And welcome to the 4th Quarter Report 2013 International Telephone Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rodney Galvin, Head of IR. Please go ahead, sir.
Thank you very much. Yes, welcome to this telephone conference. We will start with a short introduction by President and Group CEO, Christian Clausen, and then we are prepared to take questions. And with me here in the room, we also have CFO, Tristan Hagen Jorgensen and Chief Risk Officer, Adi Kapyrin. So please, Christian.
Yes. Hello, everyone. I will not go through any slides just give a short introductory remark. We have given out a report which shows a very stable result with a small uptick in our operating profit. And we reiterate that we are following our plan, which we launched last year to develop the future relationship bank.
And let me just give a few comments on that because in reality what we are doing we are changing the bank in 3 dimensions. We are changing the balance sheet with more capital liquidity and funding. We're changing the machine room of the bank to make it more efficient and to accommodate all the many 48 big regulations which are hitting us and we're also changing the machine room to become more efficient. We still have a big part of the bank which is handling manual papers and transactions. And then we're changing our distribution mainly because our customers are changing behavior.
They're using the bank more in much more digital way than a physical way. And therefore, we are changing the distribution towards the digital channels away from the manual channels. Now all of this is moving ahead according to plan. It's actually been going on for some years. And we have specific plans to do all these things.
We often discuss capital liquidity and funding. So I will not say more about this now. We have developed our core capital ratio and doing well there. We also developed our machine room in very good way. But in general, we have also executed very well on our cost program we launched last year, which was designed exactly to make the bank more efficient.
Even I now call it
a cost program, but it
was actually launched as an efficiency program because what we are really doing is making the bank more efficient by ensuring that we have less manual processes. We get more automated. We get more efficient, we outsource more, we do all sorts of things. And that journey we will continue and in this environment we have set the target even higher because in this environment, we have low loan demand and lower customer activity and we also have low interest rates. So it is actually a very good environment to take the next steps.
We have less activity in the bank, so we'll need less manual resources. On the other hand, we need more digital resources. So that's the reason for the announcement today that we'll increase the efficiency program in the coming years to deliver even bigger cost savings, but in reality it will also deliver a more efficient bank. So we are still on track on developing the future relationship bank, which has a very strong balance which is more efficient in the machine room, which is more efficient in the customer interactions through the digital channels and will rely less on manual work and paper. That's where Allied is the change we are doing.
Now the announcement today is of course one where we also maybe lower the expectations a little bit on our future growth at least for this year. It is clear that the economic growth we see in Europe and in our market area is fragile. It's not dominated by big corporate investments creating jobs, creating demand and consumption, creating more demand and more investments and more jobs. It is another type of expansion of the economy, which is very slow. It's not very big.
And it's characterized by consumers consuming a little more of funds they already have, so they don't borrow that much more and companies holding back on investments. And if they invest, they actually typically do it in not in the Nordic area, but in Asia or wherever. So all in all, we have a low activity environment. And of course, the efficiency program will also help us delivering on our plan when revenues grow at a somewhat smaller pace than we have seen. Now the plan combined maybe even looks better than the one launched last year because now we have a different mix.
Now we have lower cost and a low income growth. Last year we had zero cost growth and some top line growth. Now I got the question from journalists today, what happens if you see more growth and more lending growth and more demand? And I say we will all clap our hands because our machine is of course fully ready to cope with more transactions, more lending demand and more and higher interest rates. So obviously, this would be positive for us and we would be happy to see that happen.
It would be good for our customers and good for us. Unfortunately, that's not our main scenario.
We think the situation is
one that unfortunately can prevail for some time. For a long period of time, we use that word. That's the word central bankers use when they don't know how long things will last. So we use the same wording, but at least for this year and into the next year that's our best guess. So that was my introductory remarks.
And now we're open up for questions and answers. Operator, if you please could lead us through this.
Thank And we will take our first question from Omar Kinen in Deutsche Bank. Please go ahead.
Good afternoon. Thanks very much for taking the questions. I've just got two questions please. Just one on revenues and then just one ROE question. The first revenue question, it sounds like the low interest rate environment and sluggish loan volumes is making you a little bit more downbeat on where revenue progression can go from here.
I was wondering if you could just give us a bit more clarity on what your assumptions are for total revenue growth. It sounds like volume growth you're expecting just 2% year on year. But I guess in the past you've been more bullish on the prospect for savings related total revenues sort of total revenues developing? Thanks. And then I just have an RA question.
Thank you.
Yes. It's true that we on the outlook given say we have the following view on the drivers. Formally, we had quite a strong revenue driver related to the expected volume to be kicking up somewhat and we expected repricing to be able to continue at some speed and we had certain assumptions around rates flattening out and potentially increasing somewhat during the period. So now you can say we have fully taken away any rate expectations. We have even lowered slightly our the repricing potential.
We have based it on volume of around 2% and we have based it on ancillary income potentially increasing somewhat more. So the most I think specific guidance we can give is total income or total revenue should be in the we are planning with a magnitude of around 2% annually, which is somewhat down compared to the revenue guidance we gave Capital Markets out there. But we also have to say that this is of course what we are planning for. So that is part of the plan as Christian also described that we are now relying more on cost as a driver of the profit in the period that before. And of course, we are tailoring the efficiency program so that if growth or rates or whatever should pick up more than expected or planned for then of course we will be able to take advantage of that also.
So I see now a potentially higher level of robustness in the plan of getting to 30% ROE in 2015 than we presented last year.
Okay. And just my second thank you. That's very clear. My second question just on ROE. If I extrapolate the revenue growth and your message around costs, it seems to be kind of indicating a level of net profit in 2015 of around €3,800,000,000 In terms of the ROE target of 13%, it feels like your absolute shareholders' equity can't increase at all from here if you're going to meet the 13% ROE 15?
Is medium term further out than 2015?
Thank you.
Well, I think the ROE target is still around 13% in 2015. And I think the last element you are missing in the equation is of course the payout ratio to have this circuit working. And there we have only said that it is set to increase in the next 2 years.
Okay. Okay. Thanks. That's fair. Thank you.
Thank you. And we will take our next question from Matti Ahokas in Danske Bank. Please go ahead.
Yes. Good afternoon. It's Matti Ahokas here from Danske Bank. Two questions, if I may. First, regarding the Norwegian business, you guys have had quite a significant volume decline even with the adjusting for the currencies 16% risk weighted asset reduction year on year.
I'd like to hear some of your thoughts about volume growth in Norway going forward. And is this more of a structural thing or a partial kind of cyclical factor and or that you've chosen not to participate in business? And this next question is on the shipping side. I see that you've released some of the provisions in Q4, but were these mainly individuals or collective provisions? And if could give me a breakdown on that?
Thanks a lot.
Yes. I think I should
start on the Norwegian side. I mean, I think that not looking ahead to start with, but looking on the Q4, I think we had a relatively good momentum in Norway. Actually that was one of theirs where we had relatively good volume development compared to other markets. We are not as we've said before, we are not that occupied with market shares. And I still think as we have also indicated that Norway and Finland is some of the countries where we do expect to see some potential going forward.
I can take the shipping question. We didn't release any collective provisions in shipping in Q4. We didn't we discontinued to build those up however, so that then the collective provisions in shipping were unchanged. We had some, let's say, around €10,000,000 of new individual provisions in shipping and netted off by some reversals of the earlier made provisions for individual provisions. And then that is now quite the characteristics we see also the shipping loss outlook for this year, so that there are still some perhaps individual needs for booking limited amount of new provisions, but they seem to be offset by recoveries reversal from the earlier made provisions.
There will be more and more liquidity and appetite for shipping assets in the marketplace. And our experience is that when we set off these credits or exit them then that will trigger some recoveries from our provisions showing that our provisioning level has been satisfactory in the previous years.
How much of the $246,000,000 allowances is collective allowances in the shipping portfolio?
Currently, we have around €70,000,000 collective provisions in euros in shipping.
Great. Thanks a lot.
Thank you. And we will take our next question from Hakan Fuhr in DNB. Please go ahead.
Yeah. Hi. Good afternoon. Two questions from me on the cost side. Firstly, you mentioned IT restructuring costs in Q4.
Could you detail how much this was? And then secondly on the cost program, I'm trying to understand why the cost program is €900,000,000 and not €800,000,000 or €1,000,000,000 Is this a result of a detailed plan? Or is it rather a result of your revenue new and more subdued revenue outlook? Thanks.
Yes. That's true. We are mentioning restructuring costs in Q4 and it's in the level of €30,000,000 And with regard to the cost program, yes, of course, we could have arrived at another number, but this is actually quite a bottom up and detailed exercise and it's very much done you can say in extension of the program that have been running now for quite a while. So we have earned a number of experiences around the program. We know what works very well and what works less.
We have discussed during the last year how to improve the program and we have seen good progress. So it's based on prolonging the more or less the existing initiatives, expanding some, accelerating some. And based on this exercise, we have of course evaluated then potential risk return measures for each of the initiatives and balance it that way around. So you can argue it would have been a different number, but this is a number we have arrived at with a number of iterations and developing you can say during 2013. And that's also why we from an execution point of view is relatively comfortable with being able to execute on this program and having a good understanding of the risk and the mitigating actions needed for certain of these initiatives.
I think it's important to note that this is not something new. We have been working on this for quite some time in a specifically very structured way since 1.5 year ago. So we are building on clear experience and we know what works and what doesn't work and where the big levers are and how to as I said make the bank more efficient. So I think we're in pretty good grip on this. I was asked today by a competitor how we got to the 900.
They said it was a business secret, so don't tell anybody.
Yes. And then just finally, you state that we'll get more details later in 2014. Any indication as to when?
I think it will be as part of our Q2 reporting.
Okay. Excellent. Thank you.
Thank you. Our next question comes from Chindan Joshi in Nomura. Please go ahead.
Hi. I've got one question on cost, 1 on NII and 1 on revenue. On cost, this morning you said you needed time to decide on the restructuring charge you need to take for this cost program. But just now we were discussing costs. You mentioned you've already done quite a detailed exercise.
So just wanted to get a sense of like when will we know the restructuring charge, which this additional program needs in 2014? And kind of what kind of magnitude are we talking about? Maybe you can put a cap on it if you don't want to guide us at this stage. And I've got 2 more.
I think we would also be ready to communicate more about the restructuring charge in connection with the Q2 reporting. And we are not ready to guide further on the number. But as we are working heavily on huge IT in sourcing projects, we are working with quite significant offshoring, which has certain transition costs related to it. And we are on the physical distribution side making quite big transformations. So there will be a restructuring charge of a certain size, but we are not ready to guide further on this for the moment.
Okay. And the decision to expand the cost program was taken recently? Or when did this happen just to understand the time line?
I don't think we can say that it has happened at one particular date. It has It evolved over time.
Okay.
Developed over especially in the last two quarters of 2016.
Okay. Moving on to net interest income. If I look at Retail Banking quarter on quarter development, then Finland seems to be the only place where you seem to have momentum. So just wanted to check kind of how we should expect margins to develop? And in particular, if you could touch upon Sweden there, is it just the confirmation of the 25% risk rates that you're waiting for to expand margins in Sweden?
Or is there anything else that might decide when you choose to expand margins there?
I think that in general, I think we have modest volumes improvement and margin improvements not only on the corporate side in basically both Norway, Finland and Sweden, but in that order and Denmark struggling somewhat more. I think also looking ahead as we have indicated before, we do see Finland, partly Norway, Sweden and then Denmark still being a little question mark on the momentum, being the order also of the from the countries I mentioned where we do expect some future momentum. And with regard to Sweden, I think that if we will see an increase of the mortgage risk weight to 25%, I think for sure the sector will look for an opportunity to reprice one way or another. So that is of course an opportunity.
But is it that you feel that the government won't do it? Is that why you're waiting? The proposal has been put forward with the intention to bring the change about. So I'm just wondering why is there this uncertainty that it won't happen, which is what makes me wonder if it's something else that you're waiting for?
No. I think that I mean, they have clearly stated that the mortgage risk weight increase if it goes to 25% should be seen in context of a macro potential move as they were also relating this to the need then for a lower countercyclical buffer. So I still think that from a regulatory viewpoint that then increased mortgage rates would have to be followed potentially by higher margins. However, we have also seen that the increased margin on Swedish mortgages can be done in some ways one more explicit than others. And I think we have seen that one needs to be a little careful on doing it too explicitly, but there will be opportunities to do it anyway I believe.
Okay. Okay. That's helpful. And final quick question on revenue growth. If I I mean, we were discussing just now just now.
Just looking at Bloomberg, it feels like that will be a $450,000,000 difference between a 2% growth rate and what consensus has. And that doesn't get offset by costs. So I'm just wondering whether like how have you kind of thought about this 2% number and where is it that we are expecting more revenue growth, which doesn't seem to be coming?
No. But I think first of all, I mean, we are guiding on round numbers of gold. But as I said, where we do see some potential on the revenue side is that we have had very strong growth on commission income now for quite a long period and we see no reason for why that should not continue. The composition might change somewhat. It's we do also regard the current levels of the last quarters of levels of trading related income to be somewhat below normal.
Now exactly when it normalizes of an uncertainty factor. And then as I said, we do have acceptable levels of lending growth already now in the household business. And we do expect on the corporate side that there will be a pickup at some point in time. So I think there are different levers in place and they are more or less the same as we have described before, but we are reducing them somewhat compared to the level of these drivers compared to the OEM.
Okay. I mean still seems a bit inconsistent with 2% if there are these many levers, but I guess we'll see how things turn out. But
come on we are not guiding you for 2%. You have to calculate what you think the revenue will be. Thorsten said we are planning internally for sort of 2%. We think it would be lower than we said 1 year ago, but it's up to you to make your own judgment here. What we are guiding for is 5% lower cost.
We're giving a guidance on capital. We are not precise on dividend. We are saying it's going to increase. It's up to you to make the income. We think volumes will grow lower by 2%.
What margins will do, but we all have the same problem, Margin will go lower. Interest stay margin might go up somewhat as we reprice and then we have all the ancillary income. But to make these judgments right now is super difficult. There are so many dynamics going on. So the only precise guidance we give is on cost, which is in writing that we guide you 5% down on cost.
That's clear. Thank you.
Thank you. Our next question comes from Alvaro Serrano in Morgan Stanley. Please go ahead.
Hi. Thank you for taking my question. You've touched on it already, but I just wanted to clarification. When you said earlier that one of my colleagues didn't take into account the dividend payout to get to that 13% ROE target. It seems like the payout this morning you mentioned that it would steadily go up, but it seems if you're going to get to 13% with the figures we've discussed on revenues and costs and if you get to that 16 basis points that is it could be a mid cycle or at least a level to achieve.
It seems like payout should get materially increased maybe north of 75 or even closer to 100. And it doesn't seem like the regulator is something that they would feel comfortable with. Are you assuming at some point maybe after the elections or in 2015 maybe that you will be able to be more aggressive in managing your capital to stay around that 14, 14.5?
I think in continuation of what Christian said before, I think we should be careful not becoming too speculative. The reason why we are guiding the way we are on capital is that there are still there are on the regulatory side, we do still see some uncertainty and we don't want to be too specific before we can close that uncertainty before we can dive even more specifically. And on the outlook as we have discussed, we are planning for somewhat lower, but we don't know. And that of course also means that the level of capital needed going forward in the next 12 years will of course be very dependent on our volume expectations and our volume assumptions. And we might be positively surprised in the way that volume increases more then the equation would look slightly different.
Then we would have higher income growth than we are talking about now most likely and then we will have some of the higher need for capital than we're talking about now. So this is of course we are in a situation where we are when we are going down to this low single digit number then of course it's quite sensitive for a higher number. What we as we open the meeting with, we think we have created now a plan that are having higher upside potentials and or higher robustness than the formal claim.
If I just may add also the technical detail. I mean, as you know, we report a total equity of around €29,000,000,000 end of €29,000,000,000 and of €13,000,000 And then you're sort of saying client that we will end up with €29,000,000,000 also in end of 2015. But please remember that the €29,000,000,000 you need to deduct the €1,500,000,000 of proposed dividend. So the starting point of €29,000,000 is €27,500,000,000 just to make it clear.
And just a general question related to the results more to the concerns from the FSA on household debt and the risk increasing risk rates. Have you heard or do you think the FSA is contemplating or the government is contemplating other measures to sort of cool down the housing market and reduce household leverage, I. E. Trying to implement some sort of forced amortization. It doesn't seem like it's the route they're going, but it could mean it could explain why you're more conservative on repricing.
Could that be it? Or you haven't heard anything?
I think there's a wide debate in Sweden now about the household indebtedness and so forth. And what I think what the discussion now is getting more and more biased towards is that there is the problem in Sweden is shortage of houses. And I think more and more regulators realize that you will not sort that problem with no I mean, regardless of the level of the risk weighted assets or anything like that. So the discussion now is much more how to solve the actual the fundamental problem, which is not the risk weighted assets or risk weights or anything like that. It's actually that there's a huge shortage of houses, especially in the largest cities in Sweden.
And that's what they need to sort out. So I think that's more and more realized that it's not the banks that really can help them in this problem. They need to change the regulations about the construction and property development in Sweden. And that's where the discussion is more and more directed towards.
And our next question comes from Nick Davy, UBS. Please go ahead.
Yes. Good afternoon, everyone. Three questions please from my side. The first one please on capital and discussions with the Swedish regulator. It seems now you're talking about at least in the near term running with a sort of 14% to 14.5% core Tier 1 range.
I just wanted to pick your brains over here your thoughts please on the latest color from the regulator not necessarily on risk rates but on other potential capital buffers if there's been discussion of Pillar 2A Pillar 2B style buffers coming into force in Sweden and how that played into your thinking as far as where you set capital in the near term? And also thinking 2 years forward as you talk about progressive dividend payout, I guess any color you can give us or any comfort you can give us on how much visibility you have on this target capital level and the intentions of the Swedish regulator that would be great. 2nd one please when we talk now on marginal capital that you think you can generate from risk weighted asset efficiencies please just to check, am I right if I've seen that all of that is now in your control following the advanced IRB approval? Is there anything there which is reliant on external forces? And also any more flavor you can give us on the timing of this capital efficiency measures that would be great.
And thirdly and finally please, corporate center net interest income which is nicely up on this quarter and you talked a little bit about why in the release. Just please check on how you would expect that Corporate core center NII to trend all else equal? So if we just keep short rates where they are on a 3 year view, if you could just help us think about if that is let's say an interest rate hedge or liquidity carry where you think a normal quarter in Corporate Center NII what that would look like? Thank you. Yes.
But if we start with the discussion on the capital requirement level then I think that you are right that the Pillar 2 requirement is the outstanding issue. What we have included in when we guide towards 14% to 14 point 5% is the current level of Pillar 2 requirements plus Swedish mortgage risk rate of 5% are within around the 14%. And then we are including a buffer as you are right that I think Swedish regulators has been inspired by the discussion also in the U. K. On how to think about the 2 hard and short requirements related to stress buffer potentially meeting it by Tier 1 capital etcetera.
And we have had first round of discussions with the regulator, but this is still not fully safe. So I think the main uncertainty is around this, but it can go different ways. They might increase requirements, but then accepting meeting some of the requirements Tier 1. So I think it's too early to conclude on this, but we don't see a risk to significantly increase the let me say the hard we still have a long list of initiatives left. You are right that on rollouts, we have now done the major one.
We still have a number of smaller rollouts of course that they are pending by approval. But of course much less complicated the process for our approval of our Russian application was for example far quicker than the advanced. We also have a number of model changes that requires approval. So we are applying an uncertainty related to you can say approvals. So that has been built in and we then of course adjusted the program.
We contingency with the experience we now have on regulatory approvals and the issues around that. And I think on timing that it's more or less evenly spread over the period. And so finally, I think that on Q4 performance of Corporate Center, I think you have to look both on Q3 and Q4. There have been a number of transactions impacting both Q3 and Q4 and had some spillover between the quarters. And I think that given a much more specific item, NII for treasury or for corporate centers is not really meaningful.
So we don't have any specific guidance on that.
Okay. Thank you. If I could just follow-up briefly just to clarify really to make sure I understood all the points correctly. So the EUR14,000,000 to EUR14,500,000 25% Swedish risk weight and at one point countercyclical buffer something along those lines. So if there was a material shift in Pillar 2 requirements and Sweden that would alter things, but for the time being you're confident that's not the case.
Is that right?
Yes.
Okay. Thank you. Thanks very much then.
Thank you. Our next question comes from Sophie Peter Zanes from JPMorgan. Please go ahead.
Yeah. Hi. Here is Sophie from JPMorgan. A couple of quick questions. My first question like longer term target that around 4% that you have like a 4% sub debt minimum requirement.
If I look what you have today, it's around 2%. So I was wondering when should we expect that you're going to go to the market and issue additional Tier 1 and Tier 2? And will it be more to reach Tier 2 issuances and Tier 1 issuances? And my second question is around your funding. If I look at Bloomberg, it looks like you have around $22,000,000,000 of long term funding maturing in 2014, which was primarily raised in 2009 2011 when your CDS was north of 100, and today it's around 50 basis points.
So I was just wondering if you could maybe talk about the funding benefit that we should expect for Nordea in the first half of twenty fourteen? Thank you.
Yes. So I think that on AT1 and Tier 2, we will issue no doubt about that. We have not been clear on exactly when. I think that as we are from a Nordic perspective, we don't see a huge need to rush to the market. We have seen a number of transactions now and we have deliberately waited for 1, the full co phasing of the Swedish regulators and 2, the exceptions among investors maturing further as we see other issuing this instrument.
And now we
have a number of transactions. So you can it will be more of a market timing issue. So we should expect to do some additional Tier 1 issuance this year and Tier 2 is of course type of issuance you do when there are good opportunities. Now we are of course missing some clarification on regulation also with regard to this one. We talked about Phase 2 before.
We have other type of regulation coming in relating to bail in etcetera. So there are no reason to rush we think as of now. And on the funding, I cannot fully you should be careful using Bloomberg on this one. I know that numbers often are coming out. The redemption level is not of this size for 2014.
It's somewhat lower. And we do actually expect to have a slightly lower need for long term issuance 2014 compared to 2013. And as we have guided earlier, we still expect our total funding costs to peak here during first half 2014 and then start decreasing.
Thank you. Thank you. Our next question comes from Per Groenborg in Danske Markets. Please go ahead.
Yes, good afternoon. Per Groenborg from Danske Markets. A couple of questions from me as well. The first one an update on the promise you gave at the Capital Markets Day last year on risk rates. Now you have delivered on the approval of the IRB models.
How much is still to be delivered of the refinance fees on the Danish mortgage, you did not book that before the 4th sorry, before the Q1. It looks like you have pretty nice pickup in your Danish segment on financial items. Have you booked some of it already in the Q4 this year? Should we still expect everything to come in the Q1 of next year? That was my two questions.
I'll try to answer on the risk weighted asset efficiency program. You are right. We at our Capital Markets Day we talked about €35,000,000,000 and we have delivered around close to around €14,000,000,000 to €15,000,000,000 of this. We have as I said before, we have seen that we saw the advance coming in a little lower than we had hoped for and we have applied a type of regulatory haircut in our program. We of course are working on a contingency plan on this, but I think a fair range is in the level of €15,000,000,000 to €20,000,000,000 of additional RVA efficiency over the next couple of years.
Okay. By the way any update Sorry?
By the way any updates on the dispute with the Danish FSA on your risk weight from last year?
No, it's still pending. So
that Okay.
And if I may on the refinancing fees, as you know they are booked under fair value in our retail bank in Denmark. And you're absolutely right that they were up in the Q4 versus the Q3. But the way it works is that there are 4 auctions in Denmark every year. The smallest one is in June and the fees from that auction is then booked in the Q3. The biggest one is in December and that we booked in the Q1.
And I can already now say that it was a quite big auction. So there would be as you saw also in the Q1 of last year, it was a big jump in the fees. So, Q1 would be the peak in that revenue base. Then the 2nd biggest auction is in September and that we book in the Q4. So, the increase between the 3rd and the 4th quarter is that the September auction was bigger than the June auction.
But in the Q1 you will see even higher fees.
Okay. Thank
you. Thank you. And our next question comes from Yasum Kepaps oglu in HSBC. Please go ahead.
Hi, this is Jason from HSBC. Just a very quick question regional basis and on a product basis? Thank you. Yes. So, on a regional basis and on a product basis?
Thank you.
Jaapen, you can say that household growth and in general being relatively stable in most of the countries. On the household side, the only country you can say we still has a little of a question mark is Denmark where basically most indicators are positive, but it seems to be the case that it has yet to fully materialize in real growth. And on the corporate side, it's a bit more mixed picture, but we still see quite good growth opportunities as we said before in Norway and Finland. Sweden, it's somewhat more challenged and Denmark is a little like the same story as we just discussed on the household side. So mortgages on the product I mentioned, mortgages should expect to grow somewhat.
And then we have yet to see the full pickup on the corporate lending side, but it's expected to happen during the next couple of years.
Thank you.
Thank you. Our next question comes from Ricardo Rovere in Mediobanca. Please go ahead.
Good afternoon to everybody.
I have just one quick question. How should I read your ambition to increase the payout ratio over the next few years with the fact that Swedish regulators are basically aiming at kind of cutting as far as I understand the bank's return in the 10%, 12% region. This is a statement from Mr. Borg in Davos over the past few days. Is it possible to get to a point where they will also cap the dividend distribution to avoid any equity depletion in the banks?
And this is the first question. The second question, just a follow-up on shipping losses. The release you got in this quarter is something that is going to continue in 2014 too.
If I start with the first question, Mr. Borg was actually not capping the ROE. He was just doing an analytical exercise where he said that in Europe he had talked to many banks who are satisfied with an ROE of 10% to 12%. So that was not any kind of directive or regulation. It was just an analytical point of view.
And as long as we are compliant with the regulations, we are of course free to distribute capital. And
the shipping loss outlook for this year, yes, it's a more normalized situation right now so that we will see limited amount of new losses, some amount of releases from earlier made losses. But I think that the level of collective provision we have built up, we will still keep so that that lead for the time being so that we won't really make any kind of bigger release at least now in the coming quarters. We have to see that the market is really stabilizing and that's sustainable before we start to touch on all these bigger quality provisions.
Very clear. Thank you.
Thank you. Our next question comes from Jan Wolter in Credit
Suisse.
Yes. Good afternoon Jan Wolter, Credit Suisse. Two questions from my side. First one is, has management penciled in any volume contraction and or falling lending margins in your own internal revenue growth targets? I understand that you're guiding or indicating 2% per year volume growth, but the revenue growth naturally is a combination of several products.
And 2% top line, does that include any lending margins that you see? 2nd question is, if the Board asked for a buyback mandate, if I missed that, you have one outstanding today. And if not, will you do that closer to the AGM? Thank you.
I don't think we can guide much more specifically on the income side. As I've said before, we have went through these drivers of income looking ahead. And as we have also stated, we do see in certain segments an increased competition, not least on the biggest and largest and most attractive corporate customers and so on. So we do not expect in the plan again in our planning assumptions, we do not expect that much from margin going forward, so we can be positive with the price. And we are reinstating the buybackment that we already have that we have already announced.
You can see that in page 10 in the report.
Okay. Thanks. Then I just missed that.
It's mandated to repurchase and convey on shares and mandated to issue a convertible instrument.
Perfect. Many thanks.
And our next question comes from Jacob Kruse in Autonomous Research. Please go ahead.
Hi. Thank you. Just two quick ones. Firstly, the on the conference call with Swedbank yesterday, they floated the idea or worry that regulators may look at capping also corporate risk weights. I just wanted to know if you had any comments or hear anything on that topic.
And then secondly, when it comes to your cost reductions, could
you talk at all about
the level of staff cuts or any impact on staff levels that you see from achieving that reduction? Thank you.
On your first question, no, we have not heard anything. We have heard the rumor now that have been raised by you, but we have not heard anything like that. But and on the question of reductions, I mean, the plan is consisting of a number of elements. When we talk about IT and certain type of processes, we are talking about quite significant amount of in sourcing we will do. And we are also talking about quite a lot of offshoring we will do to our staff reductions is somewhat of a mixed picture and we are not at this point in time ready to guide any more specifically on any net staff reduction
numbers. Okay. Thank you.
Thank you. Our next question comes from Christopher Roskis from Barclays. Please go ahead.
Hello, good afternoon. It's Chris from Barclays. Just one question regarding potential Swedish potentially higher Swedish mortgage risk weighted floor and one question regarding the Advanced IRB implementation. So in Sweden, we heard from your competitor yesterday and at your call earlier today that the response to a 25% floor in Sweden very much depends on what the competition does. Could you please perhaps at least roughly outline which possible courses of action you would consider?
So would it just be a matter of increasing prices? Or would you see a combination of that you can actually maintain ROE on these parts of the business by or through non NII revenue from these customers, even if the required capital for that business would increase? And secondly, on the Advanced IRB implementation, would it be possible for you to just let us know what is the volume of corporate assets that it applies to? And how much of that volume is in Norway? And finally, what is the current risk weight?
And what does it go to after the implementation? Thank you.
On the first question, I think that I mean there are basically 3 levers on adjusting. It's the list price, it's the negotiated price and it's the funding cost of course or the spread funding cost. And I think that we saw an example of being very explicit on the list price and that is of course a very visible way of doing it. So I think there's other measures that can be taken to adjust the margin on Swedish mortgage product. And on the advanced, it is basically the total Nordic corporate exposure, which is in the I think it's around €90,000,000,000 as of now as of Q4.
And it will of course have fully implemented. But then you can say, it will have an effect on the risk weights, the corporate risk weights that including some of the elements in the we have in the RBA efficiency program also, we will have corporate risk weights in the Nordic approaching the level of slightly less than 45%.
Okay. Thank you. But just to follow-up on the first area regarding response to higher risk rates in Sweden. We saw earlier in this year in Sweden that you reduced your list prices. And my understanding of that was to facilitate increasing the number of relationships with Swedish mortgage customers and gaining volume.
So I was just wondering if you would consider a scenario where you would be reluctant to or take advantage of increasing prices amongst competitors to reinforce that strategy and then compensate them as you mentioned with funding costs or other levers?
If we just go back to May last year, what we did was that we lowered the list price by approximately 20 bps. And you can say the purpose of that was to improve a rather slow momentum that we had in the Swedish retail banking. And what we're very pleased to see now is that we have actually a much better momentum. We see now that we actually can defend and somewhat increase the market share on mortgages. But then as you know that's not the purpose.
The purpose is to gain on new relationship customers. And also there we have seen a quite dramatic increase in the number of gold customers primarily. And we also see that we are gaining a lot of market shares in the savings area in Sweden. So the momentum is much better. Then as you know, the list price is one thing.
And just to mention that actually yesterday I realized that Handelsbanken has lower list price than us now in the public list price. But that doesn't really tell you the whole picture because it's more of a national sport in Sweden to negotiate the mortgage. So what we did was that we narrowed the spread between the list price and the final negotiated price. So the impact on our margin was much less than 20, it was approximately half. Now we have done all the repricing.
So in the Q4 now we have a stabilizing margin. But at the end of the quarter, we actually saw an improving margin. But as I said, the most important thing is that the momentum now in the Swedish Retail Banking business is actually better than it's been in many years.
So you don't look at higher risk rates as an opportunity to reinforce that?
Yes. I mean, as I said, we actually managed to raise the margin somewhat at the end of last quarter Q4 when we saw the Riksbank's rate cut in December. And then whether how much we will be able to raise that as of course also a competitive situation. And as you know, it's been a little of a we had perhaps one competitor who was a little bit too trigger happy. So now we are in a phase where I think we are looking at the situation and how this would proceed.
It's too early to say, but the ambition is clearly to raise the margin.
Understand. Thank you very much, Arth.
Thank you. Our next question comes from Magnus Andersson in ABG. Please go
Just a short follow-up on the RWA Efficiency enhancing measures. Considering your pro form a guidance of 15.5% to 16% including the mitigating actions in 2014 2015. You said you have another €15,000,000,000 to €20,000,000,000 to deliver, which would take you to €30,000,000,000 or €35,000,000,000 If I start with the €33,000,000,000 in quarter 1 capital and the SEK14.6 billion you give us as of Q4, another SEK14 billion would take you to SEK 16 billion, the upper range. And if I include the full SEK 20 billion, it would take you to SEK 16.7 billion. So shouldn't your 15.5 percent to 16 percent guidance rather be 16% to 16.5% or am I missing something?
No. I don't know if you're missing something. But when we are saying to 20 then we don't necessarily bear using in the way we guide. As I said, we have seen that getting regulatory approval can be a cumbersome and difficult process. So that's why the original 20 is now 15 to 20 and then we will see of course how well it goes.
So that is a we have just as I said we have applied a haircut for an increased uncertainty on the part of the program that is still and it is still a big part of the program that is one way or another reliant on getting approvals.
Okay. But the 15.5% percent to 6 percent and then it's rather you being cautious in your guidance than anything
else? That's the time we'll show.
Okay. Thank you.
Sorry, we have room for one more question.
Okay. And one last question from Brits of Berenz in Arctic Securities. Please go ahead.
Yes. Thank you. Is it possible to get a little more precise on how you see the effect of RBA when it comes to corporate risk ways in Norway, Denmark, Sweden and Finland. If you look at specifically Norway, where we reported around 57% end 2012 and 47% respectively in Denmark. How much do you see this decline?
I don't think we comment on that level. I mean, the only thing we can say is that the effect of the advanced 5B approval is of course not having it's not impacting the different countries equally. So there will be differences, but I don't think we have we communicated on this detailed level.
Do we have to then await for the Pillar 3 report in 2013?
Or will you comment more in after Q1 2014?
You will see it in the Pillar 3 report in the 20 14.
Okay. We'll wait 1 year then.
Thank you.
Okay. Many thanks for you participating in the telephone conference. And we're happy to see some of
you in London tomorrow at
the lunch presentation. And then next Friday, we will have the shipping presentation also in London, which will be webcasted. So you're most welcome to attend them. Thank you very much. Thank you.
That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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