Good morning and welcome to Nordea's Q2 2025 Pre Close Call. Please note that this call is being r ecorded for compliance reasons.
This will be an audio-only Teams call and we will keep you muted during the remarks and enable your microphones when we move over to Q& A. If you wish to ask a question, please use the raise your hand function. We will enter into a silent period on July 7, so please contact us before.
That if you have further questions.
Our Q2 2025 report will be published on July 17th. This call will focus on what happened back in Q1, relevant public data and macro trends in our markets. We will go through the macro indicators, the P&L statement line by line and comment on capital. At the end, the script will be published on Nordea's Financial Calendar webpage. We would just like to highlight that we will only answer questions related to already disclosed information as well as publicly available data as of 17th of June unless otherwise noted. With that, let's turn to macro. Axel, please go ahead.
Yes, starting with interest rates during the second quarter, policy rates were reduced in three of our four home markets, including two rate cuts in Denmark and Finland, one in Sweden today, while Norway is still unchanged. Looking at the average policy rate across the Nordics, the decrease in Q2 will be around 30 basis points quarter on quarter compared with around 40 basis points decrease in both Q4 2024 and Q1 2025. Three month interbank offered rates decreased mainly in Denmark and Finland. Quarter- to- date, the average quarter on quarter decrease was seven basis points for Sweden, around 40-45 basis points for Denmark and Finland, while Norway increased by six basis points. There was widespread and significant shock to equity markets in April, which left its mark on the quarter despite the subsequent recovery.
Quarter to date the MSCI World Index was down by 2% on average quarter on quarter and the OMX 40 Nordic index was down by 10%. On the fixed income side the Bloomberg Global Aggregate Bond index was up 3.6%. However, remember also to adjust for FX as some of these benchmarks are not in our reporting. Currency on FX movements, FIC and NOK versus EUR are always the key currencies to track and what's relevant for the P&L is the average quarter-on-quarter development and quarter to date. SEK was up 2.7% and NOK down 0.2%.
Note also the significant weakening of USD versus euro, down 6.8%. Moving over to net interest income, as mentioned in terms of the average Nordic policy rate, the decrease in Q2 is expected to be around 30 basis points compared with around 40 basis points in the previous two quarters. As you can see in the NII bridge from Q4 and Q1, the margin driven NII was around EUR 100 million negative on average. In terms of deposit hedge impact, the absolute cost was EUR 69 million in Q1 and we've guided for a full year 2025 absolute cost of around EUR 150 million. This would simplistically imply a EUR 20 million quarter over quarter lower negative contribution on average for each of the remaining three quarters of 2025.
In terms of other moving parts for volumes, we recommend looking at the system level volume data available in each country, and as we said in Q1, the uncertainty isn't helpful for demand in the short term. There is a day count effect in Q2 versus Q1 resulting in circa EUR 20 million contribution from the one additional interest day. While we commented that there were no unusual prominent items in Q1, it's worth noting that the acquisition in Norway had its first full quarter effect in Q1, and it was also noted that the positive EUR 36 million in the so-called other bucket was higher than the previous four quarters, which on average were broadly neutral. FX movements, as highlighted, have some positive effect on income and negative on costs, and with regards to pricing actions on lending and deposit products.
These can be found on our local websites. I will however highlight some of the key pricing changes in the second quarter. Starting with mortgage lending in Sweden, on 24th of April we lowered one to three year list prices by 10 basis points, and on 16th of June we lowered one to five year list prices by five-10 basis points. In Denmark, on 2nd of May we announced a price change on the mortgage front book with a 10 basis point reduction in the administrative margin for all new loans. In terms of deposit pricing changes, there were no changes on transaction accounts. On savings accounts we actively fine-tuned fixed term deposit rates, largely dependent on market rates, and for basic savings deposit rates country by country. In Sweden, no changes in Q2.
In Denmark, following the two rate cuts in the quarter, we did not announce a customer rate change until today, and due to the notification period, this will not take effect until 5th of August. Amounts below DKK 500,000 will be reduced by 10 basis points, and amounts above DKK 500,000 by 25 basis points. In Finland, from the start of March, we have made a pricing structure change where also the PERC accounts will be more closely linked to market rates going forward. With that, let's continue with net fee and commission income. Jutta, please go ahead.
Thanks, Axel. On net fee and commission income, we reported EUR 793 million in Q1. In Q1, we saw that U.S. policy changes and geopolitical uncertainty had a dampening effect on confidence and activity level, with some consequent negative impact on NCI. The start of Q2 saw the U.S. proposals on tariffs and the continued geopolitical turmoil further increasing uncertainty, with a clear decrease in economic indicators for confidence. Looking at savings fees, as mentioned, the significant volatility in equity markets in April has had a negative impact. Our asset mix is about 67% equities, and within that, there's a fairly strong bias towards the rest of the world.
As we guided before, the equity indices to look at are probably about 80% MSCI World and 20% OMX Nordic which both were down on average quarter on quarter by 9-10% in EUR terms after adjusting MSCI World for the weakening USD. Similar logic for the Global Bond Index which was down 3.5% in EUR terms. On brokerage and advisory as visible in data from MergerMarket and Dealogic, the activity in the first two months of the quarter continued to be down year on year. For example, in M&A and ECM we attribute this to the elevated uncertainty causing investment decisions to be held up with clarity on tariff policies, potentially being the u nlock for higher corporate activity levels.
Moving on to the other lines, net insurance results in Q1 it amounted to EUR 54 million with no unusual items called out. Net fair value we saw a really strong print in Q1 on the customer side where we were very active in hedging products for FX and interest rates and we usually peak in Q1 and continue to expect about EUR 1 billion p er year on net fair value.
You can expect the sequential quarters to be slightly lower on equity method and other operating income combined. It has recently been around EUR 6-15 million per quarter. Just note in Q2 last year w as unusually high compared with recent history.
Moving on to costs, our guidance for full year 2025 is for total costs to increase by 2.5% assuming constant FX rates. In Q1 we reported EUR 1.354 million. Remember we talked about total costs being stable quarter on quarter throughout 2025 with a clearly smaller uptick in Q4 compared with previous years. Also note that in Q2 we will get the yearly salary increases in most of the countries which will offset the resolution fee and also remember the FX impact which will increase costs. Moving on to credit quality. Just a reminder, Nordea's normalized loan loss level is 10 basis points and we continue to have a significant management judgment buffer of EUR 397 million after releasing around EUR 20-30 million per q uarter in the last four quarters.
We have consistently said that with that overlay we will deploy it if needed or release it. No change to our intentions here in practice. Just a reminder, in Q1 our tax rate was 23.2%. Finally, on capital, our CET1 requirement stood at 13.7% at the end of Q1 and CET1 ratio was 15.7% in Q1. In terms of communicated items relevant for Q2, you saw that we launched a new buyback program last week. The buyback has reduced our CET1 ratio b y around 15-15 basis points.
Maybe a final note, you may have seen the news from the Sveriges Riksbank and their decision on interest-free deposits for credit institutions, which also applies to Swedish branches of foreign credit institutions and will take effect from October 31, 2025. The impact on Nordea is proportionate to our relative size in the market and the NII impact is currently estimated to be slightly less than EUR 10 million on an annual basis. To close off, I said our second quarter report will be released on 17th of July and our silent period starts on the 7th of July. If you have further questions, feel f ree to contact us before that.
Now let's move over to Q&A.
Andreas, I think you're first in line.
Yeah, hi. I'm just thinking about your comments you made on the Danish NII. You cut your administrative margin by 10 basis points in the middle of June, you say, and then you cut your deposit rates in quite late, so it's going to impact in early August. I mean, why this mismatch? Is that competition that made you cut your administrative margin all of a sudden, which you haven't done for a very long time, and then why are you waiting so long with your deposit cut? Because that combined looks like the NII in Denmark's going to look quite weak in a quarter.
I think for the front book, you've probably seen competition make moves as well t hat is explaining that move to a large extent.
On deposits there's always a bit of timing and tactics in terms of how we want to price and when w e want to announce changes and so forth. I do not really have much more to comment apart from the fact that it.
Was a sort of a delayed response t o the two rate cuts we saw earlier in the quarter.
Sorry. On the mortgage front book price change, that was in the beginning of May, just to be clear on the date.
At the beginning of May, this impact a larger part of the quarter.
Yes. Yeah, okay.
Oh, that's it. Thank you.
Thanks Andreas.
Yes. Hi, just a question about the buybacks here.
You launched your third consecutive buyback program at EUR 250 million.
If y ou deem this to be a sustainable run rate or if you have, and if you have anything new to say about risk, new classes, model approvals e t cetera related to that.
No news on model approvals or similar. On buybacks overall, I would repeat what we have been saying that we are clearly in this mode where we generate excess, we look at ways of deploying that into the business and what excess is left.
Buyback is the preferred tool for us to trim.
You've seen there's a bit of variability.
In terms of timing of the buyback programs and that should be expected going forward as well. It is always an assessment when there is an opportunity and I think the similar goes to the site as well. I do not really have any steering comments on that one. Three months.
Okay, so but the last two programs.
Are in three months and the one before 250 was in four months. So it's more reasonable to expect three months going forward.
It's circumstantial as well. It depends a bit on the situation, I would say.
Difficult to point out any clear r ule of thumb on this one.
Yeah. Okay, thank you.
Thanks, Magnus. Then Namita, go ahead.
Hi Jutta. The EUR 36 million other in NII, does that have the potential to reverse or is that sticky?
I think, I mean what we said about the 35. There is no prominent unusual items, none that would kind of reverse per se in that sense. Nothing really unusual about it. I think we just wanted to point out that this is a bit of a catch-all bucket that can have a bit of variability in it. When we look at the recent quarter, it is just, well, EUR 36 million.
As we highlighted when we look back i n history, it is more or less.
Neutral but with a fair bit of variability in it.
Difficult to kind of steer either way. But as we called out, there's nothing really prominent unusual in that number.
Just stating that it's higher than in recent history.
Okay, thanks. I'm quite surprised to hear that the dollar impacts your AUM that much. Like, are these funds not hedged?
Basically, it's investments that are in different currencies or links, and this is a, it's kind of over time something that is quite a good proxy, but it's.
Difficult to exactly point out what the impacts will be.
I think it's a good way of gauging. Whenever you have these large FX.
Changes like you've now seen in USD, if you have investments that are in USD or linked to USD indices, then there should be that FX topic that you need to kind of account for as well.
Okay. And then just on the Danish deposit rate, are there no cuts from like the previous quarter which like jump into this quarter which can offset, like were there any cuts like before this?
You also have the data. I think there was one price change that took in.
Was it April or May?
Yeah.
The March changes took effect in April. I think we highlighted that in the previous pre-cloud call. If you want to find the details on exact dates or we can follow up on it as well.
Thanks Axel.
Thanks Namita and Andreas.
Yeah, sorry, a follow-up question. I'm looking at your slide 19 in your presentation pack where you show the sensitivity to 50 basis points in each of the countries and you have a significant Indoja sensitivity in Finland and quite big also in Denmark. Given that in this quarter when rates on average have fallen by I think you said 30 basis points compared to 40 in the previous quarter. In this quarter the drop has been coming more on the ECB Danish rates compared to Sweden and Norwegian rates. Should we expect that the impact of the 30 basis points is equal to the size of the 40 basis points in the previous quarter which was then more Swedish?
We usually talk about average policy rates across the entire region, but I think you're right to mention that Finland and Denmark.
Come across as having a kind of higher sensitivity as such. I'm not sure if that makes a huge difference in this case, but.
Might have a small relative impact on.
That if you think about it from that perspective.
Yeah, thanks.
Thanks Andreas and then Nicholas.
Thank you. First, if you could just help us remind us about the repricing dynamics of the Danish mortgages here. The front book margin reduction. How should we think about how that's actually fitting through into the back book?
Axel, please correct me if I'm wrong here, but I think for front book pricing it doesn't mean that the back book will be repriced, but rather when.
It gets replaced, then that pricing goes to the back book as well. We'll take some time on that one.
Yeah. Could you just remind us about the kind of average duration of those mortgages?
That's a good question. I don't actually have data at hand, so we need to come back to that at a later stage. Unless actually you have something that you can refer to.
I don't have the specific number, but I think it's fair to assume that it happens more gradually over time. It won't be a big short term effect. We can get back with details on that. It's helpful.
Right, no worries. Then just kind of follow up on the comments you made about corporate activity and that elevated uncertainty kind of s uppressing the corporate activity.
Should that be read as a comment you made about what you saw in Q1 and related to deliberation day and more kind of a general remark about the trends also that you're seeing in the kind of the activity also in Q2.
The total activity in Q2. Like Matthew pointed out, the first two m onths of Q2 have continued to be down year on year in terms of capital markets activity.
M&A, ECM. That uncertainty is still kind of clearly holding back activity based on the kind of public statistics that you have.
All right, great.
Thank you.
Super. I think that's all of the questions. Thank you everyone and we'll speak. In mid July's latest. Thanks.