all. Thanks for taking my question. Brajesh from Soci Credit Research. Can I get some more color on your funding plan? Do you intend to issue any sub-debt in the rest of 2017 or say H1 2018? What about senior? You have a large maturity coming up in October, so fair to say you will look to refinance that? Finally, any update on non-preferred senior? Where are we on timing-wise? These are my questions. Thank you.
I think that if you look without being too specific on timing of any issuance, if you look ahead, you can say in general, we don't have. 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 18 months, need to do a little AT1. 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 unsecured with the non-preferred, at least as it looks now. Nothing of it is dramatic. If anything, I think we will continue to see for quite some while the cost of funds in general coming down.
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 question 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. 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 enable you to be in compliance and to improve your compliance system, et cetera. You gave us a view on 2018 with cost unchanged compared to 2016. 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 cost going further.
No, 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. Ultimately, of course, a lot of current operational tasks, whether or not they're sitting in KYC work or transaction monitoring, transaction screening or PEP or what have you work, or it's in normal operations, I think we will see a dramatic change over the next five years, where these processes will either be moved to our operation centers outside the Nordic or will be fully automated or robotified or whatever you will call it. I think you, over the next five 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. 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. This is part of the preparations and planning we are doing now. I think you are right directionally. That is what we will see a lot more of.
Okay. Thanks very much.
Any more from the telephone conference?
Yes. We now take our next question from Yafei 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 basis points above the estimates for first quarter. What is driving this 20 basis points increase? 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 We have quite a lot of Pillar 2, and when RWA coming down, you have a, you can say, a calculation effect on your capital requirement. It's not that I set new and higher requirements. It's a mathematical effect, you can say, when RWA comes down as it does with almost EUR 4 billion. On the add-ons, we still do believe that we, in the autumn, will be told that we can lift the so-called branchification add-on. We got equivalent to around 22 basis points. We might also expect to raise discussions on other big add-ons.
I will then be more skeptical to whether or not 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. That, at least I think we should have a scope for next year's SREP , realistically. I think, and we also have other add-ons we are trying to address. For this year, I think the expectation should be on the branchification one, and I don't think we can expect that much more.
Okay. Thank you for that. That's very clear. Then second question is around banking union. You mentioned that this is the ultimate, most important criteria for your redomicile decision. What are the benefits of banking union besides, I would say, more stable prediction of capital and all the regulatory changes? Would the country have any discretion as to capital requirement in a banking union? If that's the case, how do you think about it?
Well, I think the banking union preference that we have come to is driven by more. If you look upon it strategically, I think Nordea's history have shown that, 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 four markets. We are domestic SIFI in each of the four markets. We are increasingly focusing on making one operating model. Increasingly, we internally, there's not four markets. There's one Nordea, and it goes into the governance, it goes into operations and systems, in the way we address the market and so on. I think the development will only continue.
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. 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. 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.
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 become after the branchification is the banking union. It's mainly been driven from these type of considerations. Then, of course, there's a number of more technical issues pertaining to moving to banking union. That has kind of been the overall assessment. It's to get the same kind of benefits we're 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 has led us to this conclusion rather than from the bottom up or technical side. If that answers your question.
Yes, it does. It's very clear. The last question is a clarification on the cost guidance. Can you just confirm that the 3%-5% cost guidance does not include the cost to relocate if you do decide to relocate?
Well, if I hear you correctly, I think the 3%-5% does include the decision to redomicile. When we take the decision in September, and we will have cost as a result of that will be included in the 3%-5% .
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, nine months is even a pretty ambitious timetable. It will not be if we take the decision, and when we take the decision in September, it is not realistic that we will have a closure of that before sometime into 2018. They will happen sometimes in 2018.
There will be additional cost in 2018 related to moving, right?
That will be cost-
That wouldn't affect your 2018 platform.
That will be cost in 2017. They're included in the guidance. There is cost in 2018, and we will come back in Q3 with whether or not that's included in the flat 2016 or 2018 target. There will be some, but they will not be significant. That will be a definition.
Okay.
We will come back with that.
Okay.
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 whatever happens, it won't happen until somewhat later on in 2018. Does that mean that next year we'll pay the 12.5 basis points resolution fee?
No, because next year we will. Yeah, only on the Swedish exposures. Yes, only on Sweden.
How big increase would that be?
I actually don't think net it will be an increase. I think the net resolution and deposits fees next year-
It's at EUR 50 million. EUR 50+.
Oh, yeah.
The net increase. Yeah.
Oh, yeah. Okay. That will be a net increase. Yes.
The net increase is roughly EUR 50 million.
Yes.
Okay, thanks.
Obviously the increase in Sweden will be a lot bigger, but then others will disappear.
Yeah.
Yes. Jan, please.
Hiya, Walter. On the NII and the one-offs there, a couple of detailed questions perhaps, but when you say that you have EUR 25 million or so in one-offs in Q2, so does that mean that we should adjust the third quarter 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 would say the starting point is EUR 25 million higher, yeah.
Thank you. Then on the funding cost and NSFR, would you expect funding cost to come down in the second half, helped by lower NSFR or expensive maturities which are refinanced with cheaper wholesale debt or deposits? How do you view the funding cost half on half, so to speak? Thank you.
That I can't recall, I think they will continue to come down somewhat in the second half. You are right that NSFR is not driving up cost. 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. On the SREP, I believe if I remember correctly, you did get that letter in July last year.
Have you got on the SREP already now?
Yes
You know whether or not the Pillar 2 buffer for the branchification, if that goes out or not, 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.
Okay.
It could be filtered into the discussions we have had around capital and capital requirement, without being too specific.
Sure. Maybe I missed a detail, but did you say exactly how much the resolution from delta was Q on Q? Maybe I missed that in the report.
Three.
That's EUR 3 million.
We did a year-to-date correction in the personal bank in Sweden of EUR 3 million.
That's also for the group?
I thought we discussed-
More or less so, yes. It's a small number.
Yeah. Okay. Thank you.
We got a small positive year-to-date correction in Finland, but that was very small. Any more question from the room?
What more cost?
Any more questions from the telephone conference?
Yes. We'll take our next question from Amul Shah from Redburn.
Hi, good morning. This is Amul Shah from Redburn. Two, one on cost. Now that it's front-loaded all the costs, what is the full cost of the simplification and the core banking platform programs? I think you previously mentioned it was around EUR 1.1 billion. The second question, you mentioned you received a draft SREP letter. Is that related to the LGD and CCF capital provisioning that you've taken? Thank you.
On the first question, yeah, I can confirm the budget is still EUR 1.1 billion, and we are actually running slightly better than the budget. On the second question, no, it's not related to the SREP letter.
Okay, thank you. What is the reason for taking the provision then?
That's part of the annual validation process. That's our estimate.
Okay. Thank you.
That will impact in Q3.
We'll now take the next question from Vivek Gautam from JP Morgan.
We have room for one more question, that's going to be the final one. Please.
Yeah. Hi, good morning. 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.
That I actually can't recall. I think we have No, I can't recall, to be honest.
Bear with me a second.
It's actually not the capital is not so much. It's true that you also have rating migration effects. They are minor compared to some of the other effects. We have that table.
Are there any trends that you are seeing in terms of industries?
There's nothing surprising in it. There's nothing major I can say. This is not the major driver. It's true that we have some migration effects. The total migration effect on RWA is 0.4. It's 40 basis points, i.e., on RWA.
Yeah.
It's not a huge effect. It's actually mainly driven by a mix effect in the institutional portfolio.
Okay, thanks. Thank you.
That was the last question for this session. Please remember that we have an open breakfast in London tomorrow at 8:00 A.M. You are most welcome if you are in London. You are most welcome also if you are not in London, but that is going to be challenging. Thanks very much, and don't hesitate to call us if you have any further questions. Thank you.