Welcome everyone to the presentation of the third quarter results for DNB, and welcome also everyone who follows us online on the stream. For security, we have a fire exit on your left in the front and also in the back, and there are no fire drills planned for today. I'm sure those of you who read Norwegian newspapers have seen that we put a lot of time and effort into creating secret cover names for our secret projects in DNB, but this project has the rather ordinary name of Q3. Although the results are anything but ordinary, and our CEO will now go through the headlines, and CFO Ida Lerner will present the details afterwards. So, Kjerstin, the floor is yours.
Thank you so much, Even, and a very good morning to all of you, and welcome to this results presentation. I remember when we presented our second quarter results, we highlighted that there had been a shift in sentiment and a shift in customer activity in our business throughout the quarter, with a very strong end towards the end of the second quarter. This sentiment has continued all the way throughout the third quarter and is reflected in the numbers that we delivered today. And we are grateful to see that an increasing number of customers trust us with their business, and an increasing number of customers increase the business they trust us with, in a quarter where the Norwegian economy continues to show resilience. Return on equity for the quarter comes in at a solid 18.9%.
During the quarter, we recognized a gain from the merger between Fremtind and Eika, our non-life insurance company, of NOK 716 million. Adjusted for that, the return on equity for the quarter is 18%. Overall, driven by solid growth across segments, stable margins, and low losses. Net interest income is up by 2% compared to the previous quarter, by 2.6% compared to the same quarter last year. Lending volumes overall, 1.6% across segments, with a particularly strong momentum in personal customers and large corporates. We experience a high activity in the housing market throughout the quarter and see an increasing number of customers also choosing DNB when they're looking to change their bank.
We deliver an all-time high third quarter in fees and commissions, up by 11.1% from the third quarter last year, and the key drivers, yet again, are asset management and investment banking from a very solid and well-diversified fee platform. The portfolio remains robust, well-diversified. If anything, a slight tick to the better, with 99.3% of the portfolio in Stage 1 and 2, and losses are what I would define as marginal for the quarter. Capital is solid at 19%. Profit for the period comes in at 12.2, with a solid and healthy uplift in earnings per share to NOK 7.83 per share, which is an increase of 22.5%. Year-to-date earnings per share are NOK 21.2 per share, comfortably supporting our ability to deliver on our dividend policy.
A few comments on macro, which is a continued development in line with what we communicated during our previous earnings release. The economy continues to move in the direction of a soft landing, and the start to the year has been stronger than what was expected at the outset. The central bank has conducted a new regional survey among business leaders in the month of September, and the results from this continue to show a stable and slightly increasing optimistic outlook. Construction is still low in terms of activity and shows a slow pickup. Servicing related businesses have a stable outlook expectations, whereas the servicing industry towards oil and gas shows an increased positive sentiment. In aggregate, they expect to invest somewhat less during the year of 2024, but expect to increase their investments in 2025.
Unemployment remains low, 2%, steady throughout these years, with inflation increasing and interest rates growing. A slight increase is expected towards the end of the year, but it's expected to peak at 2.3% in 2026, so we're talking still very, very low levels of unemployment. Inflation numbers in September came out a little bit lower than the central bank anticipated, but inflation remains above the targeted level from the central bank and are expected to continue to decrease in the time to come. However, at a slower pace than we have seen so far. Overall, the picture remains very healthy for the economy. But bear in mind that Norway is a small and open economy, and that we are impacted by what happens outside of our country.
A few highlights this quarter from our customer segments, when we, for the first time, report three segments in total. Personal Customers, we see a very high activity level and a healthy growth of 0.8%, with more than 7 billion NOK being added to our mortgage book in new volumes. We have looked back and had to go all the way to 2017 in order to find an equally strong third quarter in terms of growth. Our customers continue to sign up for new savings agreements. If you look at the number of savings agreements, they're up by 8.7% during the last year. Costs in this area are down compared to the previous quarter, pre-tax profit up by 10% compared to the last quarter, demonstrating a very strong performance from the team.
Business Customers Norway is being reported for the first time, and our strong position in this area is underpinned by net profits of NOK 4.1 billion. We see a healthy growth across regions and across activity areas, with the exception of construction, which remains low, where we see smaller signs of indicating a pickup, but still a slow activity this quarter. Other operating income is up, which means we deliver an increasing number of services to our customers in this area. Key drivers are pension and a continued strong cooperation and activity with DNB Markets. In Large Corporates , lending grows by 4.7%, NII by 7% from the previous quarter. High level of activity and new businesses in areas such as renewables, such as manufacturing and seafood, and overall, a high activity level of refinancings during the quarter.
We continue to serve our customers with cross-sells and products from many activities within the bank. Pensions, a very active quarter in terms of hedging and FX, as well as capital raise in the bond market. And the operating income this quarter is at par with the same quarter last year, but then we had a very meaningful contribution from a mark-to-market adjustment on shares we were sitting on from companies that had been restructured. So also a strong quarter in large corporates on the operating income side. Pre-tax profit in DNB Markets came in at 1 billion NOK, a very high-quality revenue mix. We always look for the customer-related revenue, and the customer-related revenue in DNB Markets is up by 23% compared to the same period last year.
During the years, we have consistently communicated our ambition to grow our fee base more than our volumes and lending-based activity. Two areas we have identified particularly to be key drivers of this growth, and these are investment banking and asset management. Adding all the customer revenue in DNB Markets and revenue from asset management, you can see the growth that has been delivered this quarter compared to the two prior years with third quarter, where we delivered 25% growth in revenues. Further to the right, you can see assets under management and how we've consistently grown our asset base that we have under management. The aggregate growth for the past two years is 41% in this area.
I wanted to particularly highlight these two that has a very solid growth momentum on its own, but these two are also the two particular areas that we strengthened with the acquisition that we announced yesterday. As many of you have heard, we announced the agreement to acquire all the outstanding shares in Carnegie. Carnegie is a Nordic leading investment bank and asset manager, and jointly, we will hold the number one position in the Nordics. We view this to be a perfect match for DNB, and Carnegie view DNB to be the perfect match for them, and very much for us in line with the strategy we have communicated of growing fees and also growing our Nordic presence. In the discussions we've engaged in over the past years, we've increasingly found both cultural similarities and complementary business activities even more than we anticipated at the outset.
This, we strongly believe, will strengthen our offering to customers, both in terms of geography, in terms of products, and in terms of industry expertise. We are excited about the opportunities that lie ahead, but even at the outset, this will increase our revenue base from the Nordic area by 45% in terms of fees. The rationale for the transaction is primarily based on revenue synergies and the value of the strategic positions that we enter into. The next steps for us now will be to apply for the relevant regulatory approvals, and we hope to close it during the first half of 2025.
We are jointly excited about the opportunity to serve our customers better from this new platform we will have from joining forces, but also looking at the fee-based revenue in total, just joining forces will increase the total fee income in DNB by 30%. So with those remarks, I will leave the floor to Ida.
... Thank you, Kjerstin. Thank you, and welcome to everyone here and to those of you listening in. I would now like to go through the third quarter results in a bit more detail. Loan volumes are up 1.6%, driven by increased customer activity across all three different customer segments. We note a good momentum in the Personal Customers segment, with an increase of loan volumes of 0.8%, driven by a stronger activity in the real estate market in addition to refinancing activity. The volumes in Business Customers Norway increased by 0.3%, and in Large Corporates and International, we saw a strong uptake of growth of 4.7%.
It was a strong customer activity across the board in Large Corporates, but I would like primarily to put focus on the increase we saw in renewable energy, as well as in the Future and Technology business area. Deposit volumes are down by 4.1%. In Personal Customers, this is completely in line with seasonal effects, and in Business Customers Norway, this is also a seasonal effect related to the public sector. In Large Corporates area, there is a decrease, which is more related to a customer-specific outflow of deposits that are in low margin, as you can also see on the increase in deposit spreads on the next slide. We continue to maintain a strong deposit-to-loan ratio in the customer segment of 72.7%.
As communicated earlier, we expected a muted growth in the first half of this year and an increase in activity in the second half of this year, which is something you can also see in our numbers presented today. Net interest margin was up by 1 basis points in the quarter to 190 basis points, driven by an increase in other NII. The combined spreads in the customer segments were down by 1 basis points, affected by increased money market rates, but also continued strong but rational competition in Norway. Net interest income increased by NOK 312 million, up 2%. Effects from spreads, treasury, and interest on equity reduced NII by a total of NOK 65 million in the quarter. Volumes and effects increased NII by NOK 37 million, and one additional interest day added NOK 127 million.
Amortization effects and the increased activity that we saw increased NII by another NOK 70 million, driven by high refinancing activity. In addition, NII was positively impacted by a number of other items, totaling NOK 143 million. The third quarter was characterized by a high customer activity, and in FICC, the customer-related income was actually all-time high. We continued to benefit from a robust and well-diversified fee platform, resulting in an all-time high third quarter result in net commission and fees. Net commission and fees comes in at NOK 3 billion, up 11.1% from the corresponding solid third quarter we saw last year. Real estate broking was up 1.6%. We noted increased income in the residential real estate broking business, but this was somewhat offset by a lower activity in the commercial real estate brokerage.
Investment banking services was up by 19.1%, representing an all-time high third quarter results. There was particularly strong contribution from debt capital markets in the quarter. Asset management and custodial services was up by 27.6%. There was continued growth in asset under management, up NOK 208 billion, and we noted positive net inflow, both from retail as well as institutional customers in the quarter. In addition to that, as Kjerstin pointed to, we continue to see an increase in number of savings agreements in our portfolio. Guarantee commission was up 18.9%, driven by a continued increase in demand for trade finance products. Money transfer and banking services were stable, down 2.7%.
We noted continued high transaction and international travel activity, but this was somewhat offset by increased volume-related cost, which is annualized and therefore affects the third quarter results. Sale of insurance products was up by 5%, where we saw a continued strong contribution from non-guaranteed pensions, also as Kjerstin pointed to. Moving on to costs, which were stable quarter on quarter. We noted lower marketing, travel, and training costs, all in line with lower activity in the quarter. IT costs were down, also in line with a higher activity related to IT cost in the second quarter due to the integration of Sbanken. The increase in employers' national insurance, as well as ordinary salaries, are related to the annual salary increase, which is now being implemented.
Cost effectiveness is always high on our agenda, and we continue to actively manage our cost base through increased automation, but also through the recently announced reduction of 500 full-time employees. Now over to the portfolio quality, which remains robust and well-diversified, with 99.2% of the portfolio in Stage 1 and 2 . For Personal Customers, which accounts for a bit more than 50% of our portfolio, remains strong. We are not seeing any negative developments or movements in that portfolio. For Business Customers Norway, impairment provisions totaled 147. The portfolio is robust and well diversified. There are no structural changes in the portfolio or general negative migration to note, but there are these customer-specific situations in Stage 3 . For LCI, we noted net reversals of NOK 12 million. The portfolio is robust and well diversified and shows no signs of structural changes.
We remain comfortable with the credit quality in the portfolio, but please bear in mind that losses will vary from quarter to quarter. Now, moving on to capital. Our core Tier One capital remains strong at 19%, with a two hundred and twenty basis points headroom to the regulatory expectation. The core Tier One capital ratio was positively impacted by profit generation, but this was offset by increased risk exposure amount from volume growth as well as currency effects. Leverage ratio remains strong at 6.3%, well above the regulatory requirement of 3%. With a core Tier One capital ratio of 19% and a leverage ratio of 6.3%, our capital position remains strong and enables us to continue to deliver on, deliver on our dividend policy, as well as make the acquisition of Carnegie.
Summing up, we deliver a strong set of results across the board. Return on equity came in at 18.9%, earnings per share at 7.83, an increase of 14.6 from the previous quarter. Our cost-income ratio is at 32.5%, and with that, I would like to thank you for your attention and open up for a Q&A, as well as extending an invitation to our Capital Markets Day on the nineteenth of November in London.
Thank you so much, Ida and Kjerstin. We'll open for questions from the audience, and I have a microphone wandering around in the audience for those who are. Jan Erik, you're first out from ABG.
Thank you. Jan Erik Gjerland from ABG. Congratulations with the Carnegie transaction yesterday. Looks like a good transaction for you, I would say. If I could start with that, you mentioned that income synergies should be the main reason why you should sort of increase the net profit line for a run base of NOK 1 billion for 2025. But when I look at all the capital transaction I've seen in the marketplace over the last couple of years, it seems like both you and Carnegie has been off the spot. So it means that they even though you are expecting more to sell more products through Carnegie branch in Sweden, Denmark, and Finland, there seems to be some dis-synergies in Norway, at least. So could you just shed some light into the income dis-synergies and the potential cost synergies?
Because there must be someone. You mentioned on the call yesterday, that was 850 DNB Markets employees and some 850 in Carnegie. So are you certain that you need all of those 1,700 people in place? So how should we think about the cost synergies versus the income synergies and the dis-synergies in Norway? That's the first question. Thank you.
Thank you, Jan Erik. I'll start, and I'll leave it to Ida to take you through in more detail the elements impacting the one billion base for the price. The clear message from us is that the main rationale is related to revenue synergies and a strengthened strategic platforms. I would again remind you that that goes across investment banking, it goes across asset management, it goes across wealth management, and it goes geographically across both Sweden, Denmark, and Finland, where we have an activity. So part of these revenue synergies is also considered, of course, in cooperation jointly with our corporate banking venture, where we have the tradition for growing and developing the business together.
We have also clearly said that there is some cost synergies to be expected, but this is not the main rationale, nor have we any concrete plans to realize them in the short term. Which is why we're saying we now look forward to jointly join forces, and then, as in every business, we will look at how can we increase efficiency, where can we do that, where do we see the fastest most rapidly growing potential. There is not a set deadline on that. But in any merger, as we see this to be between DNB Markets and Carnegie, there is, of course, an opportunity also to take out some efficiency.
And when looking... I thought I'll just give you a bit more details in terms of how we get to the NOK 1 billion that we communicated yesterday as the full year expected net income of twenty twenty-five. First of all, you need to annualize the year-to-date income that they have of NOK 535. That leads you to NOK 713. In addition to that, there is an annualization of the effects of the recently acquisitions that have been made by Carnegie. Didner & Gerge is one of them. That is expected to add a further NOK 100 million.
... In addition to that, we have seen that there are some cost non-recurring costs that has been the fact during the last few quarters, which is related to restructuring, but also IT costs that is expected to be non-recurring, which adds up to NOK 125 million. And on top of that, we expect an increase in wealth management income, the more recurring part of the business, as well as an increase in activity related to the capital markets, which should add a further NOK 75 million. Again, pointing to that this is also, in our view, fairly conservative estimates.
Thank you. A follow-up question?
Yeah, thank you. Since you did not have any limitation, I continue. The net interest income seems to be very strong and if you could point to some of the issues there. The first one is the margin side on the volume. You had sort of increased your volume side, as you pointed to in the second half of this year, but you have given some margins away. Is that the normal churn we should expect going forward from taking such volumes in the mortgage side? Secondly, on the NII, SMEs or the Norwegian business corporates has been very strong growing for many, many, many years, but it's now coming sort of to a slower growth. What has happened and finally on the large corporate side, the volume, it seems to be quite upwards.
Is it outside Norway or it's inside Norway you have been growing? Then on the deposit fees
You're testing us now.
Still, still the NII seems to have been changed this quarter, so could you just shed some light to, is this the new level going forward, or was it a one-off? Okay, thank you.
Yes, thank you.
Okay.
You can pass the mic to Thomas for the next question.
Yeah, hand the mic over. Thank you. Overall margins, I would say fairly stable. Volume weighted down 1%, NIM - not 1%, one basis point. NIM is up by one basis point. We've added NOK 7 billion of volume to our mortgage book. There is a slight change in in margins, but overall, a margin pressure that is that is clearly manageable and and somewhat decreasing also throughout the quarter. But competition is fierce, but we have a competitive offering, both across the quality and characteristics of our products as well as our pricing, and are not concerned about the current margin pressure in that book. The SMEs, as you have well pointed out, we've taken market shares consistently for years.
There is really one major change related to the volume development this year, and that is in housing construction. That has gradually come off the book, and there's basically no activity currently in the market. If we adjust for that, we see a growth and development in this business, which is very much in line with what we have experienced previously. We are seeing cautious signs that this will pick up. We need it to pick up at some stage. That's important for the housing prices. It's important for the global offering of houses in the market. We see an increased interest to test new projects. We see an increased interest in new financings, but so far, nothing major has materialized on the books during this quarter. Growth in large corporates, main areas for growth, renewable, manufacturing, seafood.
Two-thirds of the growth is in Norway or the Nordics, and one-third outside of the Nordics. Deposits, there is a decrease in deposits, but very stable margins. We would characterize what we see across personal customers and business customers Norway for more seasonal variations. The highest decrease comes in large corporates, which is more related to volumes that are put out on offer on a regular basis, where we are continuously adjusting that for them to be profitable for us compared to alternative funding. Thus, we weren't competitive on all of these volumes, but as you can see, with a marginal reduction in NII, given that the NII in large corporates grows by 7% compared to 4.7% growth in lending.
And the guarantee fee? The guarantee fee.
Guarantee fee-
Can you repeat the question?
...
Yeah, the microphone just behind you.
The deposit guarantee fee is sort of down some NOK 70 million this quarter.
Yes, it is. I don't have any further information on that apart from that. Sorry, we'll have to come back to that.
Thank you, Jan Erik. Thomas Svendsen from SEB.
Yes. Good morning. Two questions. When we look at Personal Customers and Business Customers Norway, deposit margins, it seems to have sort of flattened out for both segments. Are there any driving forces or changes that could change this over the next couple of quarters, or is stability the best estimates here?
... I think this is a representative picture for what we are seeing now. We have seen some rational behavior, I would say, from customers looking to increase the return they're getting on deposits, moving them over to savings accounts or more longer term positions on Business Customers Norway. And we still continue to actively advise our customers on deposit placing, as well as the acquisition of savings agreements. But again, the level of activity in this area has somewhat leveled off, and it's always hard to say what the future will bring, but we are in a more stable interest rate environment.
So that gives reason to believe that this activity will and should, to a certain extent, continue, because we like our customers to be rational and make as much money as they can on their savings, but that we are in a more sort of stable territory ahead of us than we've seen during the past year.
Okay. And question number two, you highlight Carnegie as a tool for further Scandinavian growth. Does that also goes for lending and corporate lending? And could we see you increase the pace there and probably increase your group targets of 3%-4% lending growth?
We do not have any new sort of guiding or information on targets, so that remains 3-4%. But we have grown our Nordic activities also on the lending side, outside of Norway, more than the rest of the activity in the previous years. We have doubled the revenue from our Swedish and Nordic activities outside of Norway during the past five years. So it's been already a clear strategy to grow that activity across both DNB Markets and corporate banking, and this will continue. We have a strengthened platform, but what we're also very focused on in large corporates is to actively use the originate to distribute model, where we increase the turnover of capital. We typically see also that from an industry point of view, we are complementary.
We have stronger expertise in the more asset-heavy businesses, whereas Carnegie has their strength in the more asset-light activities. So yes, lending and corporate banking is a part of it, but not necessarily sort of accelerating the group as a whole, but it gives broader and more diversified tool to serve customers better.
Okay, thank you.
Thank you. You can pass the mic to Roy Tilley from Arctic.
Thank you very much. I have two questions. Firstly, on Personal Customers Norway, you're starting to grow a bit more, as you kinda hinted to in Q2 as well. Just wondering, you say that activity is up. We've seen that elsewhere as well. Is this increase just broader market activity, or are you doing something different now compared to earlier this year? So that's the first question. And secondly, just a more technical one on NII. I see that your interest on subordinated loan capital is down roughly NOK 300 million in the quarter, but the volume seems to be flat. What's the driver there? And secondly, you seem to have roughly NOK 8 billion in AT1 capital that you currently are using. Is that pre-funding or what's the reason there?
I'll leave the two latter to Ida and comment on personal customers. Yes and yes. Yes, there is an increase and pickup in the market sentiment and growth, not materially translating into a growth overall for household, but related to acquisition of new houses. That has been more active. And yes, we have done a lot also to of course improve our offering on Sbanken, and that was integrated in the second quarter, having freed up a lot of resources and activity, having worked on that and having worked on the repricings and all of the other moving bits and pieces that we have had during the past year, has basically been freed up to focus on sales and new business activity. So market's better.
We have refocused and sharpened our team in terms of new business, and we've continuously improved the quality also of our offering, and that has yielded results. So performance-wise, this is a much, much stronger quarter in a relative perspective than second quarter was.
On NII, I'm not sure if I'm accurately answering your question, but if you're looking at other NII, there is an increase in NII coming from risk management as well as the reduced guarantee levy fund. On the treasury side of the NII income stream, you're seeing an increase in terms of funding activity and also NII coming from an long-term funding perspective. I'm not sure if that answered your question.
Yes and no. I was looking in the fact book on note 125, just the interest on subordinated loan capital. That was NOK 700 million last quarter and NOK 400 million now, so you're paying NOK 300 million less for your subordinated debt. I was just wondering why?
I think I'll have to come back to that.
Okay.
I'll have to come back to that later on. In terms of AT1s, yes, we have taken up AT1s, and there is a AT1 in November, but we haven't made a decision on that, in terms of a call.
... Let me just follow up quickly. When did you do the AT1? Just-
Sorry.
How much did it impact this quarter, the spring?
No, that was done in during the spring.
Oh, okay. Sorry. Yeah. Thank you very much.
Thank you.
Thank you so much. Any questions from our online viewers? Okay, if you could pass the microphone. We have three questions. Two questions from Magnus Sundal from Borea. How large part of the personal market deposits are at zero or close to zero interest rate? And second question, corporate lending growth seems to come from bank, insurance and portfolio management to a large extent. Can you elaborate on what's going on there?
Sorry, the last part of the question.
Corporate lending growth seem to come from bank, insurance and portfolio management to a large extent. Can you elaborate on what is going on there?
Thank you. What we give is the split in current personal customers, in terms of deposit, how much is on current accounts and transaction accounts and savings accounts. And the split there, even though there's been some move, it's roughly 25% transaction account, current accounts, and 75% savings accounts, so no larger movements in the mix there. In terms of corporate lending growth, it's not primarily bank and insurance. It's also renewable. That is split across both wind and sun projects that have scaled and started. It is also manufacturing and seafood, so it's more of a diversified growth than just bank and insurance, which is also a part of it, but nothing in particular that we can highlight going on in that sector in itself.
Very good. Thank you. And then we have a question from Sofie Peterzens, J.P. Morgan. Could you please remind of capital headwinds to come, including Basel IV, potential new risk weight floors, and anything else?
Yes, of course. As you know, there is a proposal from the NFSA of increasing the risk floors for the real estate, as well as for commercial real estate, or the mortgages and the commercial real estate. That has. We haven't seen a decision on that from the Ministry of Finance, and the market seems to anticipate that that will not be approved, but again, we don't have any news on that, and therefore, that's also something that we take into account could affect the core Tier One capital going forward, which would, in that case, mean eighty basis points for us. In addition to that, there is a one-off effect from CRR3, if that's being implemented from the first of January, that we haven't quantified, but said that that's minimal.
In terms of the overall effect, there are some positive elements, and there are some negative elements. In addition to that, when looking at capital and potential headwinds or tailwinds, we have the annual SREP process, which happens on an annual basis, and we get a response from the NFSA and the DNB College of the Pillar II requirements, as well as Pillar II guidance. That usually comes in November, and that's something that we expect will come then as well. And the other element that affects capital is also the continuous focus and scrutiny that the NFSA do of our IRB models, but that's an annual process, and we don't have any further news in relation to that.
Thank you. All right. I don't have any further questions. That has to be a really, really short one, Jan Erik.
I just take one out of the three then. You mentioned the 500 people you're allowing to leave you. Could you get some more timing on it, as well as how much it will cost?
We have said that that is expected to be finalized at the end of first quarter next year. And we haven't got an assessment of a potential one-off cost, but we'll come back to that later on when we have that, probably in connection with the capital markets day.
Thank you, so today there is a conference in the area outside, so we will have the press meet us in another area this time, so you go out to the left and then all the way up the white staircase. There will be time for interviews with the press, and thank you for joining today, also for you joining online.
Thank you.