Thank you. Thank you all for calling in to this conference call where we will discuss the first quarter results for Nordea Bank. We will start with a short introduction by the Group CEO and President, Mr. Casper von Koskull. Also we have Deputy CEO and Group COO, Torsten Hagen Jørgensen, and Chief Risk Officer, Ari Kaperi, who is happy to take all kinds of questions. Casper, please go ahead.
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. When we look at the first quarter, 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. When we add 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.
Also the credit quality is very solid and stable despite the environment that we are in. Net, when I look at the quarter, it's an okay, acceptable quarter, particularly given the 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. Also the simplification program, which of course, at the core is also where we replace our core bank systems, is going according to plan. The big change agenda that we are driving, making this bank the bank that both we as employers and our customers expect, is actually going the way it should.
Also when I look at our Core Tier 1 ratio 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 capital target operating at 16.5. With the announcements from the Swedish FSA on potential changing in corporate risk weights, I think we today feel even more confident that our target of operating at 16.5 is correct and feel confident. Overall, I don't see any change in our ambition on the dividend side of actually subsequent increase in dividend in 2016 and also coming years. I think all that is intact despite the fact that we have had this environment. 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. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you're using a phone with a mute function, please make sure your mute button is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us, and we will take as many questions as time permits. Once again, please press star one on your touch-tone telephone to ask a question. If you find that your question has been answered, you may remove yourself by pressing star two. We'll pause for just a moment to give everyone an opportunity to signal for questions. 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. Were there any other factors that influenced the Q1 NII? In Norway, was there any change in the booking of the deposit guarantee scheme costs in the first quarter compared to the previous ones?
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. Finally, we had somewhat of an impact from this internal liquidity premium or funding cost allocation relating to 2015. The only sign 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. 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 still in the process of having full impact in Q1 for Norway.
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 the 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?
Perhaps I'll take this one. At least we don't recognize those figures from our end, so that there have been very few individual customers who have exited the bank, but they are more this type of some political parties and one or two smaller labor unions, those type of customers. 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 Manners from Barclays. Please go ahead.
Thank you. I have a couple of questions on cost. The first one is, you mentioned in the last interim report that you would save EUR 200 million in 2016 from efficiency measures beyond those relating to your simplification and technology project. If I understood the wording in the report, 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 EUR 200 million, 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 know your customer and AML and other compliance processes. Just trying to understand, are those specific to this time period, 2016 to 2018, and will then drop off completely? Or is part of these investments running costs for Nordea? If you could mention anything about the magnitude, that would be very helpful. I guess it's something around EUR 200 million per year now the coming three years, just calculating backwards from the numbers you've given us. Finally, you provided a slide this morning around the savings from the technology investments, but not any numbers on that slide. I don't know if you would be willing to give us any quantification of the saving that you're hoping to achieve in 2019 and onwards. Thank you.
If we start with the gross savings that we have referred to for 2016, a big part of that still stems from, you can say the old cost program and relates very much to reduced cost on premises, actually on certain type of IT production costs as we are running these big IT insourcing programs, they're still running, generating big benefits on the running cost for IT. Some of them will translate into 2017 also. During 2016, we will ramp up this second wave of restructuring of the branch network, you can say. 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 hire new ones in central units.
All the technology investments we do in digital, remote meetings, mobile bank, et cetera, will allow us to, you can say, operate with lower cost, and that will start impacting in 2017 and 2018. That's a mix in 2016 or 2015, you can say. 2015 program effects and then beginning of the new program effects. Of course, we have an ongoing outsourcing process to our nearshore center in Poland and to our development centers in India. That's kind of the key drivers behind the EUR 200 million. 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. On the other investments, as you can say, yes, there is a lot of technology investments happening in 2016 and 2017 and 2018.
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, I think by November 1st, we were 400 people in the global AML unit, AML KYC unit. We are 600 as of now, and we'll be 1,000 at the end of this year. We are also ramping up quite a lot on people in both the risk management organization and in the compliance organization. Of course, this will, in isolation, lead to higher running costs in the magnitude of around EUR 100 million, but which will then be mitigated by these gross savings of around EUR 200 million or more than mitigated. If you look on the drop-off effect, you can say, in 2016, we have quite a number of programs running that are quite 2016 specific.
There is a specific compliance project, there is a specific IT compliance project, and there is the legal structure project, and they are all very 2016 heavy. They will kind of run off, you can say, already relatively early into 2017.
Those are.
Sorry, and then to your question on savings, the big investments we're doing in technology, they will have start to show their results during 2017 and 2018 with some kind of accelerated pace, you can say. As we have also indicated that after 2018, these investment will have started having bigger and bigger benefits. They are somewhat, of course, the technology investments are to some degree, will come over time, the full benefits.
Thank you for that. Just to follow up then. You mentioned today that you actually already migrated parts of your current organization from the legacy data warehouse to the future go-to data warehouse infrastructure, as well as within payments, so similarly within payments. Can you mention anything, if you've already been able to shut down the legacy infrastructure and how much that saves? Also in terms of the timing you've been speaking about today, I think you mentioned that the pilot for Finnish deposits will only be completed after the summer. 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?
Yeah. If we look on the core banking platform part of the overall simplification program, 2016 is very much about, you can say, putting the pilot in place and remembering this is still a, it's still in a protected environment. It's not before 2017 we for real will use hit real customers and real products. 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. You will start accelerating the rollout product by product, country by country. It's true that on payment, 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.
Already by end of 2016, we will have delivered on SEPA interbank solutions that will be delivered for all countries. We will accelerate into other type of modules in 2017. 2016 is still very much a ramp-up year for the core banking platform part, and it's already fully, you can say, in implementation mode for the payment platform part. Yes, as we speak, we are closing applications, decommissioning applications. Again, decommissioning is somewhat backloaded, and the full benefit comes mainly when you can close, you can say, or decommission a whole systems of applications and thereby also take the full benefit on the associated processes and people working with these applications. Closing service, license cost, et cetera.
Okay. Thank you very much. That was very helpful.
From UBS, we will now take our next question from Anton Kryachok. Please go ahead.
Thank you. Good afternoon. Just two questions, please. Firstly, on the dividend outlook. The capital generation this quarter has been quite strong. If you face further P&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. The second question on the asset management fees. I saw that you've enjoyed quite substantial inflows and growth in AUM, and yet the fees in the asset management division were a little bit weak. Is it just a reflection of the fact that most AUM inflows came towards the end of the quarter, and therefore you would expect revenues to rebound? Is there some sort of structural margin contraction? Thank you.
Yeah. On dividend, we have chosen a relatively simple approach to the accrual this year. The way it will work is that we will accrue 70.8% of the reported profit during this year. Remembering that that profit will include any reported gains on the P&L. One gain that we already have mentioned in our report is the gain from the sale of Visa shares. When you do that, we have a dividend policy that is only focusing on growing the DPS, 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.
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. That was the main explanation for a somewhat weaker. Actually the structural effects are still positive, i.e., the mix effects are still positive. Mix effect positive, very strong inflow, 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.
We now move to Hans. Please go ahead.
I have one very brief follow-up question on the asset management and one very quick one on capital. On the asset management side, you continuously have even in what I would call a very challenging quarter, strong inflows. Do you have something like? We're hearing a lot from people talking about the fact that you're very strong in your occupational pensions, that you have decent amount of savings plan. If you look at it, what's your quarterly inflow rate if you don't win any institutional business or something like that, just from the occupational pensions and the plans, just to get an idea how much is just has already in signed up growth there. The second question would be on capital. You basically talked at the beginning that you now feel like your buffer is there even with the capital requirements.
Is there any point where you will not say, okay, everyone guide impacts on capital from this new rules that seem to be somewhat lower than the regulator would probably have expected or hoped for? Are you already feeling like you want to build buffers for a next step as the regulator refines that you feel like now with this buffers, you are more than comfortable?
I think if I understood you correctly on the first question on the inflow and so on. I think one of our key strengths is in the fact that we have very strong individual distribution channels. 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. It is a very strong distribution channel. We have the strongest private banking franchise, also very strong. We also have, I think, in the Nordic, the strongest institutional client channel. We have the fastest growing one, which I think is pretty unique from a Nordic Bank perspective, and that is what we call the global fund distribution platform, which is actually a pretty well-developed platform for servicing all or a lot of major banks in Europe, basically serving their private banking clients.
We have been lucky and skillful of having very well-performing products and this very efficient distribution channel. I think that the reason why we are relatively comfortable about the net inflow levels being in the level of between 4% and 6%, as we see now, is due to this very well-diversified distribution set up. It looks pretty solid, and we have no reason to believe as of now that this should not continue, you can say. Of course, from quarter to quarter, 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, we assessed already in connection with Q4 the implications of Swedish corporate risk-weighted assets considerations and the fact that countercyclical buffer would be increased and even the pending discussions in Finland about instituting a market risk weight there also. All of these effects are incorporated either as a capital requirement or on our, you can say, in our RWA forecast. As we stated, we can confirm that we believe that the capital requirement will be around the 16.5%, i.e., 16.5%. We will operate on that kind of capital requirement level. If we look on our capital forecast and including these effects, then we also can reconfirm the dividend forecast we have been given on growing dividend.
We think that from that point of view, 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. If you're using a mute button, please depress the mute button. Your line is open. We seem to have lost Riccardo. We will 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? 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 asset on the upper end. Could you just update us a bit on what your thinking is there? 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. 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 take the other question on retail corporate. It's not that much about risk weights. I think what we have done and we have started in corporate retail is very much the same as we have done in wholesale. 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. That really means that I think we can, and as we have said, 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. It is about driving really profitability and return, of course, customer by customer. Of course, economy in volume that will also then show that not volume growth, but rather return. I think that way we can generate shareholder value.
That's really what lies behind it. Of course, I think we see already the signs of it, but over time you'll see more. On Panama, of course, on Panama, this has raised a lot of questions. At the moment it is more questions because we really need to know the facts. I think what I've said, first of all, is that we have had very clear policy procedures, et cetera. We do not allow the bank to be used as a platform for tax evasion. That we have had in place. 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.
We have also taken external both advisors, both on tax and the whole methodology and procedures here. I think we have a very rigorous internal investigation going on. We will know the first stage of that investigation by, I would say June. We will probably come out no later than, I think, Q2 to talk about it. Then saying where that leads is more speculation, because at the moment we just want to know the facts. I emphasize that we have and have had a very clear policy on tax and processes in place. Now it's about getting facts and with very close coordination and cooperation with the regulators. I think that's going as it should.
Okay. Thank you. Can I just on the retail corporate side, when you say increase margins and increase profitability, would you be able to give any kind of scale of that margin or that ROE and the volumes you're talking about?
Well, I don't think we are discussing here, as we have not planned for giving any specific guidance on that. I can say that this as part of all the other repricing. If you combine the totality of our repricing efforts, we are talking about efforts that is in the area of EUR 100 million plus efforts in combination. I think that's the closest we can get to that.
Maybe another one, which is a longer, of course, when you look at what we have done in wholesale over the last three, four years in terms of driving the profitability year-on-year, we've done that without actually really driving volumes. That really shows the discipline on how to create shareholder value.
Okay. Thank you.
We will come back to that over the next quarter.
Thank you very much.
From Credit Suisse, we have Jan Wolter. Please go ahead.
Hi, Jan Wolter, Credit Suisse. Thanks for taking the questions. A couple of follow-ups from the presentation in Stockholm. First on the RWA add-on of EUR 1 billion this quarter, clarification there. Does that relate now, is that a governance buffer and what is the add-on in total now for governance issues would you say? I think you alluded to 80 basis points earlier. That's my first question.
Yes. To start with your last, the governance add-on is EUR 1.5 billion of which close to EUR 1.2 billion is Core Tier 1 capital requirement, and that equals around 80 basis points. That has been the same since, was it Q2 actually we reported this last year. That's kind of there. As we have said we expect that to stay there for probably at least until SREP process 2017. As you also recall, the reason for this was that we needed to strengthen our second line, and that we have done. Second line have conducted a review of the whole IRB system setup, and that is pending, and we expect a decision by second line during Q2. For prudency reason, as we know that there most likely will be some kind of an addition, or you can say RWA effect from this review.
We have, you can say, provision EUR 1 billion this quarter in advance of the final outcome, which we will know in Q2.
Only know in Q2.
You can say it's governance related, but it has as such nothing to do with the governance add-on. You can turn it around and say that the fact that we have now established this and we have conducted the review, everything else equal should support us in, you can say ultimately, being allowed to release the governance add-on of 80 basis points.
Thank you. All in all, related in one way or another to the governance area, there will be post this quarter around two and a half billion EUR in add-on. If that's correct, 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. 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 RWA. Now the situation starts improving in Denmark, no one knows, but of course we are using these models used, I think it's typically 10 years of type of averages, so it goes relatively slowly. At some point in time, this effect might be less. It might be more. Right now it could indicate that over time this will be less. 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 basis points away. That's the main focus, of course, for now. Then the credit quality will develop as it does, we will set it up against the model predictions.
Thank you. Another question. Do you believe that there is now risk for Danish deposit rate cap again? We've seen the Danish kroner strengthen again against the EUR. If so, do you see any natural mitigation actions that the bank could take if that happens? Thank you.
I have stopped speculating what rates will do, but I can assure you that 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. Of course, 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. As you also know, the whole rate situation in Denmark is a little tense as of now. There are also, of course, timing 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.
Afternoon.
Two questions from me, if I may. The first one was on capital, and obviously, the 20 basis points you are able to take from Nordea Life. That is quite encouraging. How should we think about potential for more capital upstreaming and potential over the next coming years for that? Because that looks like it is a bit of a tailwind. The second question was on credit quality. I guess, 30 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 are nervous about there? Thanks.
Okay. If I should start with the Nordea Life question. Yes, I think we have very good development in Nordea Life. We paid a dividend of EUR 220 million for 2014, and we have now paid a dividend of EUR 300 million for 2015. Despite having done that, we still look very comfortable about the Solvency II requirements. The legal requirement is 100%. We are applying quite a conservative buffer that we should try to stay within 125-150 basis points. Actually, the outcome seems to be in the level of 160%-170%. 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 Nordea Life Group, we are taking all measures to be able to continue paying our dividend from Life.
In credit quality and oil and offshore, oil and gas segment, our view is relatively unchanged compared to what we discussed one quarter ago, that we clearly see that there are individual customers who are in problems in this quarter. There were two 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 do not expect that, especially in this 2016, we would see this kind of material increases. It is very difficult to give any kind of a specific guidance. 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.
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. 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 Ronit Ghose from Citi. Please go ahead.
Hi. Yeah, it's Ronit from Citi. I just want to pick up on 2 questions. The first one is on costs. I'm looking at slide 21 of your presentation deck. You've given us the cost increase 2015 and 2016, 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. 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 saying you're going to deal with AML hiring this year, but are there other areas that we could get caught out by collectively going forward?
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 impact on NII should be baking into our expectations for Finland, or are we 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 2015 and will continue into 2016. 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. You want to go through your full portfolio, and you want to establish good procedures. Of course, what we ultimately want to do is to run this in a very efficient way, meaning automated processes, digitalized process, also on AML and KYC. These investments are going on at the same time. The efficiency of running these type of processes will, of course, improve over the years.
I think we have been through a number of phases as all the big banks. I think maybe in this respect, we are closer to some of the European banks. Yes, you are right, U.S. and U.K. banks probably were the first one to move on this. Now we are fully moving, and I think in a few years' time, we will have a very advanced set-up on handling this from a process and operations type of view. Therefore, what we are trying to indicate is that we will into 2016 and 2017, we will see increased running costs from this before we can start seeing them coming down. Then, of course, we think it will be kind of permanent that you will have higher second line organizations. There will be a running cost effect from that, which I think all banks will experience.
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, we don't guide as such on country level. 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 market repricing in Finland, where we still have a spread front- to- back book of 15 basis points. Growth, of course, is always an issue. The underlying growth 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. Of course, the volume factor is difficult to fully estimate with. There's no reason to believe that we will not as such see an improved margins. Volume, of course, we will have to see for Finland.
Thanks for that. I get the NII answer. It's clear. Just going back to the cost. I hear your answer, just was about the investments you're putting in and your greater scale compared to some of the other smaller banks in the region. I'm just thinking, looking ahead, given that you've baked in between 2015 and 2016, some specific costs to do with compliance and IT remediation. If I'd missed something in 2017 and 2018, as in other, are you saying basically there are no further incremental new compliance related IT investments in 2017, 2018, or is that as part of the general cost drift, or is that you're going to make some investments and then you're going to offset those investments with savings such as RegTech and so on?
Yeah, I think that the compliance and IT remediation projects we allude to, there are two big projects. One is very AML, KYC oriented or compliance related to processes, including systems that are ramped up, and the majority of that work is happening in 2016. You can say the project cost of this will go down in 2017, while running costs 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 this project cost. It's a project, so somewhat into 2017, this project will be closed and so will the compliance AML project. Of course, there will be line responsibility.
There is the legal structure project, which is also a very specific 2016 project that will be what is very limited cost related to that in 2017, if anything. 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 EUR 100 million. You have the ordinary cost inflation of around EUR 100 million. We have the gross cost savings, as mentioned, of the EUR 200 million. There you are, around flat. That's the way we're coming to flat for 2017 and 2018. As you also allude to, there is of course a number of moving parts here. Looking further ahead, I think we can make many of these processes even more efficient. Probably not already from 2017.
That's what I'm trying to say also that many of these 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%. 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. 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. Specifically what they said was that there would be no impact from the op risk proposal as it stands. Secondly, no impact from the PD floors and so on, that the key sensitivity was the output or capital floors. Could you give us your view on that? I just have a follow-up question. Thank you.
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. Of course there might be different approaches to this. If we take them one by one, then you are correct that on op risk, there are basically two 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. The parameter floors 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.
I think it's also clear from the proposals that the main issue is of course the capital floors and how they are calibrated, and the sensitivity there is obvious. Depending, of course, on the level, but of course more interestingly on what does the home regulator then do on the requirement side. Net of all of this, I think there's obviously interesting calculations to be done, but the sum of these Basel proposals, I think in all honesty, it's somewhat premature to discuss specific numbers or implications. We might review that as we move along and get a bit more insight and certainty around the numbers.
Okay, great. I guess the second part of my question was what level of capital floor do you think, if we all agree that's the key sensitivity threatens the EUR 0.64 dividend. I guess if you can't forecast one, you won't forecast the other.
No, but as I said, and first of all, let's see when this exactly is fully implemented. As I said also, especially on the capital floors, 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 it can have quite significant implications. That, again, saying that this is an analysis where we only own some part of the outcome. It will be very dependent on how exactly the capital floors are calculated.
Yeah. If we just play with a scenario that a capital floor did come in and say it was at the very low end of 60%-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?
I think, Omar, 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 2016 versus 2015.
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 the level playing field issue. Yes, we obviously have one of our Nordic peers that are at least currently exposed to somewhat more lenient rule, as you say. There is, of course, a transformation period. They will get closer to where the rest of the Swedish banks are. I think that's a potential, of course, a concern, and it can create competition issues not only in Denmark but also in the other Nordic markets. We have, of course, raised that concern.
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 Nordea would be mostly on Sweden's shoulders. Do you think that on the back of your transformation, any kind of systemic risk buffer, CCyB buffer, or whatever could be imposed to you again?
I don't know, to be honest. I think it's too early to speculate in that. I don't think I can comment on that. I don't know.
It's I think speculation.
All right. Okay. That's fair. Thank you.
As a reminder, if you'd like to ask a question, please press star one to signal. As a reminder, if you're using a phone with a mute function, please make sure your mute button is turned off to allow your signal to reach our equipment. We will take our next question from Daniel DuBois from JP Morgan.
Sorry, operator. This has to also be the last question because then we need to catch a flight. Thank you.
Daniel DuBois, JP Morgan. Two very quick questions. The first one was, I think, Casper, you mentioned this morning the positive repricing potential in Swedish and Finnish mortgages. I noticed you didn't mention Denmark in that context, should we not expect the institute to follow the Nykredit repricing? Secondly, in addition to the gains on Visa Europe, are there any other potential gains, for example, from property sales that could help your capital generation this year? Thank you.
On your first question, yeah, obviously, Denmark is not exempted from repricing. As you also point to where Nykredit has been out there with some suggested price adjustments, and I think they will carry that out. There's been a very intense discussion in Denmark about this. I think you should regard more our approach to Denmark, a Danish market repricing as a timing issue. Obviously, this is a window that we will try to exploit as quickly as possible. 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 optimal owner of. That we actually are always pursuing, but aside from that, I don't think we can discuss that.
Okay. 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 Sorry?
An opportunity to reprice.
Okay. Thank you.
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 Emma. We will be open late tonight, and we will meet you in London tomorrow as well on the lunch presentation.