Good day, and welcome to the Nordea Bank First Quarter Report 2014 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rodney Alfren, Head of Investor Relations. Please go ahead.
Thanks very much, and welcome all to this presentation of the Q1 2014, Lucaal. With us today, we have Group CEO and President, Christian Clausen Group CEO, Thorsten Haggen and Group Chief Risk Officer, Mr. Ari Kapyrid. So we will start with a brief presentation and then we will open up for Q and A.
Kristian? Yes. Hello, everyone, and welcome to this meeting. I will not go through the presentation. I'm sure you're already pretty updated on what we have been saying during the day.
Just want to say that for this quarter, we have delivered according to our plans. And maybe more importantly, we have also delivered in in the future relationship model, which we believe is very important. So also laid the foundation for delivering going forward. It has been a quarter with low lending growth as expected more or less stable, but we have been successful in especially our corporate advisory business and our savings area, but also in retail and attracting new customers. And especially our net fee and commissioning income is actually up quite a lot year on year.
So all in all, we deliver a result which has a small growth in the top line, costs well under control, dollars is down, so operating profit is up sort of 10% with a good result of return on equity. And we felt quarter 1 ratio which now including fully COD4 is 14.6 We're also saying that we're delivering according to our plan, our 3 commitments which we launched 1 year ago to build capital, increase payout ratio to reach 13% ROE on the required COSI-one ratio and keep our volatility low to our well diversified business model. And to that, we launched 3 buckets of initiatives and they're all delivering the capital initiatives are clearly delivering with a core capital ratio higher than we guided for 1 year ago and very much in line with what we are doing on our risk exposure and also very much in line with what we have planned for. Income initiatives following also our plan, sell some repricing, new core customers continue to happen. And we have now for many years in a row delivered between 3% and 4% growth in a number of core relationship customers.
And then the accelerated income very much dominated by a strong activity in the big corporate market. Capital markets, we are leading ECM, DCM and all these things. So the wholesale platform is delivering very well. Also we are delivering well on savings and asset management, the highest inflow for 10 years we had this quarter Broad debate throughout Europe, international institutional business, but also with a very strong foundation in the Nordic retail markets where we are very strong and gaining market shares. And the cost initiative is also delivering.
We are delivering another $45,000,000 of our total cost efficiency. We are also finalizing the plans here in Q2. We're actually executing them part of them already, but finalizing them We will have the Q2 come back a bit more precise exactly how, but we will deliver 5% lower cost in 2015 than we had in 20 13. So all in all, delivering on the plan, delivering on the quarter and building the business model the future. This was my opening remarks.
So now the floor is open for questions.
So operator, please open up for questions now.
Thank We will now take our first question from Hakan Furey from DNB. Please go ahead.
Yeah. Hi. Good afternoon. Two quick questions from me. Firstly, on I noted that your coverage ratio on shipping improves quite substantially in the quarter.
How surprised would you be to see continued reversals on the shipping side in Q2 and Q3? That's the first question. And secondly, in terms of your remaining REA efficiency, could you provide a figure for how much of that's related to FSA approvals? Thanks.
If I start from the shipping, what we have done now in the previous quarters is that we have been active on the secondary loan market. We have sold our impaired loans so this is the credit. And then those sales they have we've been successful in that way that no single one of these transactions has triggered the need of increasing loan loss provisions we have made earlier for those old credits. We will still continue to sell in Q2 and maybe some tails in Q3 of the same same type of credits. And of course, if we can continue this practice and experience we have been able to conduct in the previous quarters, we may see some recoveries.
I'm not able to indicate any kind of precise figures, but it's fair to say that we can expect more or less this type of development to continue. But then after Q2 and latest Q3 that type of sales are done in our portfolio.
Yes. And on IE efficiency, we have stated that we have accumulated a amount of €18,000,000,000 in efficiency and meaning remaining around €17,000,000,000 And slightly more than half of this is dependent of FSA approvals. Now this part being dependent on FSA approvals are a broad range of different applications. So we are not any more dependent on any major single application, but around slightly more than half.
Thanks. That's very clear.
We will now take our next question from Davy from UBS. Please go ahead.
Yes. Good afternoon, everyone. A couple of questions please from my side. Firstly, if I could just ask you to focus a little bit on the Finnish business, which has continued to show some pretty strong momentum despite some of your cautious rhetoric around the macro situation there. Clearly you've seen very dynamic NII growth in the last year.
I think each quarter that we asked you about it, you said it's relatively isolated parts of the book where you've had some success at repricing. But now we're up 30% year on year in local in net interest income terms. I'm just trying to get a sense really of what continues to surprise you there and for how long this could be a sustainable trend. Secondly, I don't know if it was just my line, but I missed some of those risk weighted asset efficiency numbers that were just mentioned there, please, as far as the range left outstanding and the pro form a core deal on the range that you used to give? If you could just update us on that those two numbers please.
Thank you.
I guess from the Finnish situation, the macro outlook and development in Finland has been sub huge, so that it was minus GDP growth in 2012 as well as in 2013. So the macro picture is said quite bleak. And then there is no expectations of rabies that have that. And I think the forecasts are indicating between 0% and 0.5% GDP growth this year and a little bit higher in the next year. So that the market environment is still quite difficult in Finland.
What we have been able to do is, as you said, re pricing our portfolios both on the corporate side as well as in the household side, especially in the mortgage book. There are still some opportunities. It's clear that there are opportunities or that average mortgage margin will still go up in the coming quarters with a slower pace however. But perhaps a bit positive surprise has been also to us that we have been able to also be increased at the corporate average margins more or less quarter by quarter. We think that the potential there start to be more and more limited, but at least there are no indications that the margins would start to come down in Finland perhaps especially explained by this bleak in Finland, I can repeat what I have said in previous quarters that in the short term, medium term, we don't have any kind of indications or signals for the deteriorating credit quality.
But then of course, we all are mindful about these potential risks that Finnish economy is having ahead of it, especially coming from the Russian situation. So that still we are quite cautious on the market environment.
And just to repeat on the REA efficiency program. We have earlier indicated that €35,000,000,000 of RVA as the efficiency target. We have delivered €18,000,000,000 So €17,000,000,000 is remaining. And that also means that compared to the guidance we have given earlier that we maintain the view that as the regulatory negative impacts are getting smaller and smaller, the net contribution from the RDA efficiency program should mean that we can further improve 1 to 1.5 percentage point on Core Tier 1 within the next 17 7 quarters I. E.
Before the end of 2015.
Very clear. Thank you.
We will now take our next question from Johan Ekblom from Bank of America. Please go ahead.
Thank you very much. Two areas that I'd like to explore a bit further. Number 1 is on the fee income side, which you and I guess the whole peer group has had a very strong start to the year where the normal Q1 seasonality has all but disappeared. Just thinking ahead, to what clearly there's been a positive underlying momentum in most business units, not only this quarter, but for all of last year. But how should we think about this going forward?
To what extent was Q1 the result of some lumpy one off fees? Or how should we think about the run rate in the quarters to come? And then secondly, if we can just come back to or come to Russia. I mean, clearly, you have a meaningful exposure in Russia. I think you said at the press conference this morning that the business there is either either state controlled or strategically important corporates.
Aren't these exactly the corporates we should be worried about exposure to if they end up on sanctions list? Or is there any way you can isolate yourself from that potential impact?
Okay. I would like to try with the on the momentum on the net commission income line. I think we had a strong Q1. However, as we also elaborated about in the call earlier today or in the meeting earlier today is that, if we look on the drivers behind this, single segments. It's actually with a more healthy composition retail private banking versus institutional than earlier.
We also see a quite interesting change in composition on towards the high fee type of products. We see a continued investment in the Asset Management Private Banking franchise in the Nordic as well in our international business, the Global Fund Distribution arm, etcetera. So I don't think there's any reason to believe that this should not be able to continue with a quite high and stable delivery. And the same orders goes for our corporate institutional franchise where we are continuing to build stronger capabilities meaning that participation in big syndicated deals, IPO etcetera should continue to materialize. And then of course, you have the more volatile type of I mean more directly transaction related fees that everything is equally expected to continue with a rather stable growth rate.
So yes, Q1 was strong, but we see a continued strong positive development for this type of income.
I can continue on this Russia. You're right. The way you describe our Russian portfolio so that the 2 main customer segments are the Nordic corporate customers doing business in Russia. That's a minority and then the majority is largest Russian corporate customers. And of course, who knows where the sanctions are going to be extended.
But I would say that, of course, it would be quite extreme to think of that type of scenario that all these infrastructural Russian companies governed indirectly or directly by the Russian government could be sanctioned because of course the point is that they are exporting companies and there are of course then counterparties quite
remote
scenario that those customers would be quite remote scenario that those customers would be sanctioned. Then again if they would, I think that we would see that type of scenario ahead of us which we faced and experienced in the financial crisis in Q2, 'nine when the international banks exited from the Russian companies. And then those companies they were refinanced by the Russian government. So that at least immediately I would say that as long as the Russian government would have funds available that would not cause any kind of crisis situation for these large Russian corporate customers. But of course, that would be an extreme scenario and that would not last long.
It could be solved in a way or another. Whether we could isolate ourselves from that type of scenarios, in Russia and we have these corporate customers and we don't have any plans now to immediately exit from that market. That would be of course alternative way to think, but we are not going for that route.
Just if I may ask a follow-up on the question on Russia. I mean the have you changed the way you conduct business in Russia? Are you still happy to fund as much of that business from the group center? Or when you take a 5 year view, has your outlook for Russia changed efficiently that you think that you have to run that business differently today?
We are of course still funding it as the majority of business in Russia are conducted in U. S. Dollar or partly in euro and also to a limited extent in ruble. And we have secured that the Russian bank is well funded and well capitalized to run its business. However, it's also clear that we are very careful in managing extending new credit and we are very clearly also trying to mitigate mitigate withdraw up on credit facilities etcetera, etcetera.
So of course, we try to adjust to the situation. But remembering that our Russian franchise even taking into account the risk level etcetera in Russia, we have even on a risk adjusted basis, we have quite healthy profit on our Russian business. So once or further, we have seen no reason to fundamentally change the strategy for one of our Russian business. But of course, we have a number of short term mitigating actions in place to control the situation.
Perfect. Thank you very much.
We'll take our next question from Omar Keenan from Deutsche Bank. Please go ahead. Good afternoon. Thanks very much for taking the questions. I just had a follow-up question on fee income.
It may have been answered earlier, but I missed it. You talked in the Q4 that you'd be able to maintain the 2013 fee income growth into 2014. Do you see a scenario where the full year can exceed the 2013 growth rate in fees? Or should we not be extrapolating this quarter? Then my second question was just on costs.
Have are you able to give kind of any indication what kind of restructuring charges and timing as to when you'll take those? Measures between the different divisions is going to be? Thank you.
I think we have guided and we'd like to repeat that that we do see the net commission income as the strongest driver of of income is the strongest income driver in 14 compared to 13 on all the different drivers we are talking about volume repricing etcetera. But we have not and I don't think we will guide more specifically on any adjusted growth rate. But as I said before, we do see Q1 as a strong performance. However, we also see a number of indicators signaling that we might continue to see very good development on this line item. And on the cost program, you're right that we will include you not only be more granular on the content of the program, but also including a a first estimate on the needed restructuring provision.
Okay. Thanks very much. Could I just possibly ask a follow-up question? There were some comments earlier in the day about additional releases in shipping provisions. Are you able to give us kind of any order of magnitude just kind of put it in the context of the existing stock of provisions?
Thanks.
Sorry, I'm not willing to indicate any kind of exact amount or magnitude so that what you have seen now in Q1, Q2 is we have today and as I explained a little bit earlier is that we are still active or have been active in Q2 in selling into secondary market these discrete credits and that will trigger some recoveries. And then so far we have not seen any new problem customers coming in the portfolio. So that because the market seems to stabilize especially in those shipping segments we are active. So that sorry, I can't indicate any kind of specific numbers, but good proxy is what you have seen.
Okay. Understood. Thank you very much.
We will now take our next question from Riccardo Rovere from Mediobanca. Please go ahead.
Good afternoon to everybody. Just a couple of questions. First of all, if you can elaborate a little bit more on the residual $17,000,000,000 if I understood correctly, REA mitigation efforts, because it seems to me quite a pretty significant number. So do you expect, I don't know, standardized exposure to migrate to IRB or whatever, if you can elaborate a little bit more? And secondly, on revenues in general, but more specifically fee income, What we have seen in this quarter, how much of this was completely macro driven and how much was, let's say, managerial effort?
And do you see in the coming quarters, let's say, macro as the main driver, maybe rates going up, markets to be benign maybe as the main driver of the revenue growth or let's say stabilizing at these levels? Thank you.
I think I heard you correctly on the first question is more details on the REA program and what do they conclude. And as we said before, slightly more than half is related to a long list of applications. It's both the rollout type of models for advanced of foundation or it's on specific rating models. So that's a long list of these type of elements. And then there is a big part of a number of house cleaning exercises, reclassification, data quality, collateral related provisions related type of initiatives that constitutes the other half.
And then I'm sorry I didn't fully get your second question actually. I
just I was just wondering how much of the revenue growth that we have seen in this quarter is macro driven? And how much was managerial effort? And if you think that going forward, do you think macro is going to be the main driver of further revenue growth from the level that we have seen in Q1, especially I don't know rates possibly to go up one day, markets to be benign? Or is there any particular area, specific area where you think management on revenues can have a significant impact?
Yes. But I think we may have answered the question. But to be a bit more precise on the fee commission income, it's an integral part of our strategy to build our wholesale platform and to grow on the savings side. So the savings side has now grown 3 or 4 years in a row by double digit CAGR. So whether it continues or not of course, relates best to the investment climate and so on.
But what we know for more or less certain is that the savings among our wholesale customers is going up and that's not only in our area, that's throughout Europe. So I think on the savings area, we will see savings inflows. And then what happens on the investment performance is of course depending on the markets. But growth is certainly something we expect here. On the wholesale side, we have built this platform and we are part of more or less all deals happening.
So of course, it's partly macro related how many deals is happening, but we still see a huge activity in the corporate side where they do M and A, they purchase or merge with companies with close gaps on the product side or geographical side. They also strengthen their balance sheet. They do corporate they do bond issuance. They do equity issuance and so on. So we have quite a lot of activity and it's of course partly macro, but not really because the cycle is as you know.
So in reality, we do expect this growth to continue maybe not on the same speed that remains to be seen. But this is an integral part of our strategy. So it's not macro I would call it. Then when you start to talk about interest rates changes and of course the biggest driver for top line we have at all in the group is of course if interest rates start to move up when deposit margins start to normalize. We have indicated sensitivity towards that and that's significant.
So obviously, it is a situation where any pickup in macro, especially interest rates will be very meaningful to us on the top line. All in all, we are not expecting in the short run any major pickup in interest rates. We're not expecting any major pickup in growth, but we could expect the present environment to continue at least for some quarters and that's what we're doing. So low lending growth, some corporate activity and quite a lot of savings activity. That's what we expect to happen.
But of course, at the end, a lot of things will become macro oriented behavior of customers change when macro change.
And if I might just add, I mean, we are talking about specifically in Q1 performance remembering that the factors we control the lease the FX and rates that has actually been more of a headwind in Q1. So it has been despite FX development and despite continued very low rates that we have delivered the results we have delivered. So I think macro headwind in Q1 is probably more the fact.
Okay. Thank you. If I may abuse have used 5 seconds of your time. When you say we're talking about interest rate sensitivity, I remember previous guidance of roughly $500,000,000 for 100 basis point parallel shift of of the yield curve. Is that still roughly valid?
Yes. Okay. Thanks.
We will now take But
you can add to that is that we are getting more sensitive when interest rate goes down because we're getting basically close to 0. But you still have the upside is still the same. Yes. Of course. Congrats on this.
Thanks.
We will now take our next question from from Barclays. Please go ahead.
Yes, hello. A couple of questions from my side. First of all, when I look at your volume growth, it looks like it's lower than what some of your peers has reported last Friday and this week as well as the public statistics for the donations in aggregate. Does this and then I appreciate that it's difficult for you to compare yourself with your peers, but would this reflect a deliberate prioritization within Nordea to avoid well due to prioritize declining or stable RWAs over volume growth? Or is it simply explained by low demand from your customers?
And my second question is just to elaborate a little bit further on your confidence around the fee income from corporates. Is that confidence based on visibility of a strong pipeline and a strong April so far? I'm asking that as I put that in contrast to if the strong Q1 was due to sort of pent up demand, which you might have had visibility of a long time discussing with clients and now it finally materialized as in contrast to continuous inflows. So if you just could perhaps describe a little bit on your visibility of the demand for various corporate transactions? Thank you.
Yes. No, but I think that as we have stated many times before, we are not pursuing any type of we are not so focused on market shares. And I think there's partly a mix effect here in the countries we are in. We are in the large corporate area. We are still very keen on selecting the right exposures and the right customers.
And there you still will see some effect of the deselection. In the retail corporate space and in the household area, I still think we see volume development somewhat more in line with the market. So no, we don't aim to be lower, but I think mainly within the CIB business we are we still have these effect in there. Plus the fact that many of the customers that we are targeting, they are currently very active in the off balance sheet type of financing. And then on the fee business corporate fee business in Q1, I don't think we can say we had any extraordinary type of either transactions or issues impacting Q1.
And I think currently the pipeline looks strong, but I mean we don't have visibility of course very far ahead on this type of pipeline as it is very optimal change in character. But we can only refer to the point we have made at the end of the year. I think we have very strong capabilities within the corporate advisory area.
Thank you. And if I can just follow-up on the deselection that you mentioned. What is it that drives that deselection? Is that because some of your peers price lower and you choose not to compete because the macro is unfavorable in those segments? Or any other decision rationale?
Yes. But the decision rationale is that we also for large corporate institutional clients increasingly apply a relationship attitude and that we are increasingly are deselecting a type of stand alone customers where we can only do you can say balance sheet type of use our balance sheet to lending. And if there's not an adequate amount of ancillary income and total fee to be generated from the customers they are deselected. And that exercise has been going on for a while and I think we quite successfully have executed on a big part of that being through the totality of our portfolio of corporate customers. And that is still the case in certain markets and segments more than others.
But that's the work still ongoing.
Yes. Thanks very much. That's all for me.
We will now take our next question from Sophie Petterzen from JPMorgan. Please go ahead.
Yes. Hi. Here is Sophie Petain from JPMorgan. I had 3 quite short questions. One was about Denmark.
Losses are still relatively high at 42 basis points. And also I noticed that your impaired loans were up a little bit quarter on quarter. How should we think about Denmark going forward? And when should we start to see a little bit more normalized losses in Denmark? And my second question is around your capital.
You will get 20 sorry, 50 basis points of capital improvement in the second quarter from nets and Poland. So that takes your kind of pro form a Basel III to 15.1. And then you mentioned that you still have around 17,000,000,000 of spending RWA reductions, which means that your pro form a Basel III core equity Tier 1 is over 17% versus 14.5% target. What are you going to do with all this excess capital? And lastly, there is a Bloomberg article this morning or today saying that you're potentially considering selling some of your units.
I was just wondering which units would you potentially sell? Thank you.
Was I? Was it me? Who was quoted on Bloomberg? I don't think we have said that at all. But anyway, we're not expecting to sell anything right now.
As we said when we exited Poland that that was one business unit which we had difficulties in using a plan that would deliver the expected the required return. So we said this was the one. And now having done that, we said that we had plans for other units which would deliver on our return targets over time. I don't think we have anything instead anything around wanting to sell. But Denmark?
Denmark, I can elaborate a bit on our thoughts. Yes, you're right. Still the loan losses are at the elevated level. And we have said in previous quarters that they still will be in the coming quarters. Now of course then the question is that when that will be changed.
I think that it's fair to say that this type of stable reduction will continue for a while, so that I'm not expecting this kind of very quick drop in the level of losses, but this trend will continue. The reason for these elevated losses is still that there are these kind of buckets of portfolios where we have where there are customers in problems. It's in agriculture. It's in there are some asset prices coming down in remote areas. And still there are some SME domestic or domestic SME clients who have suffered from this environment.
Then again all these macro indicators are relatively strong in Denmark. There has not been any kind of negative surprises. So that is the reason that we don't expect Heneka change in this reduction of low losses. So that still we should be expecting continued decrease in the coming quarters.
And if I should make a comment to your the capital issue you brought up, you are right that we have guided that Poland will improve although our EEA with something equivalent to 25 basis points. And net remembering that we are now have a dividend accrual of 56% of profit and gains. And as net will come in as a gain, the net contribution to core Tier 1 and Q2 from net, if it closes, will be more in the level of 11, 12 basis points. And then as we have also warned a little then of course for the quarter on quarter be careful about the IA efficiency program will not come in a smooth way. It will be from quarter to quarter you can have deviations.
And as we have also indicated, we have some unfortunate small delays in some of the FSA dependent approvals. But you're right there everything else equal. We do expect to build quite a lot of excess capital in the next couple of years. And I think we have also been relatively clear that our ambition is to pay out an increasing share of our own profit as we are building this excess capital.
Okay. Great. Thank you very much.
Can I just add on to this Bloomberg, which I now have had the chance to read? There's been quite a few articles today, so I haven't read them all. But I can just say that everything in the article that's saying that we have 20 business units. We have plans for them all. They're all delivering the returns we require in the plants, but we are monitoring closely.
And if they do not deliver, we will take action. And that is correct. We will take action. If they do not deliver, we will cut cost or work on capital and restructure or even sell or do whatever it takes. But as I said, there's no such unit today, which do not have a plan that do not deliver on our required target.
So most of the content is right, but not all.
Okay. Excellent. Thank you very much.
We will now take our next question from Matthew Clark from Nomura. Please go ahead. Your line is open.
Good afternoon. A few questions, please. First one, could you let us know the group loan growth in local currency terms? It may be in one of the presentations. I'm afraid I haven't found it.
Second question is on the roll forward of your Basel III Common Equity Tier 1 ratio. There was a 35 basis point headwind from other effects. Could you just elaborate on what those were? Because clearly, they ate up the benefits of risk weighted asset deficiencies this quarter? And then final question, there seemed to be quite a nice increase in fees within the Banking Denmark division in the Q1 compared to the Q4.
Could you just tell us what was behind that pretty chunky increase? Thank you.
Yes. The loan growth in Q1 is that Yes. It's
a very, very stable trend. It's largely unchanged both in corporate and household if you look into the in local currencies. It's very unchanged in local currencies. Then you can say we had somewhat if you look at the average corporate lending volumes, they were down 1%, but the optimal numbers are more or less the same level.
In local currency. In local currency.
And just following on from that, do you stick to your 2% full year loan growth expectation?
Yes. I mean, we you can say that the FX headwind has of course that is difficult to plan with. But around this level as we're now holding a very low single digit growth is what we expect and it will be hopefully in the area of dividend, but yes, we maintain that view. Thanks. And then on your capital question, the 35 bps headwind you are referring to is partly related to the annual PD of the 35 is relating to this temporary rule of having to deduct unrealized gains from our available for sale portfolios.
And these 20 basis points will basically be reversed Q1 2015. Thanks. And finally your question to the fee development in Denmark Q4 Q1 compared to Q4 is actually that the big December auction in Denmark there's a lot of fees related to that refinancing going on in December and they are booked in January. So you also have the same effect to Q4 over Q1 last year or yes in Q13. So this is a recurring type of event you can see.
Okay. Great. Thank you.
We'll now take our next question from Jacob Proust from Autonomous. Please go ahead.
Hi. Thank you. Just two questions. Firstly, there's this expectation that the FSA will publish a paper on Pillar 2 requirements and buffers. I just wanted to ask, is it your sense that this is the final building block for your capital requirements?
Or do you feel that they will that this is another halfway point and they will add additional rules and initiatives post that point? And secondly, just on margins, if you could say something about what kind of dynamics you're seeing on Danish and Norwegian mortgage margins? Thank you.
Yes. We have reason to believe at least based on the feedback that they are they will attempt to come with a finish on regulations. So we do expect that we will be able to settle on our capital requirements when we get the paper most likely in the mid to end of May. And on mortgage margins in Denmark and Norway, remember in both of these markets, we are not the market leader on mortgages. And I think there are reasons to believe that both in Norway and in Denmark, the market leaders have all the incentives to find ways to reprice.
And we will in most instances be more than happy to follow quickly after if repricing is is materializing in these markets.
Okay. Thank you.
Sorry, what you may add there
is in Norway, we have reduced mortgage margins with effect from May, but we will also marginally negative if you're talking very few €1,000,000
Okay. Thanks.
We will now take our next question from Jan Walther from Credit Suisse. Please go ahead.
Yes. Jan Wolter, Credit Suisse. Just a couple of questions from the conference earlier today in Stockholm. First one, in what business do you see the largest incremental revenue growth in euro terms next 2 years, Private Banking, Wholesale Banking, Wealth Management or where do you see it? So that's my first question.
And the second one if just could confirm the quarter one impact in the second quarter from the divestment of payment company nets and the Polish deconsolidation? Thank you. Thank
you.
Yes. I think that in nominal terms is of course an interesting way of looking at it. As we discussed this morning, my view is that with the highest urgency, I think we should expect we're talking about 14 to see it from wholesale banking where we have quite big numbers already and we have a strong momentum. But we as such don't guide on business area level. And what I said on core Tier 1 impact from nets and folding in Q2 was that you should expect a core Tier 1 25 plus around 11, 12 net as the gain of net of 25%, 56% of it is accrued for dividend.
Thank you. And in terms of your expectation or your ambition at least to grow the Wholesale Banking operation, can we see that the risk weighted asset growth and capital consumption here, which is probably a bit higher than in the retail operation, is that captured in a more optimistic view that the company had to move to closer to a 70% payout ratio or above please?
If I just may remind you that I mean the Board's ambition is to raise the payout ratio both in 2014 versus 2013 and then 2016 versus 2014. And then we will come back with more details on that once we have regulatory clarity.
Okay. Thank you.
We will now take our next question from Hakan Furey from DNB. Please go ahead.
Yeah. Hi. A quick follow-up question on that in terms of the Board's ambition to raise payout ratios in 2014 relative to 2013. Does that include the net gains?
I mean, we are saying that we will raise the payout ratio on the net profit. And obviously, net will be part of the net profit.
Okay.
Mist will not Mist of course will not change the payout ratio. It will increase the amount.
Yes. Thank you.
We will now take our next question from Omar Kinan from Deutsche Bank. Please go ahead.
Hello. I just had 2 follow-up questions on net interest income. The first one was just on funding. You talked in the past about the second half being the inflection point in funding cost. I was just wondering if you can give us some color around that.
And kind of related to that question, do you see any kind of headwinds in the group treasury division that you saw in Q1 carrying on in the next couple of quarters? And then I just had a second question on mortgage repricing in Denmark. You've had one of your competitors already have a round of repricing on the 1st January. So was just hoping to get some of your views as to structurally what do you think kind of type of margins that the market is moving towards? I mean, what is the kind of magnitude we're talking about 10 bps further margin increases on adjustable rate mortgages?
Or do you see an
have indicated that funding costs during first half of twenty fourteen would start benefiting NII. And I think we can confirm that is the case as we have for the first time in our long term, we have more than a neutral effect in Q1. So I think we can confirm the view that from Q2 they will start making a positive contribution. And I don't think we as such had headwind in treasury in Q1. We I would rather say we had a on NII we had some very good rate related deals that went very well in Q4, which was not repeated in Q1.
So I think actually we had a quite good level in our eyes in treasury in Q1. And finally on mortgage repricing, we have seen an improvement on mortgage margins in Q1 that was small. But as we also have discussed earlier, we are not the market leader. So we will of course carefully watch what the others are doing on this. And I don't think we can say much more than if opportunities arise over more significantly, but
neither on the corporate
side or on the household
side in general being neither on the corporate side or on the household side in general being the same strong type of income the group
4% you don't have the funding cost there. I mean that's the Group 4%, you don't have the funding cost there. I mean, that's fully allocated to the business area. So the trend in the funding, you will basically see there.
Yeah. Okay. Thanks very much.
We will now take our next question from Christopher Rothkowitz from Barclays. Please go ahead.
Hi. Just one follow-up question for me, please, on the shipping portfolio. You mentioned before that you're divesting credits in distressed shipping assets. I just wondered if you're also disposing of the equity holdings you have. I think TORM in Denmark is one such example.
And if I mean, if you could provide us with a number for the current balance of equity holdings and also if you see demand for equity in shipping that you can dispose of?
Yes, of course. So always when we have equity holding in from coming from our credit portfolios, it's a workout case and it's a temporary situation and we want to exit as soon as possible whenever it makes sense. And then that goes very much with these few cases. We have equity holding in shipping. There are not so many so that in a way it's not any kind of significant source of potential gains or further losses so to say.
The values have been have written off to 0 in all of these type of cases. So that will not be any kind of significant driver for any P and L impact there going forward. So that then we are not talking about big amounts as such.
Okay. Understood. Thank you.
We will now take our next question from Riccardo Rovere from Mediobanca.
Just a clarification. Is the consolidation of Nordea Bank Polska part of the $17,000,000,000 REA reduction that you're planning? Just want to clarify this. And in general terms, what kind of wage inflation do you expect in 2014 2015 across the group? Thanks.
On your first question, no, it's not included in the IEA efficiency program consolidation of the Polish activities. I'm sorry, I did not catch your second question.
Is an idea of wage inflation across the group for 20 14 2015?
I think it's around 2%.
Blended in the Nordic, it's around 2%. It's somewhat higher in Norway and lower in Denmark, you can say. Around 2%. Okay.
We will now take our next question from Andreas Hakansson from Exane. Please go ahead.
Yes. Hi. Just a quick follow-up from the Stockholm conference. Again, back to the economic capital that we discussed. I'm just doing the numbers and the 24,900,000 that you put on page 47 in the fact book, that's 15.6% of your risk weighted assets.
But if I take the 14.5%, which is your target core Tier 1 ratio that gives you capital of €23,000,000,000 Could you tell us the economic capital, what form of capital do you envisage that that's going to be? And second, Rodner, did you check if the $24,900,000,000 includes any sort of contracyclical or your own type of buffer? Thanks.
I don't think you can completely do it that way around. I think what we try to say is that part of the increase is of course due to REA increasing. But what I forgot to say this morning was that we have actually somewhat adjusted what is including in our EC calculation as we from 1st January we have included intangibles of around €800,000,000 and short form deduction of €200,000,000 Then comes the effect as I said of the increased REA. And finally, we of course have the scaling issue and there that's the remaining part. And you cannot we have not guided so specifically.
So we say exactly what the scaling factor is, but that is of course the residual. So we are very close now to having allocated basically all you can say the required capital is very close to having everything allocated down to business areas.
So economic capital, ma'am?
Yes. The economic capital is we have basically allocated all capital now. Close to all capital is allocated.
Okay. I think we can follow-up on that later on.
There are no further questions at this
time. Okay. Thanks very much for listening into this telephone conference. Please don't hesitate to give us an eye or a call there for the question. We have a plane to catch in an hour's time, but before or after that.
And then we hope to see some of you in Lonmont tomorrow at 12:30 for the launch presentation. Many thanks.
Thank you
very much. Bye bye.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.