Thank you. And thank you all for calling in to this conference call, where we will discuss the Q1 results for Nordea Bank. We will start with a short introduction by the Group CEO and his President, Mr. Castel van Koosko. And then also, we have Deputy CEO and Group COO, Thorsten Hagen Jorgensen and Chief Risk Officer, Ari Capri, who is happy to take all kind of questions.
But Kasper, please go ahead.
Yes. Good afternoon, everybody. Good to have you on the call. I'll just make a few remarks. You've seen the numbers.
You've maybe heard us speak already. But when we look at the Q1, I would actually say from a business environment point of view, it's been relatively stable, so nothing surprising. However, the volatility in the financial markets, particularly in January, February, they were very difficult. And then when we add kind of the pressure from further low rates and particularly negative rates in the region where we operate, there has been pressure on revenues, maybe more than we expected, particularly given the volatile financial markets. However, cost, I'm very pleased to see that cost and our cost management is under control despite the fact that we are now, as you know, in 2016, investing very heavily in our core transformation programs.
And also the credit quality is very solid and stable despite the kind of the environment that we are in. So net net, when I look at the quarter, it's an okay, acceptable quarter, particularly given the kind of challenging environment. I think very important for me is, of course, that we are now in a phase of really executing on the transformation of this bank. We are running now a very focused program on improving both the operational and compliance risk, doing the right progress there, really a number one priority for us and me. And also the simplification is simplification program, which, of course, at the core is also where we replace our core bank systems is going according to plan.
So the big change agenda that we are driving making this bank the bank that both we as Glorious and our customers expect is actually going the way it should. Also when I look at our core Tier 1 ratio, we're now growing from 16.5% to 16.7%, I think just reflects what I think the bank has always stood for is actually capital generation at low volatility, and we continue doing that. And we have actually more visibility now also to the kind of the capital target operating at 16.5%. I mean with the announcements from the Swedish FSA on potential changing in corporate risk rates, I think we today feel even more confident that our target of operating at 16.5% is correct and feel confident. And overall, I don't see anything any change in our ambition of on the dividend side of actually subsequent increase in dividend in 2016 and also coming years.
So I think all that is intact despite the fact that we have had this environment. So I would almost leave there and open up for questions. I'm sure you have many of them.
Thank you. The question and answer session will be conducted electronically. We will take our first question from Matti Ahokas from Danske Bank. Please go ahead.
Yes, good afternoon. It's Matti Ahokas here from Danske. Two questions, please. Firstly, on the NII in Norway and Finland. The Finnish NII was extremely weak, I guess, obviously, mainly due to the deposit margin squeeze.
But were there any other factors that influenced the Q1 NII? And in Norway, was there any change in the booking of the deposit guarantee scheme costs in the Q1 compared to the previous ones?
Yes. I think on Finland, you're right. We had a combination of relatively big pressure on deposit margin. We had somewhat lower volume growth than we have seen in the quarters before. And finally, we had somewhat of an impact from this internal liquidity premium or funding cost allocation relating to 2015.
So the only sign of kind of more underlying is, of course, the deposit margin pressure and then slightly lower volume, mainly driven by large corporate institutional business, not the retail business. And I don't think in Norway, we have any I cannot fully recognize that we should have any I don't think there's any specific bookings on stability fees that is impacting Norway. We have pressure on margins that are, you can say, still not fully in there or is still in their process of having full impact in Q1 for Norway. So that is, I think, more or less expected from the development we saw in the end of last year.
The second question is regarding in Finnish press, actually today there's quite a lot of stuff, especially one of your competitors, the OP Group is saying they've got 4,000 customers from Nordea during the last week. Is there any comment on this? Are these figures do they ring a bell? Or what would you comment?
I can perhaps take this one. At least we don't recognize those figures from our end, so that there has been very, very few individual customers who have actually leased the bank, but they are more picked up of some political parties and 1 or 2 smaller labor unions, those type of customers. But then normal household corporate customers, we have not recognized any significant customer outflow. We are following up this on a daily basis and information we have is not indicating that at least if our competitor is getting more customers, they will come from us.
The figure sounded quite high to me as well. Great. Thanks a lot.
We will take our next question from Christopher Ruckus from Barclays. Please go ahead.
Thank you. I have a couple of questions on costs. So the first one is, you mentioned in the last interim report that you would save €200,000,000 in 2016 from sort of efficiency measures beyond those relating to your simplification and technology project? And then if I understood the wording in the report that there would be those measures would have even greater effect in 2017. You explained that this relates mainly to your property portfolio.
I wonder if you could just give us an update on how you're progressing with the first €200,000,000 and if you have any number you could give us relating to the impact in 2017 and where that's coming from? Because I guess if it's from the property portfolio and consolidation, we should almost be able to see that happening. Then second question around the also non technology investments you're making. I understand that most of that is around knowing your customer and AML and other compliance processes. So just trying to understand that are those sort of specific to this time period 2016 to 2018 and will then drop off completely?
Or is part of these investments running costs for Nordea? I mean, if you can mention anything about the magnitude, that would be very helpful. I guess it's something around $200,000,000 per year now at the coming 3 years, just calculating backwards from the numbers you've given us. And then finally, you provided a slide this morning around the savings from the technology investments, but not in the numbers on that slide. I don't know if you would be willing to give us sort of any quantification of the saving that you're hoping to achieve in 2019 and onwards?
Thank you.
Yes. But if we start with the gross savings that we have referred to for 20 16, a big part of that still stems from, you can say, the old cost program and relates very much to reduced cost on premises, on actually on certain type of IT production cost as we are running these big in sourcing IT in sourcing programs and they're still running, generating big benefits on the running cost for IT. And some of them will translate into 2017 also. Then during 2016, we will ramp up this second wave of restructuring of the branch network, you can say. So we will spend some of the restructuring a majority of the restructuring provision will be spent also in 2016 on relocating many branches to fewer and bigger, meaning making a lot of people sitting in local branches redundant and higher new ones in central units.
This will allow us to and then all the technology investments we do in digital, remote meetings, mobile bank, etcetera, will allow us to, you can say, operate with lower cost, and that will start impacting in 2017 2018. So that's a mix in 2016 or 2015 you can say, 2015 program effects and then beginning of the new program effects. And then, of course, we have an ongoing process of outsourcing process to our near offshore center in Poland and to our development centers in India. So that's kind of the key drivers behind the €200,000,000 And as an approximation for 2017 and 2018, it's more or less the same number, but the composition changes somewhat from 2016 to 2017 to 2018. And on the other investments, as you can say, yes, there's a lot of technology investments happening in 2016 2017 2018.
And then there is a quite significant amount of investments in the people within, you can say, the compliance AML KYC area. Just to give some few examples that we are we were by I think by 1st November, we were 400 people in the global AML units, AML KYC units. We are 600 as of now, and we'll be 1,000 at the end of this year. We're also ramping up quite a lot on people in both the risk management organization and in the compliance organization. And of course, this will lead to this will, in isolation, lead to higher running costs in the magnitude of around €100,000,000 but which will then be mitigated by these gross savings of around €200,000,000 or more than mitigated.
Then if you look on the drop off effect, you can say in 2016 I think we have quite a number of programs running that are quite 16 specific. There is a specific compliance product, there is a specific IT compliance product project, and there is the legal structure project. And they are all very 2016 heavy. And they were kind of run off, you can say, already relatively early into 2017. Sorry, and then to your question on savings, I mean, then the big investments we're doing in technology, they will start to show their results during 2017 2018 with some kind of accelerated pace, you can say.
And then as we have also indicated that after 2018, these investments will have started having bigger and bigger benefits. But they are somewhat of course the technology investments are to some degree will kind of come over time, the food benefits.
Thank you for that. Just a follow-up then. You mentioned today that you actually already migrated parts of your current organization from the legacy data warehouse to the future sort of go to data warehouse infrastructure as well as within payments or similarly within payments. Can you mention anything if you've already been able to shut down the legacy infrastructure and how much that saves? And then also in terms of the timing you've just been speaking about today, I think you mentioned that the pilot for finished deposits will only be completed after the summer.
So should I understand that as when it comes to the core banking platform itself, you will not be providing any updates until the pilot is completed in terms of whether you've then validated your overall project plan and the financials around that plan?
Yes. But if we look on the core banking platform part of the oral simplification program, then 2016 is very much about, you can say, putting the pilot in place and remembering this is still, you can call it, a we're using it's using you can say it's still in a protected environment. So it's not before 'seventeen. We for real will use hit real customers and real products. So therefore, the banking platform program is somewhat backloaded before you can say the full rollout will accelerate.
That acceleration will happen after a successful real product being integrated and implemented in 2017. Then you will start accelerating the rollout product by product, country by country. It's true that on payment, we are we have the new solution in place, and there we are following the same approach there. We already have one module up and running in Latvia, and we will roll out quite a lot of modules during 2016. So already by end of 2016, we will have delivered on interbank, separate interbank solutions that will be delivered for our countries.
And then we will accelerate into other type of modules in 2017. So 2016 is still very much a ramp up year for the co banking platform part, and it's already fully, you can say, in implementation
mode for the payment platform part.
And yes, we are as we speak, we are But again But again, they are also decommissioning is somewhat backloaded, and the full benefit comes mainly when you can close, you can say, or decommission a whole, you can say, systems of applications and thereby also take the full benefit on the associated processes and people working with these applications and closing service license costs, etcetera, etcetera.
Okay. Thank you very much. That's very helpful.
From UBS, we will now take our next question from Anton Kirchok. Please go ahead.
Thank you and good afternoon. Just two questions, please. Firstly, on the dividend outlook. The capital generation this quarter has been quite strong. But if you face further P and L headwinds this year, which leads to stated net profits being lower year on year, Would you be happy to see an increase in payout ratio in order to be able to deliver growing DPS numbers, if the capital generation remains strong?
That's the first question, please. And the second question on the asset management fees. I saw that you've enjoyed quite substantial inflows and growth in IUM and yet the fees in the asset management division were a little bit weak. Is it just a reflection of the fact that most IUM inflows came towards the end of the quarter and therefore you would expect revenues to rebound? Or is there some sort of structural margin contraction?
Thank you.
Yes. But on dividend, I mean, we have chosen a relatively simple approach to the accrual this year. So the way it will work is that we will accrue 17.8 percent of the reported profit during this year and remembering that profit will include any reported gains on the P and L. And one gain that we already have mentioned in our report is the gain from the sale of Visa shares. So when you do that and we have a dividend policy that is only focusing on growing the DPS, you can say.
And whether or not that will be, you can say whether or not that will result in an increase in payout ratio, that I think is too early to speculate in. We are mainly guided by securing that the DPS will grow year by year. But and then on your AUM inflow question, if anything, that is in Q1, we had the issue that the average AUM was somewhat lower than in Q4. And that's the main reason for the majority of fees is the ongoing AUM fee. And that was the main explanation for it somewhat weaker.
And actually, the structural effects are still positive, I. E, the mix effects are still positive. So mix effect positive, very strong inflow. And then, of course, AUM will vary somewhat with the market development, but underlying very strong, I think, development in Q1.
Thank you. That's very helpful.
Namu, the hand to look is Goldman Sachs. Please go ahead.
Yes. I'm like I have one way brief follow-up questions on the asset management and one way quick one on capital. On the asset management side, like you continuously have even sort of in what I would call a very challenging quarter sort of strong inflows. So do you have something like a Mike, we're hearing a lot from people talking about the fact that you're very strong in occupational pensions, that you have decent amount of savings plan. So if you look at it, sort of what sort of your quarterly like inflow rate, I mean, like if you don't win any institutional business or some that just sort of form the occupational pensions and the plans just to get an idea, like how much is just sort of has already sort of in signed up growth there?
And the second question would be sort of on capital. You basically talked at the beginning that like you now feel like your buffer is there even with the capital requirements. Is there sort of any point where you say, okay, everyone guides sort of impacts on capital from the snow rules that seem to be somewhat lower than like the regulator would probably have expected or hoped for. Are you sort of already sort of feeling like you want to build buffers for sort of a next step as the regulator refines? Or do you feel like now with this buffer you're more than comfortable?
I think if I understood you correctly on the first question on the influence, Jon, I mean, I think one of our key strengths is in the fact that we have very strong individual distribution channels. So we have very strong retail distribution in the Nordic. As you say, we have a very strong position in life and pension, including occupational pension in the Nordic. Nordy. It's a very strong distribution channel.
We have the strongest private banking franchise, also very strong. We also have, I think, in the Nordisk, the strongest institutional client channel. And then we have the fastest growing one, which I think is pretty unique from a Nordic Bank perspective, and that's what we call the Global Fund Distribution Platform, which is actually a pretty well developed private banking clients. And that is we have been lucky and skillful of having very well performing products and this very efficient distribution channel. And I think that in the reason why we are relatively comfortable about the net inflow levels being in the level of between 4% 6% as we see now is due to this very well diversified bit will be some of the channels will be stronger than others.
But over time, it seems to be very solid. On your capital buffer question, I think that as Casper laid out on the press conference this morning, I mean, we assessed already in connection with Q4 the implications of Swedish corporate risk waste considerations and the fact that countercyclical buffers would be increased. And even the pending discussions in Finland about instituting a mortgage risk way there also, All of these effects are incorporated either as a capital requirement or on our, you can say, in our REA forecast. And as we stated, we can confirm that we believe that the capital requirement will be around the 16.5 percent, I. E, 16.5 percent.
We will operate on that kind of capital requirement level. And if we look on our capital forecast and including these effects, then we kind of also can reconfirm the dividend forecast we have been given on growing the dividend. So we think that from that point of view, we are as well of what we know today, we are comfortable is probably nowadays a big word, but we think this is consistent and we stick to our guidance.
Thank you very much.
Very helpful.
We will now take our next question from Riccardo Rovere from Mediobanca. Please go ahead. Ricardo, we'll now move to Jacob Kruse from Autonomous. Please go ahead.
Hi, thank you. Just a couple of questions. Firstly, with your compliance ramp up, do you see any chance of reducing your other SREP requirement this year or next year? And roughly, what is the scope to do that? Secondly, I think in the beginning of taking over as CEO, there was some discussion about improving the efficiency of large corporate retail risk weighted assets or retail corporate risk weighted assets on the upper end.
Could you just update us a bit on how what your thinking is there? And then just lastly on this Panama situation, have you had discussions with regulators? And where do you stand in terms of the way forward here and the timing of any kind of impact? Thank you.
On the first question, you are right. We still have this governance related add on of close to 80 basis points of core Tier 1. And I can tell you that as we have not included in our capital planning or guidance for 2016 that we will get any release, The way we think about it is that we don't expect to have any release at earliest before part of the SREP process for 2017.
Maybe I'll take the you had the question on retail corporate. It's not that much about risk weights. I think what we have done and have started in corporate retail is very much the same as we have done in wholesale, and it is really a business selection being much more vigorous and disciplined in terms of business selection and looking really at individual returns for clients. And that really means that I think we can and we have said that across the four countries, we can actually expect to be able to increase margins and pricing on corporate, but we're not going for volume. So it is about driving really profitability and return, of course, customer by customer, but of course, kind of in volume that will also then show that not volume growth, but rather return.
And I think that way we can generate shareholder value. So that's really what lies behind it. And of course, I think we see already the signs of it. But over time, you'll see more. On Panama, of course, on Panama, we are this had raised a lot of questions.
At the moment, it is more questions because we really need to know the facts. And I think what I've said, 1st of all, is that we have had very clear policy, procedures, etcetera, that and we do not allow the bank to be used as a platform for tax evasion that we have had in place and we have actually it is very clear. What we, of course, now will do to really answer the questions, and I have the same questions, is that we will do and we are doing an independent internal investigation. We have, of course, discussed this and aligned this with our key regulator. And we have also taken external both advisers both on tax and the whole methodology and procedures here.
So I think we have a very rigorous internal investigation going on. We will know kind of the first stage of that investigation by, I would say, June. So we will come out no later than, I think, Q2 to talk about it. And then speculating where that leads would I mean, saying where that leads is more speculation because at the moment, we just want to know the facts. But I emphasize that we have and have had a very clear policy on tax and processes in place.
So now it's about getting facts and very close coordination and cooperation with the regulators. So I think that's going as it should.
Okay. Can I just on the retail corporate side, when you say increased margins and increased profitability, would you be able to give any kind of scale of that margin or that ROE and the volumes you're talking about?
I don't think we have we are discussing here as we have not planned for giving any specific guidance on that, but I can say that this as part of all the other repricing, so if you combine the totality of our repricing efforts, we are talking about efforts that is in the area of €100,000,000 plus efforts in combination. And then I think that's I think it's the closest we can get to that.
And maybe another one which we is a longer of course when you look at what we have done in wholesale over the last 3, 4 years in terms of driving the profitability year on year. We've done that without actually really driving volumes. So that really shows the discipline on how to create shareholder value. Okay. Thank you.
We will come back to that. Okay.
Thank you very much.
From Credit Suisse, we have Jan Wolter. Please go ahead.
Yes. Hi. Jan Wolter, Credit Suisse. Thanks A couple of follow ups from the presentation in Stockholm. First on the RWA add on of SEK 1,000,000,000 this quarter, a clarification there.
Does that relate now is that a governance buffer? And what is the add on in total now for governance issues? What do you say? I think you alluded to 80 bps earlier. So that's my first question.
Yes. To start with your last, I mean the governance add on is €1,500,000,000 of which close to $1,200,000,000 is core Tier 1 capital requirement, and that equals around 80 basis points. And that has been the same since Q2 actually as we reported this last year. So that's kind of there. And as we have said, we expect that to stay there for probably at least until the process 2017.
Then as you also recall, the reason for this was that we needed to strengthen our 2nd line, and that we have done. And 2nd line have conducted a review of the whole IRB system setup, and that is pending. And we expect a decision by 2nd line during Q2. So for prudently reason, as we know that there most likely will be some kind of an addition or you can say rear effect from this review. We have, you can say, provision EUR 1,000,000,000 this quarter to in advance of the final outcome, which we will know in Q2 or year Q and Q.
So you can say it's governance related, but it has, as such, nothing to do with the governance at all. You can turn it around and say that the fact that we have now established this and we have conducted the view everything else equal should support us in, you can say, ultimately being allowed to release the governance add on of 80 basis points.
So all in all, related in one way or another to the governance area, there will be post Q2 then, say sorry, post this quarter around SEK 2,500,000,000 in add on. And if that's correct, then would you say there's a possibility you could get rid of this after improving your processes?
I think that well, it is so that the ordinary annual validation process, of course, can go up and down depending on the development in, you can say, the actual default frequencies. And as you know, mainly due to the development in Denmark, we have had a number of years where this annual validation process has led to, you can say, requirements for higher REA. Now the situation starts improving in Denmark and I mean no one knows, but of course we are using these models use I think it's typically 10 years of type of averages. So it goes relatively slowly. But at some point in time, this might be this effect might be less, might be more.
Right now, it could indicate that, that over time, this will be less. So but that's one thing. This other thing is, you can say ultimately we, of course, hope that we will get the governance add on of the 80 bps away. That's the main focus, of course, for now. And then the credit quality will develop as it does, and we will set it up against the model predictions.
Thank you. And another question on do you believe that there is now risk for Danish deposit rate cap again? We've seen the Danish kronor strengthen again against the euro. And if so, do you see any natural mitigation actions that the bank could take if that happens? Thank you.
Yes. No, I have stopped speculating what rates will do, but I can assure you that if we see further I mean, if rates continue further down in Denmark and we are hit by that, it depends a little on how the Danish Central Bank decides to do it exactly. Then, of course, we have the country where we have trained the most is Denmark. So we have pre developed plans for mitigating the effects of the already quite negative rates in Denmark, and they might even be accelerated, of course, if rates continue further down. But as you also know, the whole rate situation in Denmark is a little tense as of now.
So there are also, of course, time considerations involved in the Danish market.
Okay. Many thanks for that.
We will now move to Chris Manners from Morgan Stanley. Please go ahead.
Good afternoon, gentlemen.
Good afternoon.
Good afternoon. So two questions for me, if I may. The first one was on capital and obviously, the 20 basis points you're able to take from Nordea Life. That's quite encouraging. How should we think about potential for more capital upstreaming and sort of potential over the next sort of coming years for that?
So that looks like it's a bit of a tailwind. And second question was on credit quality. I guess, 13 basis points cost of risk is pretty good in the quarter. You do sort of highlight oil and gas in common with many banks as a potential risk area. I see that Norway and oil and gas basis points cost of risk has gone up in the quarter.
How should we think about the second half? And are there any particular exposures that you're all nervous about there? Thanks.
Okay. I'll just start with the Nordea Life question. Yes, we have I think we have very good development in Odea Life. We paid a dividend of €220,000,000 for 2014, and we have now paid a dividend of €300,000,000 for €215,000,000 And despite having done that, we still look very comfortable about the Solvency II requirements. So the legal requirement is 100%.
We are applying quite a conservative buffer that should stay try to stay within 125 basis points to 150 basis points. And actually, the outcome seems to be in the level of 160% to 170%. So even after these dividend payouts, it still looked very comfortable. And I think we are, of course, as we are doing on the group level, we are also in the Life group. We are taking all measures to be able to continue paying our dividend from Life.
And in Credit Quality and Oil and Offshore, Oil and Gas segment, our view is relatively unchanged compared to what we discussed 1 quarter ago. So that we clearly see that there are individual customers who are in problems in this quarter. There were 2 new impaired customers from these segments. They were not big ones. That is the explanation of some increases in some of the portfolios in terms of impaired loans and also loan losses in Norway.
However, we don't expect that, especially in this 2016, we would see this kind of material increases. It's very difficult to give any kind of specific guidance, but at least the way it seems to go is that we expect that some individual customers will become in problems, but the magnitude of those impacts will be still reasonable in our case, so that thereby, we have also repeated this overall credit loss guidance so that we expect roughly these type of levels or levels which are within this long term 16 basis points average. But we wanted just simply to highlight that it is likely that there will be some individual cases from these portfolios because even if the oil price has a bit recovered from the lowest levels, still this level is too low for many customers to have a sustainable profitable business without doing any major restructurings or divestments and issues like that, then not all the customers have opportunities for that.
Got you. Thanks. That's very helpful.
We will take our next question from Ramesh Chose from Citi. Please go ahead.
Hi. Yes, it's Ramesh from Citi. I just want to pick up on 2 questions. The first one is on costs. So I'm looking at Slide 21 of your presentation deck.
So you've given us the cost increase 15% on 16% where compliance and IT remediation projects are a decent part of the jump in costs and you've talked about the headcount increase in AML. And I was wondering if you could backfill some of my knowledge here a bit. So why has there been such a big jump in AML staff this year compared to other banks in your peer group? And are there other areas when you think about regulation or compliance aside from AML, you're thinking to deal with AML hiring this year, but there are other areas that we could get caught out by collectively going forward. And I'm just curious in your waterfall from 2016 to 2018 in costs, where would I find sort of the budgeting for other additional non AML compliance people, please?
The second one is much shorter on NII in Finland, obviously, a big step down in the quarter. Looking ahead, I'm just wondering if there are further how much more negative impacts on NII should be baking into our expectations of Finland? Or we're basically done now if rates stay where they are, of course? Thank you.
I'm not 100% sure I followed fully your question on cost. What I can tell you is that the you can say AML KYC ramp up started some time ago and has accelerated during 'fifteen and will continue into 'sixteen. And I think that we have very high ambitions on this level. And there are 2 phases. The first phase is where you ramp up a significant amount of people because you have a catch up, you can say.
So you want to go to your full portfolio and you want to establish good procedures. And of course, what we ultimately do want to do is to run this in a very efficient way, meaning automated processes, digitalized process also on AMOLED Kymosiy. And these investments are going on at the same time. So the efficiency of running these type of processes will, of course, improve over the years. So I think we have been through a number of phases as all big banks.
I think maybe in this respect, we are closer to some of the European banks. And yes, you're right, U. S. And U. K.
Banks probably were the first one to move on this. And now we are fully moving. And I think we will in a few years' time, we will have a very advanced setup on handling this from a process and operations type of view. And therefore, what we are trying to indicate is that we will into 'sixteen and 'seventeen, we will see increased running costs from this before we can start seeing them coming down. And then, of course, we think it will be kind of permanent that you will have higher second line organizations.
There will be a cost effect from that, which I think all banks will experience. But I hope I have captured and being able to answer your question on that. I don't think I have that much more to add to Finland. We had an NII question on Finland, and we don't guide as such on country level. But what I can say is that repricing efforts will continue in Finland on retail corporate segment, probably even accelerate.
It will continue, but the speed is more or less as it is when it comes to mortgage repricing in Finland, where we still have a spread front to back book of 15 basis points. And then growth, of course, is always an issue with the underlying growth, I. E, on the household side is relatively stable. But then we had in Q1, as I said, we have mainly on the CIB portfolio, we had somewhat of a drop in growth. So of course, the volume factor is difficult to fully estimate with.
But there's no reason to believe that we will not, as such, see an improved margins and then volume, of course, we will have to see for Finland.
Thanks for that. I get the NII answer. It's clear. And just going back to the costs, I heard I hear your answer. I just was about the investments you're putting in and your greater scale compared to some of the other smaller banks in the region.
So I'm just thinking looking ahead, given that you've baked in between 2015 2016 some specific costs to do with compliance and IT remediation, if I'd missed something in 2017 2018 as in other I mean, are you saying basically there were no further incremental new IT investments in sorry, compliancerelated IT investments in 2017, 2018? Or is that, that is part of the general cost drift? Or is that you're got to make some investments and then you got to offset those investments with savings such as regtech and so on? Yes.
I think that the compliance and IT remediation projects we allude to, they are there are 2 big projects. 1 is very AML KYC oriented or compliant related to processes, including systems that are ramped up. And that's the majority of that work is happening in 2016. And then you can say the project cost of this will go down in 2017, while running cost might well go slightly up. On the IT remediation projects, the majority of costs will happen in 2016, and there will also be some in 2017, but they will go significantly down, you can say, these project costs.
And it's a project. So after somewhat into 'seventeen, this project will be closed and so will the compliance AML project. And then, of course, there will be line responsibility. And then there is the legal structure project, which is also a very specific 2016 project. There will be what is very limited cost related to that in 2017, if anything.
So net of this, what I'm trying to say before is that, there will be increased running costs from all of this, at least in 2017, in the magnitude of around $100,000,000 And then you have the cost inflation the ordinary cost inflation of around €100,000,000 And then we have the gross cost savings, as mentioned, of the €200,000,000 And there you are, around flat. So that's why that's the way we're coming to flat for 2017 2018. But as you also alluded to, I mean, that is, of course, a number of moving parts here. And looking further ahead, I think we can make many of these process even more efficient, probably not already from 'seventeen. And that's what I'm trying to say also that many of the technology investments, they have a somewhat longer you can say it takes a little bit longer to take out the full benefits and takes a bit longer to implement it 100%.
So I hope this gives a bit more light on the dynamics.
Sure. Thank you. Thank you for your comprehensive answer.
We will take our next question from Omar Keenan from Deutsche Bank. Please go ahead.
Good afternoon. Thank you very much for taking the question. Sorry for going back to the payout discussion. But one of your peers this week gave us some very helpful sensitivities or thoughts around what particular parts of the Basel proposals would be more or less meaningful. And specifically, what they said was that there would be no impact from the OPPRESS proposal as it stands.
Secondly, no impact from the kind of the PD floors and so on. But the key sensitivity was the output or capital floors. Could you give us your view on that? And then I just have a follow-up question.
Well, of course, this is a very interesting topic. And of course, we have our views on this. I think still it's very premature to open too much for that discussion. And of course, there might be different approaches to this. If we take them 1 by 1, then you're correct that on op risk, there are basically 2 approaches in which one of them you will have one outcome which will not be so significant, if any negative impact at all.
And then there will be another scenario where there might be a certain impact. Parameter flows depend very much on exactly how it's implemented, of course. Everything else equal, I will be surprised if most Nordic banks will not have some impact. But I think it's also clear from the proposals that the main issue is, of course, the capital flows and how they are calibrated. And the sensitivity there is obvious.
So depending, of course, on the level, but of course, more interestingly on what does the home regulator then do on the requirement side. So net of all of this, I think it's
there's obviously interesting calculations to
be done. But some of these Basel's proposals, I think, in all honesty, it's somewhat premature to discuss specific numbers or implications. But we might review that as we move along and get a bit more insight and certainty around the numbers.
Okay, great. I guess kind of the second part of my question was kind of what level of capital flow do you think if we all kind of agree that's the key sensitivity kind of threatens the 0.6 $4 dividend. But I guess if you can't forecast 1, you won't forecast the other.
No. But as I said and first of all, this is let's see when this exactly is fully implemented. And as I said also, especially on the capital flows, it doesn't take a lot of calculations to see that if Swedish FSA is not adjusting the capital requirements, you can say somewhat accordingly, then of course, you can have quite significant implications. But that again saying that this is an analysis where we only own some part of the outcome. So it will be very dependent on how, of course, how exactly the capital flows are calculated and how Yes.
I mean, if we just play with a scenario that a capital flow did come in and say it was at the very low end of 60% to 70% and then there was no give from the Swedish regulator, Is that a problem or isn't it? Does it create a capital deficit?
No, I think, Omar, I think the best answer we can give is based on what we know today in terms of future regulation, in terms of profit, in terms of all kinds of potential threats, we still keep the ambition to raise the DPS for 16% versus 15%.
Okay. Okay, great. That's very clear. We'll leave it there. Thank
you. From Mediobanca, we have Riccardo Rovere. Please go ahead.
Okay. Good morning. Can you hear me now?
Yes, absolutely.
Okay. Thanks. I don't know what happened before. Just one question from me. Sweden keeps raising the bar in terms of capital ratios, which is not exactly the same in Denmark, where the regulation seems to be much more lenient.
Is this creating you some kind of regulatory arbitrage, some distortion to competition in what you see in your Danish operations?
No. Well, I think you have a point around level playing field issue. So yes, we obviously have one of our Nordic peers that are at least currently exposed to somewhat more lenient rule, as you say. And then there's, of course, a transformation period, and then they will get closer to where the rest of the Swedish banks are. And I think that there's a potential, of course, a concern and it can create competition issues, not only in Denmark, but also in the other Nordic markets.
And we have, of course, raised that concern.
And if I may follow-up just one second. With the transformation of your organization from subsidiaries to branches, if I'm not mistaken, if I remember correctly, I've seen comments from Swedish authorities saying that if something went really wrong, the burden of, let's say, fixing in Nordea would be mostly beyond the on Sweden's shoulders. Do you think that on the back of your transformation, any kind of systemic risk buffer, CFE buffer or whatever could be unposed to you again?
I don't know, to be honest. I think it's too early to speculate in that. I have no, I don't think I can comment on that. I don't know.
It's something speculation.
All right. Okay. No, that's fair. Thank you.
We will take our next question from Daniel Dutois from JPMorgan.
Sorry, operator. This has to also be the last question because then we need to catch a flight. Thank you.
Okay. Daniel Duttler, JPMorgan. Two very quick questions then. The first one was, I think Casper, you mentioned this morning the positive repricing potential in Swedish and Finnish mortgages. But I noticed you didn't mention Denmark in that context.
So should we not expect the industry to follow the new credit repricing? And secondly, in addition to the gains on Visa Europe, are there any other potential gains, for example, from property sales that you could that could help your capital generation this year? Thank you.
On your first question, yes, but obviously so Denmark is not exempted from repricing. But as you also point to, Nucorit has been out there with some suggested price adjustments, and I think they will carry that out. And this has been a very there's been a very intense discussion in Denmark about this. So I think you should regard more our approach to Denmark, Danish mortgage repricing as a timing issue. So obviously, this is a window that we will try to exploit as quickly as possible.
Then I don't think we can comment on as such. We are always, you can say, investigating possibilities to divest assets that we are not the always pursuing. But aside from that, I don't think we can discuss that.
Okay. And just to clarify, when you say a window of opportunity, you mean the opportunity to potentially reprice down the line or an opportunity to perhaps
An opportunity to reprice.
So this concludes this telephone conference. Thank you very much for attending and for all your questions and interest in us. If you have any further questions, please don't hesitate to call me, Andreas or Irma. We will be open late tonight. And we will meet you in London tomorrow as well on the lunch presentation.