Good morning, and welcome, everyone, to this Capital Markets Day, where Nordea Bank will present the new financial targets. My name is Rod Malveen. I'm heading up the Investor Relations here at Nordea. We will start off the day with an opening remark of the Chairman of Board, Mr. Torben Magnuson.
That will then be followed by presentations by our President and Group CEO, Frank van Janssen and the Group CFO, Christoph Rees. Then there will be a break, and then we will have the presentations by the 4 BA Heads, Martin Perason, Erik Ekkemann, Sarah Mela and Snorri Storsjeet. The journalist here, you are most welcome to take contact with Peter Brunberg, who will then take care so you can get interviews with management. So with this, Torbjorn, please welcome.
Thank you, Rodney.
And good morning, everyone, and welcome to Nordea's Capital Markets Day. As you're all aware, we released our Q3 results yesterday together with some one offs linked to a new financial plan with new targets for the coming 3 year period. And this morning, together with you, we're going to try to shine some light on the decisions and choices that we have made in that plan. I came to Nordea's Board in March about 18 months ago with, I think, very much the same questions as probably some of you have had and maybe you all still have. Why is it so difficult for this company to meet its targets?
And why are the explanations for that so complicated and vary so much over time? And also, why the cost levels so high really compared to its peers for the company? Well, my own background is very much in operational improvements, in constant cost cutting. And what I have seen at Nordea very much reminded me of the success factors for that kind of work because it all goes back to always, I think, good business governance and a really strong power of execution. In other words, charging large committees to do cost cutting in a matrix organization is not necessarily a recipe for success.
Now the previous boards of Nordea have done a lot of cleanup, focused the company on less risky business and pushed some rapid development of risk management. What remains is a group with obviously less risky assets, less risky organization with a focus on the Nordic business and 4 divisions, a much simpler structure. And that's not a bad starting point for us at this point in time. But the new phase for the company is different. There's a different agenda, and we need to face the consequences of that.
On costs, firstly, it is obvious that the company has not faced the consequences of being a Nordic company to the full. Very little shareholder value has come out of benefits of scale so far in OREA. Secondly, another area that I think has suffered in the previous period is business acumen and the enjoyment of doing business, passion to do, passion for the customers. Market shares in most lines, most geographies have fallen. They have fallen for 3 years and they have fallen quite sharply.
Then thirdly, I should point out one operational area which has not suffered, and that is clearly credit quality. If anything, I think the credit organization is even stronger than it was before the previous phase. Back to market shares and customer focus. The board saw this. The board started working with management early this year, and it's been a joy to see the energy release in the organization once customer focus found its way back to communications and the corporate culture.
We have taken back ground lost ground more quickly and more rapidly than the board had predicted when we started that work. The board also noted that one of the business areas had actually not waited for the board to do that, that personal banking under the then new head of personal banking, Frank, had started doing this before the Board took this initiative. On costs, to my relative surprise, I must say, coming from another industry, Nominal cost targets are perhaps dominant in banking. And Nordea has, to be fair, met its targets cost target over the past year, will meet the cost target this year. But of course, it means very little when the income falls more sharply than costs.
And the targets have to be reset and has been reset now, as you have seen, reformulated so that the company and company management cannot see something as a success which the shareholders see as failure. With all this in mind, the search process for a new CEO was not that complicated. We needed somebody with a decision with a passion for custom processes. We needed a parsimonious, thrifty person. And we needed somebody that could take decisions and make sure that they were implemented and followed up.
And Frank van Jenson has all that in spades. The board has now worked closely with Frank to design a simple executable path to better returns to shareholders, and I have met a number of shareholders, a large number of shareholders in the past 6 months. The persistent request has been, give us a credible plan for gradually better and better returns over a period. And Nordea has a Board with bankers and ex bankers as the majority. They are either still in operative positions or have just left their operational roles.
And this board, with these bankers, these operational people, they have been involved very much so in the design of this new plan together with management. And now furthermore, the management team that you are going to meet today are certainly believe and are committed very much to the same goals that we have in the plan, and they will do what is necessary to reach those targets. What we present today, going linguistic for a section here, is a plan with targets. It is not ambitions, a word that I dislike in this context. We, you, are allowed to have higher ambitions than this, but the targets are now set.
And unlike the past, the variable remuneration of this company will now be hardwired to reaching and moving towards those targets. If you allow me to repeat myself a little, the new financial plan is not complicated. You will hear today a number of things that you have thought of about Nordea in the past few years. I think that's a very good thing. This is a simple plan.
This is an executable plan. This is something we know how to do. There will be talk about customer journeys. There will be talk about processes, staff reductions and lots of business as usual things, and we know how to do that. I'm sure that the business model for banks will be discussed over the coming years here in other places.
I'm sure that, that will be difficult discussions. I'm sure that we will take part in them. However, we have an agenda internally, so we know what we will do in Odea over the next few years, and that will make us a much stronger bank, a more customer focused bank and much more resilient to whatever happens in the banking world outside of our company. Final words. Delivering a plan is actually not a great achievement.
A plan is not results. Execution has started. We enjoyed that. We're excited by this. We understand that the onus of proof is certainly on us to show to you over the coming period that we gradually, but in a determined fashion, come towards our targets quarter by quarter and show you that we have chosen the right actions and the right path for the future of Nordea.
And with those words, Frank, I hand over to you.
Good morning and good to see you. And thank you, Torbjorn, for setting the scene and kicking off the day. We have been looking much very much forward to meeting you all. And let me say it upfront. We are painfully aware that the bank recent years hasn't performed as expected.
Our results has not been where we want them to be. The financial performance must be improved. Today, we will explain how we will do that and what will be the expected outcome. Nordea is now entering a new phase. The new phase is about to retake lost ground and make us truly competitive again.
It's a phase with 3 clear priorities: 1, to optimize our operational efficiency 2, to drive income growth initiatives and 3, to create great customer experiences. You, of course, hear similar messages about banks all over Europe. The usual topics, cost control and focus on profitability. So why should you take note now or trust that we have a credible plan? We have published plans before.
What is different this time? These are all valued questions. It might sound strange, but we do not have a performance gap because of a wrong strategy. Our strategy is in place. We need to fix the basics, not look for fancy, complicated solutions.
Rather than getting things done and the right things to privatize our So what does that mean? It means focus on what creates value for our customers and for our shareholders and then stick to it. It's about priorities and focus. It's not that complicated. It's just hard work with many tough decisions, a clear focus and a tight follow-up.
Make sure that the things we do or decide also gets done. The good thing is that our people know what to do. We have now decided on a new business plan, and we have set new financing targets. It is a plan, as Torbjorn mentioned, that the leadership is fully committed to, and this work has been led by me and the business area heads. The recipe is simple.
It's all about execution. Following time plans and do it in a resource effective way. I don't believe in magic. I believe in hard work, deliver on our commitments and personal accountability. Give people power to do the utmost, then support, challenge, encourage and repeat.
It is about delivering every day and a little bit better every single day. We have now changed the way we lead the bank to improve execution, improve execution focus through clear roles and simplify changed governance structure. I'll be back to that a little bit later. Today, we will address how we will meet our targets, how we truly will deliver on our mission as a strong and personal financial partner, and to be good investments for our shareholders. That is our commitment to you.
I joined Nordea 2 years, 5 months 9 days ago. And I have been in the banking industry for 32 years. I've compared my previous experience in the banking industry to those I have observed in Nordea. I see many strengths. Our foundation is strong, very strong.
We have great people and highly competent teams. We are Nordic Universal Bank, the only truly pan Nordic bank. And we want to be leading in all segments we operate. We have derisked and diversified part or divested part of our business. Our credit quality is solid.
The credit portfolio well diversified. As a matter of fact, more diversified than any other banks in the Nordics. And especially, when we talk about the Nordics, one of the strongest economies of Europe. In addition, the balance sheet is very solid. We are now operating in one legal structure, 4 Nordic home markets, 4 business areas, no more, no less.
Our business areas are all leading in their field. A large customer base in personal banking with over 9,000,000 customers and in business banking, more than 500,000 customers corporate customers. We bank with almost all the Nordic large caps more than any other bank in the Nordics. We have the strongest strongest customer satisfaction within this area. We have a leading position in asset and Wealth Management with more than €300,000,000,000 assets under management, second to none in the region.
This is an attractive starting point to develop from. After a couple of years of intensive investments, upgrades and mitigations, we have built a strong compliance foundation for all our operations. We have invested heavily, for example, in AML and KYC functions and processes. For example, many of our competitors are now following in our footsteps. We have already taken many, many steps forward.
But let's face it, this has led to a partly inward focus. That is not good, but it was what was needed then. A lot of our focus area our focus has been on internal processes, procedures and remediation processes. We haven't focused enough on what we all are here for, our customers, making life better for them and doing business, much more business. This is why you hear us addressing operational efficiency and determination when it comes to simplifying the way we run the bank, the way we make decisions and develop new services and products.
It must be done faster, leaner and in a less expensive way. And we will do it. So these reflections have led me to the conclusion. We have a strong foundation, very, very skilled people and a solid balance sheet. We don't need fundamentally to change our strategy.
We need to get things done, a clear shift in our execution capabilities. We need to step up. This is why Nordea is entering a new phase. The new phase of Nordea is not a slideshow or a project. It is our way of working from now on.
It is how we run the bank today and tomorrow. The new face of Nordea is about execution and retake lost ground. I want the bigger picture to be clear and easy to understand. But I also think that we need to have perfection to nail all the details, too. For the bigger picture, we have only 3 key priorities we are going to follow.
Number 1, we will optimize operational efficiency, make our engine faster, simpler and leaner. Number 2, we will make sure that we drive income growth initiatives. Number 3, we will create great customer experiences in all business areas. To each and every one of our customers. Let me double click on each of these priorities.
Operational efficiency. In the current environment, with fierce competition, new players and low interest rates on top of that, We need to improve our efficiency significantly. We need to optimize our engine room and lower our cost base. In a low growth environment, cost control is key. Ultimately, this is a leadership issue.
I want leaders to look at all corners of our business and scrutinize. Everything will be challenged. Nothing is too small or too big. I want to create a strong cost culture, a culture where leaders and all employees, in general, are proud of being the ones having the lowest costs. It also states fewer people here on the slide.
And yes, that is the reality. Since 70% of our cost base is people related, the targets we have are not possible to deliver without having impact on our employees. So unfortunately, we will be fewer employees going forward. The main parts of the reductions will take place in the head office and central functions. In general, while impact in customer facing units will be much, much smaller.
And I believe that it is possible to achieve this without hurting the business. We have better digital solutions and tools today, so our sales and service productivity should improve. I also want to be open here. It is not the first time we are talking about cost savings in Odea. And we have had many cost programs.
Here comes my view on cost programs. I don't really like cost programs. I believe in a strong cost culture that creates competitive service. So by that, you can give long term commitments to customers and to shareholders and become sustainable. We will deliver better results with a strong governance and a continuous follow-up and benchmarking on the cost development.
Per business area, per unit, throughout the entire organization. Ultimately, this will strengthen our cost culture. The plan covers all elements of costs: workforce planning, external consultants, salary principles, meetings and travel culture, suppliers, the level of needed support from the head office and etcetera. And based on this plan and the targets in it, we will take action, deliver and follow-up. I give accountability to leaders and empower them to make decisions because I trust people.
But I'll follow-up closely the progress, the targets, support and guide when needed. Another important message is that we will take the next steps to leverage our scale. We will simplify processes and organization. We have centralized all operations into 1 unit: 1 technology, 1 finance and 1 communications function. This, we did not have 1 year ago.
Now we need to leverage this consolidation. We are the biggest Nordic bank, and we will leverage on our Nordic scale and at the same time, be very local in our customer interactions. Getting that balance right is crucial. A good example of the benefit of scale is the upside in simplifying our products, processes and applications. We have been simplifying before.
You have probably heard a lot about that. But for example, we still have 600 account products. We only need half of that. And the number of account products will be down by at least 40% in 2021. We've had a good start already by reducing 60 products.
The same applies to our systems. Collateral systems will become fewer. Almost 50 payment systems will become 5. Such elements, and we have many of them, will optimize our operational efficiency and make us able to meet our cost income for the next 3 years of 50. And the outcome we will have or the outcome we'll have, lower costs, better functionality and a more efficient and less complex engine.
Even though cost control is a starting point, finding the right balance between cost and income. We will not meet the targets in our plan without retaking lost ground in the markets and turn around the negative income trend. I have strong expectations on our growth initiatives. Simplified processes and freeing up more time for meeting customers. All people in the group must focus on our customers.
To give a very clear example and direction, There are only 2 type of employee groups. 1, the work our people working directly servicing our customers and 2, all the others, including me, who are here to help the ones that work directly servicing the customers in all channels, digitally and physically. We have seen continuous signs of improved business activity in the last quarters, step by step continuously. Chris and the business area heads will show more details. But I'm personally very happy to see that assets under management inflow now is not only recovering but actually growing again.
And we have much, much more to be done within the important saving area of savings. I'm also satisfied, very satisfied actually, seeing improved activity and increased market shares in the important mortgage business. And that's across all markets. We have been losing ground for the last 3 to 4 years, but now we are starting to pick up in all markets. For example, sales record in Finland.
And for the first time in more than 3 years, we are back in business, growing and taking market share in Sweden. Also in Corporate Lending, we are now growing steadily. Our main focus is on organic growth. We will invest in privatized segments in the core of our business. But we're also ready for tactical M and A bolt ons within our core segments.
If we see room for income growth, we will size the opportunities. Create great customer experiences. At the end of the day, long term success can only be achieved by creating great customer experiences. I meet customers every day. And the reason for that is I want to listen, learn what our customers ask for, how customers experience us and how we can improve.
For me, Nordea has always been known for strong expertise. And just a couple of examples. Last week, I joined a corporate advisory meeting. The customer was bidding for the competitor in that industry. We brought in our specialists.
And within 48 hours, we had granted the acquisition financing. Tight time frame, quick and professional execution. A bit different field. Some weeks ago, I visited 1 of our mortgage units a Sunday and participated in a customer meeting with a young female who had just fallen in love with an apartment, her first one, and asked for our help. We were there, as we are now, always, and evenings, and Saturdays, and Sundays.
We advised her, granted her a loan, and helped her to realize her dream. A Sunday afternoon, in our new way of working, in our branch network, anywhere, anytime and on every platform. This is Nordea. Universal Bank, with high competence teams to meet the most demanding customers, on the other, we are a bank for every need anytime and anywhere. We will continue to deliver on this.
As a safe and trusted partner which will do things in a right way, in good order, with the right values. We have the ambition to be leading in many dimensions. One is within sustainable banking. Nordea is one of the founding banks for the UN Principles for Responsible Banking and giving or providing commitment in this field. In our business, we make sustainability concrete and real to our customers.
Green bonds, green funds, green loans, green mortgages and sustainability as a part of our advisory sessions. We have taken lead in this field, and we will accelerate to keep that position in the future. Nordea is a Nordic bank, but I don't believe there is such a thing as a Nordic customer. Customers are always local, all individuals, having their own hopes and wishes. But at Nordea, we can create great customer experiences by combining our cross border teams, high competence people and our ability to invest in the core services.
That is us, personal and local with a Nordic mindset. You have heard about our new business plan and the 3 key priorities. But this is worth very little without the term execution not to be done in a very good manner. I believe we have ensured that thanks to these three objectives. We have clear targets and priorities.
These have been made in an interactive process, and all targets and priorities are strongly anchored in the BAs and support functions with solid plans. In addition, awards and performance bonuses will be closely connected to delivering on these targets. I have given increased accountability to the business areas. The business areas will have full P and L responsibility and accountability. This means that they are responsible for all income, costs, customer experience, designing on investment priorities and to manage their capital efficiency.
Business areas define demands on group functions and what they need to perform and achieve the targets, thereby having much more directly influence over corporate costs. Business areas will be follow-up on the targets and appropriate operational KPIs. Cost income ratio and ROCA are key targets. The third part of execution oriented approach is a simplified governance structure. More personal responsibility, fewer larger committees and not a complex matrix organization.
We want clear roles and clear responsibility, easy to understand, easy to figure out and who has the responsibility and the decision power and easy to follow-up. We'll review the organizational structure and make the needed adjustments in the coming months. Nordea is led by a business driven process from now on. We want to be clear, simple, consistent and more accountable. It is our way to meet the expectations and targets.
We have set our financial targets for the coming 3 years. They are in 2022. Cost income target of 50 percent return on equity above 10%. We have, of course, made detailed peer comparisons before deciding on these targets. When we deliver on the targets, it will mean a significant change and value creation from where we are today.
I believe we will be competitive when reaching these levels. My focus is now, together with the leadership team, to deliver on the targets. Once that has been achieved, we decide what are the next steps and levels. Our capital and dividend policy are as following with full year 2020. Capital policy, 150 to 200 basis point management buffer above the requirement.
Dividend policy 60% to 70% payout profit to shareholders. Excess capital is intended to be distributed to shareholders through buybacks. We will use our capital efficiency efficiently. Let me go back to this in a minute. The dividend policy has been set to reflect the current environment.
Target is clear, stable and competitive dividends to our shareholders in the future, but also to create business flexibility and secure that we develop the company for the long term. With these targets, we will bring the cost efficiency and profitability to a healthy level. We will deliver these targets, and then we continuously will improve our performance from there. Each of the BAAs has solid plans to reach the targets and are full accountable. In Wholesale Banking, we have set a new strategic direction and with a repositioning in markets.
This will lead to a considerable capital and cost reduction. This is the first step to improve Wholesale Banking's performance. It will be a more focused and more profitable wholesale business. All business areas need to reach a profitable level where they add value to the group. We will take all necessary actions and decisions to do what is needed.
I'm convinced that this is the best plan for Nordea for the coming 3 years. I'm also convinced that we have a great upside in Commercial and Business Banking. We have shown a stable development the last years, but more can be done. That will be delivered by an improved sales productivity and continuous lower costs, but also showing great strong actions to improve customer experience. In Personal Banking, I might be a bit biased, but the task is straightforward: better customer experiences, full focus on business activity with a strong cost discipline.
In Asset and Wealth Management, it is about levering our fantastic platform and strong investment performance. Asset and Wealth Management is our grow engine, and I expect higher sales, activity and financial effects from the investments made. As Nora will tell us how that will be executed in the years to come. I'm not only expecting BAs to work with hard prioritization and capital allocation. We will also take a more active group approach to how we allocate capital between business areas.
We'll make sure that capital is employed when the where the return outlook is the best. With profitable growth opportunities in Personal Banking and Commercial and Business Banking, more capital is expected to be allocated to these two areas. The growth outlook for Asset and Wealth Management is indeed attractive. However, the capital need is limited. On the other hand, we will make a considerable decrease in wholesale's capital base.
All in all, the active capital and resource allocation means that we allocate capital to areas with an attractive organic growth outlook. Investments and resources strengthen long term competitiveness, including IT and product development. Room for M and A bolance with strength in our core business stable and predictable dividend policy with a potential to do buybacks and contributing to a return of equity above 10%. All actions will be measured carefully against each other. If the return is not satisfactory, the capital will be reallocated or distributed to our shareholders.
So let me sum up. Our new phase has begun. With the updated business plan and new financial targets, focusing on optimizing operational efficiency, driving income growth activities or initiatives, creating great customer experiences, we will relentlessly focus on execution, follow-up and make sure the necessary actions are being taken. We will create a performance culture. And I will do what is needed, together with the leadership team, to make this happen.
With these elements and the upside I have seen in the business areas and in the bank in general, I'm convinced that we will improve Nordea's financial performance and bring significantly more value to all our stakeholders. Now let's look at the numbers. Chris, please, on the stage.
Thank you, Frank. Good morning and welcome. As Frank said, we made a strategic review, resulting in a new business plan and new financial targets. And before I take you through the financial construct in more detail, I want to highlight 3 things. First, we have a strong financial foundation.
And with a new capital and dividend policy, the flexibility to run and grow our business. But our financial performance is not competitive to our peers, and we are not delivering the returns that we are capable of delivering. And that is why these plans focus so much on operational efficiency on both cost and income. And this plan is an appropriately ambitious plan and with a genuine capacity to deliver. So let me start setting out Hanro De Alux from the CFO seat.
First, we have a strong financial position. We have all the tools in place to deliver to shareholders. Our strong credit rating is a competitive advantage. We have some of the cheapest funding compared to our Nordic peers and to our compared to the European banks. Our capital base is fully loaded and at target.
And our credit quality has been proven over many years, and our outlook remains solid. And our liquidity is comfortably above all regulatory minimum, and our business have a proven ability to generate surplus capital. We also have a diversified business model across geographies, with a roughly equal contribution of income from all the Nordic countries. And we have an even split of income contribution from both household and corporates. And our composition of earnings have improved with net interest income now being around 50% and with items on net fair value below 15%.
As a result, we have had low volatility of earnings. On top of that, we have already done the work to focus the bank and to derisk the franchise further. But as said, we have not delivered for our shareholders in recent years. And just to be blunt, the next slide will show that. But if we go back a few years, our return on equity was competitive versus peers, and we did have a cost to income ratio below 50%.
But our revenue has suffered since then. Both the Chairman and Frank talked about the divestment and derisking of our non core assets such as the Baltics, Luxembourg and Russia, but the costs did not follow out with the same speed. But more seriously, we also suffered from lower performance and loss of market shares in the Nordic markets. And at the same time, we made the necessary investments in our IT infrastructure and digital platforms. And we invested over CHF 800,000,000 in a more sustainable and compliance operation risk and compliance operation.
And simultaneously, we undertook the enormous and important work to move from 4 banks across the geographies to 1 bank and subsequently relocated to Finland and into the banking union under a new regulatory regime. All of this led to our cost to income ratio being uncompetitive. Our shareholder returns are lower than peers. But most importantly, the returns are lower than what our franchise is capable of delivering. So following the strategic review, we now have new targets.
And our confidence in achieving these targets is validated by the fact that we have achieved them before in the not too distant past, that we have now dealt with a lot of the issues of recent years, and we therefore now have the platform to deliver them. It is worth explaining why we have chosen these targets. The return on equity is the primary target and is obviously the one that is most correlated with the shareholder returns. But as the Chairman earlier said, we have previously run with a hard cost target, And we have delivered on this target, but this has actually not served our shareholders well as our cost to income ratio has gone up steadily. Therefore, for this plan, we have chosen cost to income ratio as we believe it is better aligned with shareholders' interest since it commits us as a management team to always manage our cost base to the income that is available.
Now before I explain how we deliver on those targets, I just want to briefly touch upon the assumptions in the plan. We assume that the economic environment that we face today does not improve. Crucially, we assume that the interest rate remains as they are today, I. E, negative for longer. That is both policy rates and the yield curve.
And we continue to expect margin pressure in certain parts of business and certainly no recovery in any margins in any business. And on GDP, our assumptions are between 1.5% to 1.8 percent across the Nordic region, which is pretty much in line with consensus. So those are the underlying assumptions. Let me then start by addressing the fact that our cost to income ratio is too high and how we will return it to 50% whilst absorbing the necessary investments and cost inflation in our business. We expect an underlying cost base in line with our guidance for 2019 of CHF 4,900,000,000 This is adjusting for the one offs, but it is including the resolution fees.
We target gross savings of €700,000,000 to €800,000,000 over the planning period, but we are accelerating our plans for 2020. And as a result, we specifically aim for a cost base below £4,700,000,000 in 2020. And we are committed to continuous reductions thereafter, and this plan also includes cost to achieve. In total, we expect net reductions from 2019 of at least €350,000,000 by 'twenty two. But as I said earlier, our target is a cost to income target of 50%, And that is in order to balance income and costs together.
So how will we deliver it? Our cost ambition, alluding to what Frank said earlier, is not about a new diet or a short term fix. It's about a change in lifestyle. That means we need to stop doing things, and we need to do things differently. In our plan, the biggest driver of cost is, of course, a reduction in headcount as it is in most banks.
And this cost takeout in this plan is at least $150,000,000 more than the previous plan. And given staff is around 70% of the cost base, this will inevitably lead to further reductions. But as of today, we are not in a position to communicate the planned reduction in headcount. As you will understand, that there are some important local union and people processes that we respect and we need to go through in the right way. And these processes are currently ongoing as we speak.
So Frank mentioned that the majority of these reductions will be in the head office functions and central functions. That is part because many of our large change programs after the last few years that built up very, very fast are now delivering and are part of the daily operations. And we are further increasing our near shoring to our operations center in Poland that will be over 20% of our staff in the next few years. We will reduce our Nordic and Polish consultants by a further third. And we will continue to automate, but more importantly, reduce both product and processes.
Frank mentioned some statistics on the products closures that we've made. But over the years, we have built up many different local processes in the various business areas, for example, in credit processes and KYC processes. And what is different now is that we have consolidated the IT and the operations in single units. That makes it easy to standardize, automate and streamline the processes to be able to leverage them across the whole region. And there will be no more acceptance of several systems built up in different areas for the same purpose.
That is part of this lifestyle change. Now whilst we will continue to invest in technology, there is also scope for reduction in run costs, decommission legacy local platforms. And to give an example, we have many local net banks, and one of our local corporate net banks will now be decommissioned and replaced by a Nordic net bank. And we are aiming to close our application by 20%. And of course, we are moving to the cloud.
But you've heard much of this from us before, so what's different? Well, I'll try and give you one further example. And we have spoken to you about the scale benefit of being pan Nordic. Last year, we rolled out our new mobile banking platform in Finland. This year, we rolled it out in Sweden.
And as we speak now, it is actually live in all of the 4 countries in the Nordics. That means when we create an app or a feature or we roll out a new tweak on a product, we only need to do it once. Not 4 times, but once. This we have not been able to do before. This we can do now.
And you will note that this does not just improve cost by doing it just once instead of 4, but also leads to a better customer outcome. But our plans are not just about costs. We are confident that the building blocks are in place to improve revenue growth and take back the lost ground that the Chairman and Frank talked about. And there are various reasons for our loss of market shares, but there is no doubt that the vast amount of change and the speed of change over the past few years have led us to lose focus on our most important asset, which is our clients. But that period of significant change and restructuring has now come to an end.
And the evidence on this slide shows how I, as a CFO, can gain comfort that the expectations of improved market share has substance. Frank mentioned mortgages. And on this slide, you can see on the top right hand side there that we have improved our share of new mortgages in Sweden, which everybody likes to talk about. And our share of flow is now in line with our share of stock. And although we have a lot more work to do, we are growing and gaining share in all countries, and activity metrics that we follow-up on customer meetings in Personal Banking is up by 20%.
And Sarah will talk a bit more about that later. We see similar evidence in corporates, especially in Sweden and in Norway, where we have the opportunity to grow and to grow with good returns. So going forward and in this plan, you'll see it on the numbers on the chart, we expect to grow broadly in line with recent growth both in household and in corporate. And in our savings business, we now have had 3 consecutive quarters with positive inflows, which represents 4% of assets under management if annualized. Snorri will talk about that a little bit later.
So let us now turn to capital. This has been a journey. As you know, Nordea entered the banking union 1 year ago with the aim of joining a stable and predictable regulatory environment with a level playing field. And during this period, we have operated under a so called transitional capital regime, which was based on the nominal capital commitment we made as part of our application to the banking union. And it's been an intense transition as we, in just 1 year, have undergone the same exercise that many SSM Banks did over many years, such as TRIM, the comprehensive assessment, the AQR, which by the way, was a one of the first banks, had the new AQR manual that incorporated IFRS 9 accounting standards.
And we have received further clarity now on our systemic risk buffer and countercyclical buffers. And we will soon receive our final SREP decision that will be valid from the 1st Jan 2020. And as such, we are gaining further clarity, and we can now announce the new capital and dividend policy. In terms of the capital policy, we will operate with a target management buffer of 150 to 200 basis points above the regulatory requirement or the MDA level. This strikes the right balance between an ample buffer to our MDA, whilst for our shareholders, avoiding being excessively capitalized.
And we have chosen a buffer and made it relative to our requirements rather than a specific CET1 target as we still foresee some movements in the requirement level, especially local supervisors revising macroprudential buffers and also the Basel IV. And based on our current draft SREP, we can expect a Pillar 2 requirement, a P2R, from the SSM of roughly 1.75%. This is in line with many SSM peers. This would imply a pro form a CET1 requirement of just over 13% in 2020. Please note, there are also some local supervisors that are increasing the countercyclical buffers in 2020.
So towards the second half of twenty twenty, we expect to have a pro form a CET1 about 13.3%. And as such, going forward, we expect to operate around 15% CET1 ratio in the Q1 of 'twenty. Now in terms of the uses of the capital, I want to say a couple of things. First, it is to be compliant to our requirements and our capital policy. That's priority 1.
2, we aim then to support the organic growth of our business in our core Nordic markets with our core Nordic clients. And of course, we recognize the importance of dividends to our shareholders, and hence, our new policy has a high payout ratio of 60% to 70%. And this payout policy will enable us to generate capital on a quarterly basis supporting this capital policy and our ambition to pursue profitable growth as well as to cushion against adverse external events that we can't foresee. And as Frank explained, any surplus capital will be distributed to shareholders, and with a clear management intention to do that via share buybacks as a tool to optimize long term shareholder value. And if appropriate and accretive to shareholders and complementary to our Nordic franchises, also tactical bolt on acquisitions.
Now let me now bring together the financial plans to explain how they will drive return on equity higher. Firstly, we expect to grow revenues. This is a combination of higher volumes as our market shares continue to improve both in our lending and in our savings products. This will be partly offset by lower margins, reflecting our assumptions also on the entire interest rate curve remaining unchanged from current levels. Secondly, we are targeting a significant reduction in costs, as we outlined earlier.
And finally, our capital allocation within our business will change. We will become more forceful in actively reallocating capital to higher return business, both within the business and also across businesses. And Martin will soon talk about the Wholesale Banking strategy. And the Wholesale Banking repositioning of their business will result in a 20% reduction in capital consumption over the period. Now what income, cost and capital, all of this taken together, will cause our return to go above 10%.
So let me then end on a personal reflection. As many of you know, my family wishes to relocate back to the U. K. And in the spirit of Brexit Britain, my family is taking back control. So as a departing CFO without agenda, my view on this plan is that there is an appropriate amount of stretch in it.
And equally, there is a genuine capacity in it for Nordea to deliver these targets in 2022. And I have personally bought shares in Nordea in support of that belief and in the team's capacity to execute and deliver. So with that, thank you. And we are now going to take a break for 15 minutes. So I'll see you at the coffee, but please come back here in 15 minutes promptly as my GEM colleagues will go through the strategy in their businesses.
Thank you very much.
Okay. Welcome back to the second session of this Capital Markets Day. I forgot to actually say one thing in my opening remarks. There would be a joint Q and A session after all presentations. They will have the opportunities to ask all sorts of questions and also from the webcast.
We will now go into the BA session of this Capital Markets Day. So I will start to introduce my dear colleague, Mr. Martin Persson.
All right. In response to a challenging market environment, a punitive capital situation and to meet our customers' evolving needs and demands, we are today announcing a new strategic direction for Nordea's market leading Wholesale Banking business. This plan will enable us to become more profitable, improve shareholder returns and drive long term growth in our prioritized areas. As an integral part of the new strategic direction, we are increasing our focus on our core Nordic customer base to capture and offer new opportunities and services. The strategy will allow us to focus on our core strength, reduce capital consumption, complexity and costs, whilst creating a more agile business model for an evolving market environment.
With this, we target a reduction of approximately SEK 1,500,000,000 of economic capital and SEK 8,000,000,000 of reais and approximately SEK 200,000,000 in cost takeout, corresponding to a gross reduction of approximately 20% of both capital and costs, with significant return improvement from current unsustainable levels. Building on our core strength as a true Nordic wholesale bank, we will invest more in our advisory services within our core areas, such as ESG, where we are building leadership as well as expanding our customer offering in advising and distributing green bonds and loans. Further, we are also strengthening our core transaction banking and trade finance services. And finally, we will launch Wholesale Banking X as the incubator unit for new business initiatives aiming to fuel our income growth. So what is the new strategic direction all about?
It rests on 4 main pillars. Number 1, we will reduce balance sheet commitments where we do not meet cost of capital and or are unable to reprice to a more sustainable level. In addition, we will enhance our focus on supporting growth sectors and businesses, which are compliant with the UN Sustainability Goals and thereby also reduce risk and complexity in our SEK 50,000,000,000 lending portfolio. Number 2, in our Markets business, we will streamline our business model by simplifying our product range and reduce the capital consumption by approximately 25%, especially in the FSCC area, whilst further leveraging our partnerships and infrastructure providers for global commoditized products. Number 3, with ESG as a core business, we will continue to develop the offering beyond the successes we have had with loans and bonds.
Additionally, we are launching Wholesalex to proactively deploy digital capabilities and business acumen in pursuit of creating the future solutions for our customers. And number 4, internationally, we will prioritize the critical Europe and U. S. Markets for our core Nordic corporate and institutional customers to further develop our service offering outside of the Nordic region. A new global support desk will be established in the Nordics to strengthen the continued support to our core Nordic customers globally.
And let me now take half a step back and take you through the starting point of what we do in Wholesale Banking, our strong customer franchise and the need to reduce capital consumption before we get into the details of the new strategic plan. Nordea's corporate and institutional customer segment spans from daily banking needs that Erik will take us through in the next session to the larger and more complex customers that sits in Wholesale Banking. Our corporate and institutional banking capabilities range from core recurring services such as loans, deposits, payments, out the FX, spanning into the more advisory led capital light capabilities, as you see on the bottom left. We have had significant headwinds from falling interest rates, whilst capital requirements have increased significantly over the past years. This combination has been difficult to mitigate, especially in our Markets business and more specifically, in our market making area, which essentially accounts for the full CHF 300,000,000 drop in Wholesale Banking income since 2017.
Our starting point in creating a less volatile, smaller and a more profitable Wholesale Banking business is strong. We come from an all time high customer satisfaction among our large Nordic corporates. We have very strong product capabilities. The result of our DCM franchise, shown in the middle here, is one of several tangible examples of that. Being a dominant player in the Nordic region with 17% to 18% market share that are supporting our corporate customers with ongoing loan to bond migration.
And to the right, you can see our very strong capabilities in the sticky, prioritized and crucial transaction banking offering, a very strong starting point. But our profitability is simply too low. Wholesale Banking is currently around 20% of income and cost for the group, whilst our capital consumption is 30%, resulting in the current unsatisfactory profitability. In response to the challenging market environment and punitive capital situation, we have developed a plan that, as Sarah mentioned earlier, builds on 4 main pillars. 1st, reduce lower turn assets secondly, streamline Marcus' business model Thirdly, invest in ESG and Wholesalex.
And 4, optimize our international footprint. This will lead to a gross reduction of approximately SEK 1,500,000,000 in economic capital and SEK 8,000,000,000 of reais by 2022. Further, significantly reducing our complexity and volatility will take out approximately SEK 200,000,000 in costs with a significant return improvement to 10% from current unsustainable levels. To zoom in a bit further on the respective pillars, I can add that in the lower turn assets area, we will reduce lower turning on balance sheet commitments, review selected subsegments and increase active capital reallocations. When it comes to streamlining our Marcus business, we will run a significantly more capital light operating model with a targeted 25% capital reduction.
We review our products to reduce both complexity and cost, and we will increase digital distribution and leverage more on our existing and new partnerships. Regarding investments in ESG and Holosellex, we intend to take a market leading role in ESG advisory driven offering, where we see a clear and strong customer need that spans far beyond our current stronghold within green bonds and loans. This is also clearly the most frequent demand driven discussions I have with our large corporate and institutional clients currently. And in fact, a discussion I had as recent as yesterday with one of our most important corporate customers. Wholesale X is a new unit driven by data and digitalization that will operate as an incubator, reviewing opportunities
with the
aim to find new business models across all our business units to fuel our income growth. And finally, to optimize our international footprint, we will leverage our U. S. Stronghold through our New York branch, and we will create a global customer support unit and team up with partners to enable a strong and broad continued service coverage outside our Nordic region. And let me give you a few proof points from our current activities underpinning this plan.
On the left hand side, you can see our current corporate economic income split by customer turnover. Economic income is here defined as income minus expected losses, minus the tax and minus cost of capital. Approximately 90% of our economic income comes from customers with a turnover below SEK 5,000,000,000. We will reduce balance sheet commitments where we do not meet cost of capital and or are unable to reprice to a more sustainable level. On the right hand side, we have split economic capital and income for markets to illustrate how complexity can drive capital consumption and reduce profitability.
We will simplify our product range and reduce capital consumption, especially in the FICC area, and leverage partnerships and infrastructure providers for global commoditized products. To conclude, Wholesale Banking has tremendous relationships with our corporate and institutional customers, strong market positions and market leading competences and talents across all our 4 Nordic markets. And as Frank has clearly stated, we are now fully committed to execute on our new strategic direction, centered around 4 main areas that I have gone through with you today that will enable us to become more profitable, improve shareholder returns, whilst remaining the first choice for our top talents to work and develop. This will lead to a significant improvement from current unsustainable profitability level, still trailing Nordea Group average return but contribute positively to Nordea's cost income ratio by 2022. Thank you.
So let me now hand over to Erik, who is running our strong Commercial and Business Banking, who will walk us through the strong trend that we have seen since 2016.
Erik? Thank you. Thanks. Commercial and no, I guess not. There we go.
Thanks. Commercial and Business Banking or CBB. In Wholesale Banking that Martin just presented, Nordea serves the 500 to 600 largest corporate customers in the Nordics. Commercial and Business Banking, we serve all the other corporates. It's everything from large listed companies to a chess club with 10 members.
We serve some 550,000 customers. The customer segment has both complexity and large number of customers. The common denominator is the corporate entity. Why is CBB such a nice business and a privilege to represent. In short, it is a stable business that has good momentum and, I believe, more potential.
We know what works, thanks to our customers, and we can improve on our operational efficiency. Why is it stable and has good momentum? Well, income per FTE has increased with some 20% between 2016 2018. Row car has increased with some 1 to 2 percentage points between also 2016 2018, and we will continue to improve. Income per FTE is expected to grow with approximately 10% to 15% between 2019 2022 and ROCAR is expected to continue to improve with about 0.5 to 1 percentage point per year till 2022.
How can we know what works? Well, it is really thanks to our customers. We have a people intense business model, complemented with digital. And what we can see is that when our customers have interacted with our staff, customers are happy, employees are happy and we make good business. How can we then improve our operational efficiency?
We are developing a digital intense business model complemented with people. This is really where we need to improve, and it has potential. Customer satisfaction is way too low, and there are many customers in this segment, resulting in a big impact on our public perception and brand. We have a plan on how to turn this challenge into an asset. On this slide, you can see our 2 major customer segments.
And let's start with the one at the top, business banking. In the business banking segment, we have about 20% of the customers and 80% of the income. It is a people intense business model, being geographically close and or via online video meetings, complemented with digital. How do we make the money? Our strength is that we have people in front of the customer that knows the customer's business really well and that Nordea is able to provide a wider diversity of specialists than any other Nordic bank.
It becomes good business by balancing the customers' needs and willingness to pay with the exposure we provide of specialists in front of customer. That's the value creation by the customer responsible. This also results in good business selection. By targeting customers who have a potential wallet that can motivate this level of service. It also shows the importance of all the different product units, which together with the customer responsible form a value creating totality.
One data point is that of this importance is that CBB is the largest customer segment in markets, and markets is the largest product unit in CBB. When our staff interacts with our customers, our customers are happy, our employees are happy and we make good business. In that sense, we're in a very good position to actually know what works. It is a consistent message from the customers I meet that they value the knowledge that the customer responsible have about their business and the specialists that we are able to make available to them. But of course, we need to do more of what works.
And the way we will do it is to reduce the massive time spent on non customer interaction, and the key to succeed is to improve on operational efficiency. So to summarize and connect to the 3 main messages, this section really relates to stable business with a good momentum. We know what works and we can improve on the operational efficiency. What about Business Banking Direct then, the other major customer segment? Customers are happy with us when they interact with us in person, via online video meetings or on the phone.
They're not happy with us when if a big part of the interaction is digital or that they don't really get that people based interaction fast enough. Online, this is by far our largest customer segment with respect to number of customers. It also contains a large number of customers that may either have a other bank as their house bank and only use Nordea for payment services or be a chess club that only have the need for very basic daily banking. This is where we need to develop a scalable digital model complemented with people. By making it easy to do the basics, we will improve customer experience and improve cost to serve.
Or put in another way, we need to deliver an omnichannel on a digital foundation delivering a personal customer experience. Just imagine a start up that already has the right to contact 200,000 customers and that the contact information is easily available. That would have an interesting valuation. So through delivering digital tools, we can turn this challenge into an asset. So how does this then connect to the 3 main messages?
Well, there is definitely potential in this area, and we can improve on the operational efficiency. So how well are we doing with the entrepreneurs? Their customer satisfaction is significantly better than online, so I would say rather well, but also here, we need to improve. They are happy when they interact with our staff, but we need to develop better digital tools for both the customers and for our staff to reduce the cost to serve and enable people interaction where it really creates value. One of the tools that we have developed already is an online video meeting capability.
The customer is on video, The customer responsible is on video sharing material that everybody can see. The customer responsible can patch in and out different specialists during the meeting. In addition, the customer if the customer participates with more than one person, they can be at different physical locations on separate video links. This new capability is already in production, and it has been and will continue to be an important lever to increase our productivity. This is a good example of an omnichannel on a digital foundation delivering a personal customer experience.
This is appreciated by the customers because they can be where that it's most practical for them to be, and we can deliver a people intense service model at a materially lower cost. How large part of Nordea is CBB? We're about onefour of the total business. The roll car and the cost income ratio is not good enough compared to peers. In Q3, we reported a cost income of 54% and a ROE COR of 10%.
Since 2015, we have continuously improved both the cost income and the ROE car, and we will continue to improve till 2022. Our distribution channel is at par with competitors or maybe even a bit better. And with distribution channel, I mean income per FTE, where the FTE number represents the number of people in our customer responsible unit. When comparing income to FTE, which, of course, have many challenges as a measure, but still tells a story. We have improved with about 20% between 2016 2018, and we expect to improve with about 10% to 15% till 2022.
We have also improved our row cars in 2016 by about 0.5 to 1 percentage point per year, and this is then the row car changes produced in the distribution channel, keeping external changes constant like capital models and resolution fees. We expect to improve in our distribution channel with about 0.5 to 1 percentage point per year. So what's our thinking on how we should deliver improved cost income in ROCAR? For 80% of our income, we're in a very good position. We know what works, and we have a good track record of continuous improvement.
We will continue to do business selection, pricing, cross selling, customer acquisition. We continue to leverage specialists across the bank, put them in front of the customers, creating good business by balancing the customer needs and willingness to pay with the amount of specialist exposure. We will develop a digital scalable model for daily corporate banking. This will foremost improve the customer experience in the large tail of customers in business banking direct or online. This will also reduce our cost to serve.
If we make it easy for the customers to solve their daily banking needs, then we will free up resources to be used where we both create customer value and good business. We have started to roll out our new digital front end. It is in production in Sweden and in pilot in Denmark and Finland. We will have it in production in all 4 Nordic countries by 2021. In addition, we have created an online video meeting capability that enables us to offer a people intense service model to significantly lower cost to serve.
We're able to deliver a customer experience with multiple specialists and at the same time, increased productivity, making it possible for us to offer it to customers in all geographical locations. In 2018, we delivered some 29,000 video meetings and for the full year 2019, we expect to have done some 40,000. We need to free up time to increase our time with customers, resulting in more happy customers, more happy staff and good business. The two processes that are by far the most time consuming are KYC and credit. On average, they represent today some 40% to 45% of the time in front office.
By improving the instructions on our and our digital support, we will have a better customer experience and reduce the cost to serve and have more time with our customers. This is about continuous improvement, which we've delivered since 2016 we will continue to deliver this till 2022. We need to become much more like the manufacturing and producing industry, always focusing on continuous improvement. Allowing the one closest to the problem also be a part of the solution. There is not one big or 2 big things that will make this business jump.
By continuous improvement, we will find those 0.5 to 1 percentage points, row car improvement per year in the years to come. And as Frank said, it's about getting the basics right, continuously making the instructions easier to follow, continuously making the digital solutions easier for customers' staff. There is a great potential to improve the basics. Our staff are spending close to 20% of their time on KYC and 25% of their time on credit. This is the potential.
By reducing this with some 5 to 10 percentage points, we would significantly contribute to our cost targets during the next 3 years. In addition, the customer experience today is not good enough. So with better instructions and better digital tools, both for customers and staff, we would have a better customer experience. We would free up time to do the things we know works. When we meet the customer, the customers are happy, our staff are happy and we create good business.
So to summarize, CBB is a stable business that has good momentum and more potential. We know what works, thanks to our customers, and we can improve our operational efficiency. This will deliver 0.5 to 1 percentage point improvement of ROCAR per year and reach a cost income of mid-40s by 2022. Thank you. Please welcome Sarah on stage that will tell us how we will get the business in Personal Banking going.
Thank you, Erik. I'm really excited to be here and share our plan, how we will improve customer satisfaction and cost efficiency in Personal Banking. This plan to me is both robust and inspirational. I'll start by highlighting few key points in our plan. First of all, in this changing banking environment, we believe in relationship business model that includes high availability and competent advice to our customers.
And this is enabled by great digital customer experience and an omnichannel service model that we offer. Secondly, now that we have our new mobile platform in place in 4 markets we operate, like Chris highlighted, our ability to start capturing the scale benefits has just improved significantly. That is both in growing sales as well as increasing cost efficiency. And then thirdly, we are focusing on profitable growth in 3 income generating areas, which are home, savings and consumer finance. And today, we see good signs of improved business momentum already.
And before now going into deeper into these topics, let me just quickly tell you where do we come from and where are we today. Our foundation in personal banking is great. We have a broad customer base of 9,000,000 customers. We have been successfully building an omnichannel service model, where our customers can choose which way they want to bank with us. Omnichannel offers both digital and physical advice and multiple ways for our customers to interact with us, whether that's online meeting, visiting in branch, chatting to us, calling us, you name it.
We also have a long history and a culture of being good at in cross selling. And then yes, we need to do more. We are not happy where we are today. And we have potential for more. Our market position actually allows us to grow and take market share.
And that is especially in Sweden, which is the biggest economy and market in the Nordics. And then in regards to customer satisfaction, yes, we need to do much more. And this plan includes actions for it. Good news is that there is a good traction already. And that's especially in the mortgage business, as you already heard from both Frank and Chris.
In Sweden, we are growing, and we are taking market share. And that is actually the case also in all of the markets. We are growing in mortgage business. So the turn has happened, and we are on an upwards trend. Now let's zoom in to our plan, and I'll start with the digital platform.
But before that, I'll tell you actually the today's share of business that Personal Banking represents. So we bring 41% of the income of the group. We our costs are 40% of the group's cost base, and we consume 33% of the capital. And the clear focus is, as already said, to improve cost efficiency going forward. And now to the digital platform.
Today, a large part of our customers are already banking with us digitally using our digital services. And please note that the very same customers are banking us also other ways. So it is not digital only, but we do see the digital usage increasing with speed. The logins in our mobile bank are 4 times more than the logins in the net bank in Internet Banking. So there's a clear difference in the mobile bank, and that's increasing month after month.
Now what we have learned is that the customers using our digital services, they are more satisfied, They are more active. They are more engaged. And they're also more profitable. Digital customers bring twice the income compared to non digital customers. And this is interesting, customers using our mobile bank bring 3 times the income compared to non digital customers.
What our customers tell us is that we have a top notch mobile bank that can be seen in the ratings in the App Store, where the customer experience that we offer is on at the top, both in iOS as well as in Android. That's great, isn't it? Now, what is the one thing that our customers wish from us? Ask from us. That is us to be more proactive.
And let me tell you, we will. Now that we have the digital platform in place, we tap into a huge potential of care and sales interactions with our customers and opportunities to improve customer satisfaction. With this setup, we shortened the time to market, and we have fast rollout cycles of bringing new services to our customers in all of the 4 markets we operate. Now this is exactly the scale benefits that has been highlighted already. And this is about lowering the development cost, doing only once, not 4 times to 4 markets.
We have said that we will deliver a mobile platform. That is now done. We have delivered. And this puts us in a unique position in the Nordic market. With our geographical print and with our broad customer base, no other bank can bring services to that market that broadly, that quickly.
Now let's talk income. Let's talk relationship business model. When we think the needs our customers have, the daily banking errands, those need to be dealt quickly, easily and also whenever it suits our customers. And that we have in place in our digital platform. Also when it comes to consumer finance, that needs to be fast and easy.
And then when we come to more complex needs or big economical decisions that our customers have in their private life, like can I afford my dream house? How do I fund it? How to invest? What to do with my savings and pension? For those needs, we offer advice.
Customers seek advice, they need advice, and we put focus for those needs, and we offer good advice. And when the easy things are dealt digitally, this frees up time for more demanding advisory. And we are there for our customers in their big life events. And that offers those interactions offers us good opportunities to cross sell and upsell. With every mortgage discussion, we make sure we also advise our customers the advantage of start saving or ask how they have taken care of their risks in their life.
We show care, and we turn all of the interactions into opportunities for us to do good business with our customers and do business with lower risk as we know our customers. Now let me give you a few examples of actions we do to generate income. In order for us to continue the good business momentum in mortgage business and actually accelerated it, We are delivering, for example, digital mortgage application process. We are bringing self-service to refinancing and top ups, making it very easy for our customers. Also the customers who advice and want advice, they can have it from their home sofa with the capabilities and solutions we have on online and video meetings like Erik pointed out.
It's also very important that we have a strong local presence. We work with local real estate agencies, and we know the market. And in addition to that, we also make sure that there's a high availability for our customers for mortgages. And how we do that is that our advisers in the branches are also part of a nationwide pool of advisers to serve across the country to especially make sure that in the growth areas, when there's a higher demand, we are available. And this has actually been a one of the drivers for this turn turnaround, I could say, in the mortgage business we've seen, high availability and fast response.
In savings, high focus on our premium customers, using data analytics to be really relevant when we are proactive contacting our customers. Then we're also turning non savers to savers with our digital advisor, Nora, is her name. And with our broad customer base, we're really lowering the bar to start saving. Nora has had over 70,000 savings advisory sessions just in 1 quarter, and we are only in the beginning here. And as you know, small streams add up to nice volumes.
And that's the beauty of retail. That's the beauty of mass market. When it comes to consumer finance, we target to lower to low and medium risk customers, and we are fully leveraging the capabilities and solutions that Jensidige Bank has brought to our group that is especially for us to excel in the broker platforms. And all in all, we will be more proactive with all of our customers, both automated way and tailored way and turn the different interactions to good sales. And now the actions in regards improving cost efficiency.
We have 3 kind of areas or types of actions in that. First one is that how we will improve the efficiency in our service model and in kind of operational efficiency overall. The second is how we will optimize the service and the machinery around us. And the third one is then the leadership actions and behavior. In the first part, it's very much about leveraging the digital platform that I've been pointing out already.
One more example. We are listing the top twenty reasons for our customers that are calling us. That is in order for us to reduce the traffic and incoming calls in the contact centers. And 1 by 1, we're taking them out by bringing self-service to those needs. In our branch network, we are increasing cost efficiency by transitioning to fewer but bigger branches that are then supported by smaller low cost satellites, you could say.
We're also continuing to improve the processes, automating and simplifying them. One example is that as we are providing an instant loan offer or promise to our customers in their mortgage within the minute that they submit their application. That is supported by AI and robotics. Today, already 72% of the loan promises given in Sweden are supported by AI and robotics. When it comes to optimizing the machinery around us and the service supported for us, we are engaging with the different service providers to reduce cost.
And one area is IT, Chris already mentioned, do increased efficiency there with automating operations and new shoring and so forth. In addition to these bigger and structural things, then there's hundreds of smaller things that we need to look into and go into details. And there we come very much to the leadership behavior. Our team leaders, branch managers, all of the leaders will take more ownership, better, stronger ownership of their own cost base and to optimize their own cost base. And that is to free up time, to cut costs everywhere they see that there's a possibility for it.
And that can be marketing, recruitments, premises, travel, training, all things. And think of it, just all of the leaders just taking incrementally a little bit off more, a couple of percentage more, it's the same here. The small streams add up to nice volumes. Again, we are in the basics of retail and in the basics of using our broad amount of people to work for the same goal. Now with the high focus to our customers and taking the new way of working and the leadership, we will have the operational efficiency as a discipline going forward.
Now this plan will take us to new levels in cost efficiency. And we are targeting 2022 to have a costincome ratio approximately 50% in Personal Banking. And that is thinking the nature of our business, purely household business, that is highly competitive in the industry, and this is contributing to the group's target as it should. Thank you. And now I will invite Snore to come on stage and tell us a bit more about how Asset and Wealth Management is the growth engine.
Thank you, Sara. Asset and Wealth Management has good business momentum and also a positive outlook, despite the challenges facing the overall industry. Even though we have a solid performance, we also recognize that there are plenty of opportunities to improve further. So let me start by sharing with you some of the key messages. Asset and Wealth Management is a top line business.
Net flows is the key indicator of success and customer satisfaction. After 4 spectacular years in 2013 to 2016, we were challenged during 2017 2018. But now we are back on track. Again, we are delivering 3% to 5% net flows in terms of assets under management. And we expect that we will stay there, that this is also a realistic target for us in the years to come.
So EUR 10,000,000,000 to EUR 15,000,000,000 in net flows. And the key driver behind this is our globally competitive asset management business. Half of the assets managed in our asset management business comes from external institutional and wholesale distribution business. The other half comes from the Nordea distribution. And if you look at the growth over the recent years, the strongest growth has been within the international institutional and wholesale within multi asset solutions and fixed income products.
Having a globally competitive asset management business is also key for our integrated wealth management because we are facing the same competition on the asset management products, which are important here in the Nordics as we do internationally. And the NOK 3,000,000,000,000 Nordic Wealth Management market is important. It's big and attractive, and we have a unique position due to 3 different elements. First of all, we have a top notch discretionary asset management and mutual fund offering. Secondly, we have better specialist advisory capabilities than our Nordic peers.
And thirdly, we are more local than our international peers. So we see that the private banking markets, for instance, in Norway and Sweden, which are 2 of the fastest growing private banking markets in Europe, are attractive opportunities for us. We also see that we have around 3,000,000 customers in personal banking, which Sarah was mentioning. They have the propensity to save, but they are not saving with us yet, and we can reach them through digital solutions. And we also are too small in the occupational pensions area, particularly in Sweden and Norway, And we will take our share there.
We will regain our share there. So there are ample opportunities for further growth. But let me, before I go into that, also talk a little bit about the net flows until now. During 2013 to 2016 Nordea was placed as a top 10 asset manager in Europe in terms of net flows. We were on the top 10 list 4 years in a row as the only European asset manager.
Our blockbuster product was a stable return product, and that product reached full capacity in autumn 2016 and had to be closed for new sales. At the same time, the absolute return sector overall performed weaker and we started to see outflows. And this, together with a perfect storm where a number of or a handful at least of Nordic institutional customers chose to in source mandates in plain vanilla areas and also MiFID II implementation leading to slower growth in the retail distribution as well as a decision by us to increase the thresholds in private banking, meaning that we had to hand over a number of smaller customers to personal banking and spend time on that, led to the negative figures you see in 2017 2018. But all this is now behind us. We have new blockbuster products in European covered bonds and our liquid hedge funds.
We have a mandate with Hancock opening up the U. S. Market, and we see interest in Latin America from family offices and institutions. We see that many distributors are using fewer counterparties, leading to a larger share of the total flows to us. We also see that private banking can now do new business with high customers instead of spending their time on handing over smaller customers.
And we see that the corporate growth is coming in the occupational pensions area in Sweden and also in the new fund account product for corporates in Norway. So we are back on track in terms of flows. And this also shows that we have a diversified distribution platform in Asset and Wealth Management. And let me talk about that. It's really 3 different areas, approximately the same size in terms of assets under management.
And it's also the rest of the group, Personal Banking, Commercial and Business Banking and Wholesale Banking selling our Asset Management and Life and Pension Products. The own distribution in asset management is the institutional and wholesale distribution. And last week we had a board meeting in asset management where we discussed the way forward. And a couple of things to note. Italy is now the largest market, largest single market in this area, followed by Germany, Spain and the U.
K. Only in 5th place you find the biggest Nordic market, Denmark. In Italy, we have grown from €5,000,000,000 to €10,000,000,000 in assets under management the last 5 years. We are among the largest non German asset managers in the German market. We also see a remarkable success in Spain.
We had 0 in Spain 5 years ago. Now we have €5,000,000,000 So we see that there's a good opportunity to grow further this business. Moving on to Private Banking. This is the largest private bank in the Nordic countries, with mature markets in Denmark and Finland and significant growth opportunities in Norway and Sweden. The rest of the group then, here Sweden is an important market because Sweden is half of the Nordic savings market.
And in Sweden, it is the case that there's a high correlation between where you have your mortgage and where you have your savings. And as Sarah was mentioning, we have very good momentum. I think even Frank mentioned that. We have very good momentum in our mortgage business in Sweden. And this actually also means that we expect an even better momentum going forward in the savings business as well.
We are back in positive territory, but we will be back on track in terms of the 3% to 5% here. Also the good customer satisfaction and the good positive trend we see in CBB is helping our occupational pensions growth because it's really a cross sell of occupational pensions. Moving on to financials. We represent 19% of the income of the group, but we have a lower cost income and also we are capital light in Asset and Wealth Management, meaning that we have a 29% broker, a high profitability. And we are a top line business.
And Asset Management is the largest part of the top line. So how will Asset Management combine the stable contributions from the internal distribution with our continued international expansion? The foundation of this is well performing products, of course. 88% of the composites have outperformed the benchmarks year to date and 79% over the last 3 years. So we have good processes in place to see where we create value and why we create value and to ensure that we offer the right assets to our customers.
50% of our funds are 4 or 5 star rated, against industry standard of typically 40%. We are also increasing distribution reach and we can now go together with John Hancock into the U. S. Retail and smaller institutional market with a very strong partner. On top of that, we have added our own resources on the institutional side to reach the larger institutions in the U.
S. In Latin America, they are buying into our strong ESG capabilities from family offices and institutions. And we are leading in the ESG area. Ever since signing the United Nations Principles of Responsible Investments in 2007, we have been in the forefront in ESG. The UN does an annual assessment, and this year they have given us an A score in every single category.
City Wire published earlier this month the so called H and K Responsible Brand Index showing that Nordea is among the top 10 ESG managers in Europe. And CFI have now 5 years in a row said that Nordea has the best European ESG investment process. So we have a good capability, but we are investing further in it. We now have 24 funds across all categories of equities, fixed income, balanced and thematic funds to meet the needs in the Nordea distribution and support the sustainability ambitions of the group, but also the increasing needs from institutional customers. We are furthermore expanding our product range in the alternatives area, liquid and illiquid alternatives.
An example here is the joint venture we have with Jan Stahlberg and his team in Trill, where we have recently launched an impact investment private equity fund. Also one of the new blockbuster products I mentioned, our liquid hedge funds in the Alpha family in the multi asset team is important here. And this is particularly important for institutional customers. Then finally on the product side, we have also recently launched the next generation or the 4th generation of discretionary solutions. This is important for our institutional customers in CBB and also for our private banking customers.
So all in all, we now have 50 products that are catering to the needs of Nordea distribution as well as externally. So we have the product we need, but how can we then capitalize on this also in our internal distribution? We are investing in private banking in Norway and Sweden, the fastest growing markets in Europe. We do this by adding resources, but we also do it by working smarter. In a pilot we did in Finland recently, we saw that we could release 10% of our advisers' time simply by removing some of the non value adding activities from the front line and by training them better in the tools.
This gives us the opportunity to have more customers per advisor, more income per advisor and also more assets under management per advisor. We have only 2% market share within occupational pensions in Sweden. And we expect that actually to triple over the next 4 to 5 years. And we see already that year to date we have grown by 17% in this area and 40% since we said that we wanted to have this ambition. In Norway, we also see that the strong position we have in the Norwegian corporate market is helping us to grow, both within occupational pensions and within this fund account product I mentioned.
But in occupational pensions, last week we went out with the 3 new customers in that week alone from Norwegian. Corporates with 11,000 employees and €38,000,000 in annual premiums. So this is a nice business as well. The 3,000,000 customers that have the propensity to save but are not saving with us yet in Personal Banking can be reached by Nura, as Sarah mentioned. But also the new mobile bank means that savings go digital.
60% of fund transactions in Sweden and Finland has become digital transactions this year. €1,000,000,000 in flows in Sweden and Finland have become digital flows this year. So it's a very important part of our future growth. We are also asking all customers in personal and private banking whether they would like to take ESG into account in their portfolios. 20% of personal banking customers and 40% of private banking customers say that they would like to have a sustainable selection of funds.
So these are some of the areas where we see that we can grow income and also improve the efficiency of our franchise. And all in all, we see that although we already have a solid performance, we see that there's ample room to improve further also within Asset and Wealth Management. And we will deliver a cost to income ratio below 40% in 2022. With continued growth in our institutional and wholesale distribution and significant stable contributions from the Nordic distribution within Nordea, from private banking, from retail, both in personal banking and CBB. And this therefore means that asset management will continue to be a broad based, highly profitable and attractive business also in the years to come.
Thank you. And ladies and gentlemen, I will now introduce the rest of Gen to come up on to the stage.
All right. Let me summarize a little bit from today. We have shown you how we will improve financial performance in Nordea and deliver on targets, deliver our targets. We have 3 key priorities: optimize operational efficiency, drive income initiatives and great customer experiences. It's about execution and this team will deliver.
And that is our commitment to you. Now it's a time for the Q and A. And Rodney, please help us.
Thank you. So you will have the opportunity to ask questions. Please wait for the microphone, then state your name and firm, loud and clear. Then there's also a possibility for you on the web to ask questions, so we'll read them in order. So I think we'll start with Andreas Walkensson.
On the 3rd row here. Then we can do Matti afterwards, followed by Peter Kessiakou.
Thanks very much. Andreas Hakansson from Danske Bank. I'm looking at your return on equity target, and I can understand your cost target, and I can believe in it, but I can't get to a 10% return on equity target. And when I model it, the reason I can't get there is that my capital base is too high, mainly because of forecast of 65% payout ratio. So when you say above 10%, do you actually then plan for something more than the 65%, I.
E, the buybacks you talk about? And that comes back also to the fact that you seem to be overcapitalized already 1st January next year. And if you set 150 bps to 200 bps target, are you going to stick to that and actually action on it quite soon? That's the first question.
Thank you. Chris, will you take that, please?
Yes. Sweden and we do state very that we want to distribute excess capital to shareholders. And over that planning period, that is what we assume. And we are committed to utilize buyback to do that. So that when you do your calculations, please take that into account.
Can you hear me or yes? Then I have 2 mic. Okay. Okay, fine. First answer still stands.
And as we go into 2020, as you heard also, the countercyclical buffers are coming up. And actually, we are more at target above that. And we will continue to monitor the flight path of our capital and have the conversation with SSM in terms of our position, but we do want to have a healthy buffer above that policy and agree that with the SSM. And then again, we are committed to excess capital going back to shareholders via the tool of buybacks.
Can you just follow-up? And I would hope that Torbjorn would have been on stage actually because over the years, they've always been saying that they might do buybacks and people say, no, Sampo doesn't like buybacks, and we heard that story. So Sampo is clear that buyback is now a viable option for them.
This is Kevin Selman, Dave Underwood. That question you need to then ask yourself. But you have heard our commitment to you and our intentions going forward.
Thank you.
Matti Hager, also from Danske Bank. If you look at the slide that Chris presented with the 2017, which was also the time when Nordea Group started to think about the redomiciliation to Finland. So far, now it's 1 year has passed since a new domicile. And at least to the outside, it seems that the cost and capital benefits have not been what maybe you expected. Could you comment on this?
And is it just a pure coincidence that the profitability dip happened at the same time as the redomiciliation? Thank you.
Chris? I guess that's one for you. I can take the high level, but please start.
Yes. I think, firstly, we entered the banking union to have a stable regulatory environment. Remember, we were regulated when we were 4 legal entities by 4 regulators and then in Sweden with and intention was to have a stable regulation. Regulation is a lot more than capital. But of course, we are just 1 year in.
We are going through the assessment. We still have our model development program that needs to be delivered. So there, over time, we believe that this is the right decision. But at the moment, we still have a few items to go through.
If I may have a follow-up, but is it fair to assume that the benefits have not been exactly what you were hoping for?
We still have a lot of way to go and right now, we are have we had the capital commitment, which is actually the same as it was when we were in Sweden. And as we go forward, we hope to have further benefit and stable regulation. There is more. In the medium term, we think it's the right thing.
Okay. So we'll go for Peter, followed by Robin and Sophie.
Right. Thank you for that. Peter Kesself at SEB. The first question is to Frank. One of the arguments behind Nordea's high cost base over the years has been that it's still run as 4 banks.
And since the merger, the synergies have not been taken out. Now that you've been at Nordea a few years, what's your view on that? Is that still the case? Or do you feel it's one
bank? I think it's one bank. I don't see any signs of it being. I also hear that it's like 4 countries, still each of them being 1 bank. I don't see that.
I see it as run today as 1 bank for business areas for countries. But I see that we don't have really taken the hard choices when they come to really benefiting the scale. And what I mean by that is, for example, why do we still have 600 account products? Why do we have 4 different systems in almost every place? And that is what we're addressing at the moment.
And trust me, there are many, many, many topics where we can challenge it. That will lead to more common and also, I should say, more disciplined IT development because we'll make a clear distinction now where do we want and what is very important to win and be perceived as local and what is really that is wise to do Nordic Lean. And finding that balance is the most important part, and that we will focus on.
Okay. Then a follow-up on the ROE. When I look at the ROE bridge that you have in the slides, and I guess this question is directed to Christophe. But then you have that wholesale banking capital allocation is part of the improvements in ROE. Could you explain what that actually is?
Is that the RWA reduction that you plan to see that, that will be distributed out so the equity base is lower? Or is it a reallocation where you assume lending growth in other areas?
It is actually all of the above. I firstly, the cost to income is improved. That has a benefit. Secondly, the RWAs will be released, and they will, of course, be invested in other more profitable parts of the areas. And the excess will be distributed to shareholders, yes.
And on that part, is there any assumption of any capital release from the corporate risk weight models, any ones?
Thank you. That's a good question. There are the assumptions in the plan is current capital position and the requirement I said there has been no assumptions on the plan for models.
Okay. And then one question, a follow-up on that, I guess, to Martin Parashon. But do you expect any income impact from the reduction in economic
Yes, we do. I think we have said that income will be affected. I mean, it's unrealistic for me to say and plan otherwise. It should be less than the cost takeout, so something like SEK 150,000,000, that's what we have tried to estimate in these 3 years. The cost is also important for me to give some dynamics on, right?
The SEK 200,000,000 is typically well balanced between the business cost and the cost associated around the bank, I. E. The supporting cost that sits elsewhere, that's roughly half half. With the remaining part in the business, less than half will come in the core Nordic business. So you can say that less than 25% of the cost takeout will happen in the Nordics.
That's also an important element. When it comes to the income kind of view, we have worked very hard not to have unrealistic income assumptions in this 3 year plan. If you take 2018 as the most recent full year, all the three income lines of NII, NCI and net fair value will be lower in our modeling in 2022. 2019 is slightly more tricky or more technical because we have had 3 significant items affecting our P and L this year. They are, of course, the AQR in the most recent quarter, the AIS accounting impact, I.
E. The revenue recognition that all banks have seen in the last few quarters and it is the negative valuation adjustments. Those three together is a €270,000,000 item hitting our cost income in 2019. Some is income, some is cost and loan losses, right? So the base of 2019, I'm not going to we're not going to guide or disclose in detail, but please bear in mind that we have had some serious technical impacts this year that we don't or that I sincerely don't want to see in the next few years
ahead. Right. And then just a final question. I'm just wondering on the personal banking side, where you have a slide that ranks the mobile apps at the top in each individual country, why do I see that customer satisfaction is among the weakest for Nordea in each single country when the mobile app is highly ranked? Is there something else driving customer satisfaction perhaps?
What we see actually is that when we measure customer satisfaction right after when there's been a customer meeting or customer customer has been in interaction with us. It is much higher than those surveys that we ask, you could say, randomly in the street, that how do you see and how do you perceive Nordea. So there's a clear difference between the customer satisfaction with the customers who've been interacting with us and with overall kind of perception. And that has to do with our overall reputation with broader topics than just the services that we offer and so forth. So and we are working every day to close the gap, to improve our reputation so that it would be overall known that the meetings with us and the kind of interactions are better than the overall perception is.
So Robin followed by Sophie and Mats.
Thank you. Robin, Ron, Kepler Cheuvreux. So on Retail Banking, so Sarah, so I understand you have been thinking a lot ahead of this presentation, ahead of the new plans. So it would be interesting to hear some more how you think about the digital transformation and the dynamics around maybe aggregators and how that might affect the competitive landscape and how to avoid that margins get squeezed? I mean, you assume that margins will not increase and perhaps also continue to be pressured, but how to avoid too much pressure on the margins?
Well, actually, what we now saw in Q3 that the margins were stabilizing. And of course, we don't know about the future, how they will develop. We assume margin pressure. But meanwhile, we also work every day to improve customer satisfaction and bring services to our customers to engage them so that the relationship or the banking relationship is not just about margins, that it's much more. So that's kind of the overall plan.
When it comes to digitalization, as said, it is core part of our business and our services to our customers. But we listen to our customers, and we kind of move on on that road with very taking with very good care of our customers so that we go with the same pace as our customers expect to have services from us.
All right. And then on so in the Q1, you took a provision for AML related PEP sanctions. And then obviously, you made an assessment to calculate the €90,000,000 figure. Has there been any development that these assessments of the €90,000,000 has changed? Or is SEK 90,000,000 still a good provision, you think?
I can say, Gertrude, one. So we're locked with the authorities. And when we have or if we have something to disclosure, we will bring into the markets. And we have not done that in regards to the SEK 90,000,000.
All right. And then one last question to Chris. So the 100 and 50 to 200 basis point buffer is, at least in Nordic context, quite tight. What is the sensitivity to, say, FX movements, rates movements of the capital? And that is you don't see that as a problem since the well, the tightness of the buffer?
No. And the 150 to 200 basis points is, of course, a buffer to our requirement under the SSM. So it starts basically Q1 2020. So it includes the P2G. And in terms of the tightness, given that we now have a proportion dividend payout ratio, actually the volatility and the easiest and it's less it's much more easier to manage a tighter range when you have a proportionate payout ratio in terms of dividends that we have not had before.
But yes, there is some sensitivity for FX, but it is less than it was previously. So for us, it's much more stable as we go forward.
All right.
Thank you very much. Okay. So Sophie followed by Mats, and then I'll have some questions here from the webcast. 3rd row here.
It's Sophie from JPMorgan. So I would have a follow-up question on the buyback. You're still waiting for more clarity on your models. My understanding is you're also waiting for the MREL requirements. Realistically, when could you start with the buyback?
When is the earliest that you could potentially ask ECB for approval? And when do you think you could then potentially get the buyback, given that we have seen with some other European banks, it takes quite a long time to get buyback approvals. Chris, please?
Yes. So we do, as you say, await the MREL. We will have that in the beginning of next year. And as you pointed out there, we still have the model development program. But we will continuously monitor our capital flight path, and we are and we will have continuous discussions with the SSM on that.
And when we have a good healthy buffer to the capital policy that we have, then we'll engage further in those discussions with the SSM. But it is a matter of continuously monitoring the flight path as we go forward. But we need clarity on MREL as we go into next year.
Sorry, I did have a follow-up question on that. Why do you like buybacks over special dividends? Because your stock is trading close to book value. So what's the rationale behind doing buybacks?
Well, if you think about what's happened to Nordea over a period of time in terms of revenues, that has come down, but Ria has gone and the but the equity base has remained as is. And if we have excess capital, we would like to do buybacks because that will also improve EPS. And quite frankly, having a lot of feedback from all of you in this room, buybacks is clearly something that some of our investors prefer.
And can I just ask a follow-up question? On the cost saves of NOK 700,000,000 to NOK 800,000,000, yesterday, yesterday, you took restructuring costs of €204,000,000 which sound very low compared to what we have seen for other banks. Should we expect more restructuring costs going forward? And could you also give a little bit more details on where the kind of €500,000,000 to €600,000,000 of cost saves are coming from? We know that only €200,000,000 come from the Wholesale Banking, but where is the remaining which divisions are the remaining cost saves coming from?
I could take that. No, we don't disclose that information. It will be broad across the different areas. And there are solid plans behind that, but we don't disclosure it internally split.
Okay. So next from Mats.
Yes. Thank you. Mats Hedol from Handelsbanken. I still have some problem here to get my top line going in Nordea. So do you have any concrete plans?
You say that you want to be Nordic, you also want to be local, you're reducing risks in which customer segments would you like to move forward? Obviously, customer satisfaction is high when they are meeting with you. I can understand that. But how do you approach new clients and those kind of things to sort of get growth going?
Thanks. Yes. I think actually, it's what we have shown today. So and we don't want to be a Nordic bank. We are a Nordic bank.
We are truly pan Nordic bank. And we are a universal bank. And we are leading in within all areas of the bank. Four countries, 4 BAs. And we have a leading market position, 2 or 3 in 1 country and 2 in the rest.
Can we improve? Yes. We have had challenges and still have with the customer experience that we are very much focusing about because we believe it is a very important part of driving income long term. We do see growth possibilities in all the BAs area of responsibility. So the question is how.
And the levers are different between the BAs. Sarah talked very much about an omni channel strategy. We have been a very face to face driven branch office earlier days, then we went very digital, perhaps a little bit fast. Now we're combining it all. That will create improved customer satisfaction or at least customer experience.
And then it's up to the customer to vote, and it will lead to more business. When it comes to the relationship, really face to face relationship driven business, but also digitalized. At marketing, then of course, it's not a dynamic. When it comes to commercial business banking, we are somewhere between. And lastly, we have as a management well, which is a different logic.
We have a product owner that should dream about delivering smooth customer experiences for internally and then win the game out there. And I think the Hancock deal is one of the reasons things that shows we have a huge upside.
So you might even need more advisers or branches then?
I don't think so. And it's not because we don't believe in branches. We truly do. What we believe in having a model, and we call it an omnichannel model, where the you can say the mobile app is the remote control to the bank. So you can handle everything in the sofa, you can handle it in the bus or in the office, But you choose whether you want to have a face to face meeting, a telephone meeting, a digital meeting, use your app 20 fourseven 24 hours a day, 7 days a week.
And that's up to the customers to decide and we are there for them. That's the way we want to run the bank.
So we have a few questions here from the webcast. We'll start with Magnus Andersson from ABG on IT. You have invested a lot in IT in absolute and relative terms in recent years. Any changes to your IT investment strategy capitalized investment levels going forward? That's the first question.
I will take that one. Could I get it again, please?
It's about IT. Any change to IT Investment Strategy capitalized investment levels going forward?
Yes. So as we mentioned, we will invest in our core segments. We that's actually one of the areas where we think we have a scale benefit. We of course have, if you look at our expenditure, then we have for some years have increased level. That will come down a bit now.
And then I think we have actually a good upside, good potential in being even better, prioritizing what we spend our money on. And that's why we come back to the governance model. The BA heads are taking these priorities within the business. And thereby, we choose the actions that is really most important for the business. That's one.
The other thing is, as you always as you know already, if you're not very disciplined about making IT investments and getting the teams together, and then the output often is not as good as it should be. So managing the IT development, getting all together, creating a strong output, that is actually very, very important. I believe we have an upside here in our process. So adding that together, I think with a little bit lower investment, actually, we can increase output. That is my belief.
And now a few ESG related questions from Nicholas Macbeth from D and D. Have you quantified your lending potential into sustainable finance like renewable energy and energy efficiency over the coming years? And then what kind of other ESG products mentioned for Wholesale Banking do you target beyond the green loans and bonds?
Maarten Snor, perhaps Alibe Saara as well.
Yes. I'll do it quickly on the I mean, yes, I think we have I think we want to bank with customers specifically in the corporate segment that has the ESG agenda very high. That is kind of our new philosophy and the bar. That doesn't mean that certain sectors, black or any other colors, right, because we want also to contribute specifically in our strongholds of shipping, for example. I think we can take a very important sustainability role in financing and pushing and advising the shipping companies that needs to improve and that wants to become a leading ESG transport company in, for example, the shipping area.
So yes, the other products per se, I mean, we have the largest sustainability conference in the Nordics every year in September. That is in place. We have a number one position in the issuance of corporate bonds in the green bond areas. That is also in place. What I mean with taking it beyond bonds and loans is basically that the need for our corporate and institutional clients in getting help in this area, and I call it then this is something we need to get paid for, It's advice, it's expertise, it's advisory sessions of how they can position not only their financing, but also the entire corporate positioning in the ESG area.
So I think there is an unlimited scope. And so far, Nordic region is kind of leading this, but there has not been a clear leadership in this segment. I think we claim to have a small leadership, but I think we can do much more and we intend to take that role.
On this topic, we actually listen to our customers carefully what is it that they expect from us on this. And in best cases, we actually give them ideas how they can, for example, reduce their footprint or do good, and that is through savings, for example, where we have a good offering of sustainable savings to do. We have also been introducing green mortgages in both in Sweden and in Finland. So going forward, it is about listening what is it that our customers expect, and then we will match to it.
Thank you. And then a question from Riccardo Rovere, Mediobanca. This is asked by Italian.
Yes. So
I think my answer would be, we will do what it needs, what it takes to deliver our targets. Could there be anything that pops up that we're not in control of? And after really have used all our toolbox, are not able to handle? Yes, it was stupid not to say that, but I can't see it right now, to be honest. So but let's see.
It's up to prove up to us to prove that we will deliver.
Chintan Joshi from Abaco. You indicated in Wholesale Banking that revenue loss would be around SEK 150,000,000 against cost save of SEK 200,000,000. Can you also indicate the revenue loss for the full group for the SEK 700,000,000 to SEK 800,000,000 cost saves that have been indicated?
Chris, I think that's a question for you, please.
As I mentioned actually on the Ruhr bridge in terms of getting to the return on capital, this discussion here today and the BA is going through the strategy was about how they improve momentum. So the overall revenues is increasing with the volumes, with the savings and what you've heard here today. There as you also mentioned, a lot of this will be about making the engine room more efficient and freeing up time to the front office. So we're so there is some revenue attrition. But overall, this group is increasing or the revenues, and that is actually part of this plan in 2022.
It's cost and income. It's the operational efficiency. It's not just the cost, it's the income too.
And then finally from the web cost before going back to the room here. From Magnus Andersson, follow-up. Is lower amortization level of IT intangibles part of your cost cutting? Or will you shorten the amortization period? And if that is the case, from how many years to how many other years?
Karelis, please.
Yes. As you know, we took an impairment in this quarter. We will and we are sorry, we are reviewing all of the governance around the capitalizations. That means given the new changes in the IT environment, we will shorten the amortization life. So the full benefit of the impairments are not in this plan because they will be offset by the depreciation on the existing stock.
We are also tightening up the governance around the capitalization. I think there was an early question on that, and that is to actually have much more discipline in terms of the IT costs. So in terms of the impairments, yes, it is a tailwind as we go into the next few years, but it's not the full amount because we will increase the depreciation of existing stock. We are working through that with our auditors at this point in time, and we'll guide the market in go as we go when we have that clarified.
So we have quite a lot of people wanted to ask questions, and we don't have unlimited time. So could you please limit one question? Adrian started with Jens following by Jens. Here, 4th row.
Adrian Chigi from RBC. 1 follow-up on capital, please. The 150 to 200 bps buffer, does this include a potential for TRIM or other regulatory headwinds given your targets are in 2022 when Basel IV is expected to come in? What's the expected impact from that? Thank you.
Well, we've effectively, as part of the transition into the unit, gone through with TRIM. And we are delivering new models to the ECB next year. So that will also be there. We have not assumed any benefits or challenges from that given that we've effectively gone through that. And of course, with the proportionate dividend, we are and we are fully loaded and at our targets, we feel we have a good flight path into Basel 4.
Thank you.
A question on the targets. Why do you think that the 10% ROE target is sort of sufficiently ambitious as I think you talked about before? If we do the comparison to your peers, they are closer to 11% right now. Arguably, that also includes Danske Bank to 30%. So perhaps an easy comparison.
But it's just to get a feeling why the SEK 10,000,000 and why do you think it's sufficiently ambitious? Yes.
Thank you. If you look at the 2 financial targets, the cost income, then we today run rate 58, and we target 50, and we do that within 3 years. Is that the end game? No. But within 3 years, I actually find it as a quite ambitious target.
And then as I said earlier, the journey will continue every single day also after that period, of course. So that's the one. And of course, we have looked into how does the Nordic market look like. As you know, there are big huge differences between the average cost and income ratio in the different countries. And when we look at our size, which creates much more stability when it comes to also going through the cycles because of our diversified portfolio, we believe that, that is the next step that target is the right next step.
When it comes to return on equity, we say above 10%, and we are doing around 8 now. And now we go for above 10. And then we do see no, at the moment, a hint of why we should not be able to meet the best of our competitors on that note as well.
Within the 22 timescale?
The target is above 10.
Until 22. Please, over there, Adrian. Yes, please.
Anders Swanberg, PFA Pension in Denmark. Given your unchanged interest rate assumptions, I struggle to understand why we are not talking about repricing on the lending side and mortgages, for example, in order to mitigate some of the negative impact from the interest rate environment. So on a country by country basis, particularly related to mortgages, I think that customers are getting a great product at a very low price.
Yes. Should I take that one? So I do understand the logic. And the problem is just that mortgages is a commodity. And if you look at each country, there is a range in which you, in my opinion, needs to be within.
We have tried to be outside that range. Then you, of course, can increase the return on equity sorry, the net interest income for a while, but then you start losing market share. So that's not a sustainable way of pricing. So you need to be within the narrow range, and that is what we are now. We don't want to be the price leader, and we don't want to be the one with the prices above the range.
And that is actually leading to a good, stable, profitable business that is today some 20%, 25% of the income base result in or income base in Nordea Group. That's why we act as we do.
Okay. Please move to the same line exactly, please. Thank you.
Hi, thanks for the presentation. This is Antonio Reale from Morgan Stanley. I have I just wanted to check, forgive me for the numbers, but I think it was Slide 6 of the CFO presentation where you showed EUR 4,900,000,000 underlying cost in 2020, which based on the 2%, 3% cost inflation and net of the $700,000,000,000 $800,000,000 cost cutting you target, I get to about €4,600,000,000 $4,700,000,000 cost in 2022, which on 50% cost income is about $9,200,000,000 $9,400,000,000 ballpark. I wanted to check with you first if that's sort of the right thinking. So there is on my numbers at least, quite a bit of revenue growth embedded in your targets, which the question here is based on the attrition comment you mentioned and the macro assumptions that you've assumed in the plan, what makes you confident you'll be able to achieve that
number?
Yes, I think if you look at the numbers, I think you should run the ranges as 2% to 3% inflation and then a range down and you look at the scenarios. And we are not going to guide for a fixed number for 'twenty two because our target is cost to income. And that is what we have to look at. But I also said that the cost net cost takeout will be minimum 350 in 2022. And then we have some tailwind from the impairments.
But at the end of the day, the target is cost to income. And if I were you, I would just look at those ranges and look at some scenarios and you'll get to a good number. But if you look at the income growth from the volumes and the AUM, I think you get a sense of where it is at. But I can't and we won't guide for a fixed target in costs for '22. We are guiding and targeting cost to income.
Okay. Here we have 2 questions. Jacob, if you start and then hand over the mic, please.
Jacob Kruse from Autonomous. I just wanted to clarify the old cost target that you set out in 2017, I think it was, of €900,000,000 gross cost reduction, how does that how do are they still happening or are those part of the SEK 700,000,000, SEK 800,000,000 or should I just forget about that and focus on the current plans as what we're looking at going forward? Thank you.
Thank you. Chris, please.
This is the new plan. And of course, a lot of those costs have actually already been taken out in 'eighteen and in 'nineteen. And the number that we are guiding for is actually in line with the guidance that we have given and the target that we have, so we reached that in 'nineteen. But this is the new plan and it is more aggressive than the previous plan even in 'twenty one. And it is at least $150,000,000 net savings more than that in 2021.
So forget the old plan, this is the new plan.
Thank you.
Thanks. Richard Smith from KBW. I guess I did similar maths to Antonio and was coming to something like a 3% per year income growth. And I was just wondering in terms of your ROE bridge, how much margin pressure are you assuming within that? And if you could put any numbers around that, that would be great.
We are assuming some margin pressure. If you look at what's happened over the last few quarters, and Sierra mentioned it also stabilized, for example, in Sweden this quarter. So the pressure is downwards, but the, let's call it, the second derivative of it is more positive. So it's deteriorating slower. But unfortunately, I know you like it.
I'm not going to put any numbers on it.
Okay. It doesn't seems to be any further question from the webcast. We have one here, please.
Maria Sinhaato from Citi. A quick question on Wholesale Banking. Maybe I missed that. Is there a reason why you haven't included cost to income target for this particular division and if it's part of KPIs for leadership?
Wholesale is at all times a return on business. It's a capital game. We have been seeing capital add ons very significant I mean only this year, we're almost at €1,000,000,000 new absolute capital add ons this year. I think a competitive cost income ratio for a wholesale business, if we are on track on the return, should be below the group average, which is 50,000,000,000, right? That's what I tried to imply also in my presentation.
But we have to drive wholesale on return, and then we should end up in a competitive cost income ratio. But that is not the primary target in this case. We had as I said, we had EUR 270,000,000 hitting 'nineteen P and L and we had a Q3 cost to income ratio of slightly above 50%. So I mean let's see where we're going to end up, but I'm not going to guide on cost income.
Okay. We have one here as well, please, on the 5th row here. No, 5th. No, 5th.
Yes. Marco DiMatteo from Goldman Sachs. I just wanted to ask, first of all, on how you think about moving from, let's say, a hard cost base target to more of a cost to income and the way you plan to, on one hand, maintain the discipline that, that hard cost number can instill in the organization and also maintain the flexibility to meet the cost of income to what could be, let's say, unforeseen changes in your revenue assumption? And if I may, I just have a quick question on Wholesale Banking as well. So this is a business where scale is important, fixed costs are high.
You're now refocusing on the most profitable and core part of the business. But looking ahead, would you be open to? And do you think you would benefit from cooperating or partnering with other institutions in some of these areas?
Thank you. Let me start with the costincome, and then Maarten, you can take the next one. Why we choose cost income is because it is an income and a cost game. You need to work with both levers and only focusing on a strict cost target and then not taking income into calculation is not really giving a good balance. That's the reason for we're having a cost income.
So that's one. And just to give an example, when our income growth, our cost, of course, needs to grow less. If the income go down, our cost, of course, needs to decrease even more. So that is the logic behind it. Then we have communicated costincome as our external targets, and we will continue to follow that.
But of course, internally, of course, we also are very focused on what is a reasonable yearly spend of cost. So and back to Marcin, please. Yes.
And Marcin is yes, partnerships is going to be a much more important driver for our efficiency and return game, both in the markets area where we have global commoditized products. If there is an IT game becoming global, I think it's difficult for a regional bank longer term to be the best owner of those areas without mentioning exactly which and also in our international footprint to make sure that we are following our specifically our corporates out globally in the areas where we might not have the regulatory risk reporting scale as we have in the whole markets. So yes, absolutely in both our big legs of markets and our Corporate and Investment Banking business.
Okay. Johan, please.
Yes. Johan Eklund from UBS. Just two quick questions. I mean, first, can we get a confirmation that in the cost bridge into 2020, there is no material benefit from lower amortization, I. E, the old guidance that amortization should increase next year is still valid or at least it's not a big driver of the benefit.
And then after that, just coming back to the wholesale business, you're targeting a 10% return on capital in the next 3 years. And at the end of that period, as someone mentioned, we'll be heading into Basel IV. And I guess a lot of the Basel IV inflation is going to hit your business. So how should we think about the profitability of that business in a longer term basis? I mean is this just the first of many restructurings?
Or what's needed to make sure that it's an acceptable return on capital also beyond 2022?
Yes, thank you. Very good question. I think both FRTB and Basel is kind of beyond the plan, to be fair. We are, of course, already now planning, analyzing, calculating the effects on both our corporate and the Marcus business for both those streams. I am not happy with 10% ROCAR in 2022, but I also I mean, when Frank and I have discussed and the team, let's now put realistic targets that we can meet from, in my case, a very low level rate.
I'm not saying that 10% is everyone should applaud at longer term, but that is the first and serious and realistic target that also my management team can fully back in the at least in the near future.
And just to add, as I also said in the beginning that every one of the BAs, of course, should be able to meet and add value for the group. And that's that, of course, we will focus on. But we are where we are. And now we have a plan. We'll take it to there.
And then we continue. But we will look at each of the businesses and they are needed to deliver value for the group.
I think we have 2 final follow-up question and then handing over back to Frank. Peter?
Peter Kaczorff at SEB again. On the IT platform or the platform change, which was launched in Q3 2014. And then in the investor update that we got in 2017, it was said that decommissioning of the old platforms would be a benefit on the cost side, especially going into kind of 2021. How much of that is part of the cost savings in your plan? And what's the actual time plan for the platform change?
What's the are there any particular dates to where you think that decommissioning will be larger, where you expect any material movements? And then kind of last but not least, could you say how much of current business flows that is actually going through the what you would consider new platforms where you replaced part of the core?
Will you take it or
I can take the first part. So this is related to Encore, the core banking platform. And what we said remains, I. E, e, we will have it all the main core components on the platform as we go into 2022. In the plan, there are and thereafter, we will start decommissioning some of the old system that, that relates to.
However, as I also mentioned, given the results yesterday, we are decommissioning and other item structures, other platforms but not related to CBP. So CBP is not, in terms of costs, part of this program. That comes 'twenty two and thereafter.
Comes at 2022 or after?
The decommissioning starts in 'twenty 2.
So one final from Andreas and then back to Frank.
Thanks. And Frank, I think actually you answered it already, but since you focus so much saying that it's a cost income target,
does
that really mean that if your revenues fall more, which some people seem to believe, that the cost base would then be adjusted down accordingly?
Yes.
Okay. Frank, please.
All right. I think we have reached the end of this day. It has been a very, very big pleasure having you here. We are grateful for that. I think we have had some good dialogues.
I think we have also had a good chance to show you what our actions are and to be continued. And now it's time for lunch, and I hope you'll join us outside. Thank you so much.