Good day, and welcome to today's DNB conference call. Throughout today's recorded presentation, all participants will be in the listen only mode. Later, we will conduct a question and answer session. If you wish to ask a question, you may signal by pressing star one on your telephone keypad at any time during the call. And now I'd like to hand the call over to Rune Helland. Please go ahead.
Hello, everyone, and welcome to DNB's investor call covering today's exciting announcement. In the panel here in Oslo, we have our CEO and CFO, Kjersti Braathen and Ida Lerner. And from Stockholm, we are very happy to have the CEO of Carnegie, Tony Elofsson, and head of DNB Markets, Alex Opstad. Before we open up for Q&A, I will give the word, or, Ida will give a short introduction to the transaction. But, first of all, I'd like to give the word to Kjersti. Please.
Yes, hello, and good morning, everyone. Just a brief introductory comment from my side, echoing Rune, about our excitement today, about the news we've launched this morning. Our view is that this deal is centered at the heart of the consistent strategy that we've been talking to you about for years. Indeed, it strengthens our platform for investment banking and asset management and wealth management. It strengthens our fee and commission base, and it also strengthens substantially our position across the Nordics. Increasingly, we have been excited jointly, I would say, Carnegie and DNB, about the degree of complementarity of our two business ventures that we are now looking forward to join together. And with that, I will hand it over to Ida to take you through some more of the details.
Thank you, and thank you to all of you that are taking time to listen in and participate in this call. Today, we announce that we have entered into an agreement to acquire 100% of the shares in Carnegie. The transaction is subject to approval from the authorities in the applicable jurisdiction and is expected to close during the first half of 2025. Carnegie is, as you all know, a well-known and recognized leading investment bank and asset manager in the Nordics, deriving 56% of its revenue from investment banking services and approximately 44% from wealth management. A revenue mix in which the wealth management business, which is more of a recurring income mix, have been increasing in share in the total revenue over recent years. Geographically, Carnegie has a strong position in all Nordic countries.
The largest part of its revenues are derived from Sweden, which accounts for approximately 64%, followed by Norway at 14%, Denmark at 12%, and the remainder representing approximately 11%. 2024 has shown an uptick in revenues in Carnegie, with a net income of SEK 535 million and a return on equity of 18% for the first nine months, ending 30th of September 2024. Looking ahead, Carnegie is expected to generate a net income in excess of SEK 1 billion in 2025. This is expected to be achieved through the full year effect from certain parts of the recently acquired businesses, which have not been fully accounted for in the first nine months results year to date.
Lower cost levels ahead, in light of some extraordinary costs that were taken in the two previous years related to IT, as well as corporate finance, and increased revenues from its strong and increasing recurring revenues stemming from wealth management, as well as continued recovery in transaction and capital market activity. Through this acquisition, we are accelerating our Nordic ambition within investment banking, securities, wealth management, and large corporates. In addition, it will further increase the bank's share of commission and fees and provides a unique position for further growth within high margin products and services in the Nordics. Our analysis and dialogue leading up to the announcement of this transaction has shown that the two businesses are highly complementary, as Kjersti pointed to, both when it comes to product mixes, geographical strengths, as well as sector expertise, in addition to a strong cultural match.
The purchase price is expected to be approximately SEK 12 billion, payable as cash consideration, subject to certain adjustments and assuming a normalized core Tier 1 capital ratio level in Carnegie at closing. Any excess capital will be normalized or adjusted for in the third final purchase price. The transaction is expected to be accretive to DNB's earnings per share and return on equity, and generate a return on investment capital, invested capital in excess of 16% on a fully integrated basis. The synergies in this transaction are predominantly related to further income opportunities through the improved product offering to our existing customers and opportunity to use our combined advisory competence even broader through geographies and sectors. There are naturally also some cost synergies, but these are not the main driver for the case as such.
The overall risk profile and risk appetite of DNB will not change as a consequence of this transaction, and the transaction will further support DNB's dividend policy and while reducing the Core Tier 1 capital ratio by 100 basis points when being closed, this will not negatively impact our dividend policy in the short term. As mentioned initially, the transaction is subject to approval from authorities in the applicable jurisdictions, and is expected to close during the first half of 2025.
... Until then, the businesses will be continuing to operate on a separate basis and maintain focus on business as normal. Summing up, Carnegie is a perfect fit, in line with our strategy, and the transaction marks a step change in increasing the share of fee-related income for DNB as a whole. Thank you, and now we open up for questions.
Thank you. As a reminder, to ask a question, please signal by pressing star one on your telephone keypad. And please make sure the mute function on your phone is switched off after you signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, it is star one to ask a question over the phone. And our first question comes from Shrey Srivastava from Citi. Please go ahead.
Hi, and thanks for taking my question. I have two today. The first is, what do you expect the integration costs to be for this acquisition, and what would the saving of these costs be? And secondly, on buybacks, what do you see as a sustainable level of buybacks now, post this acquisition in twenty twenty-five and onwards relative to twenty twenty-four? And is the size and shape of your Nordic business, now appropriate to you, or can we look forward to sort of more bolt-on M&A going forward to strengthen your position outside Norway? Thanks.
Thank you. I believe that was three. I'll do the latter, and I'll hand the first two over to Ida. As for the size and shape of our Nordic business, this is certainly a substantial step change in strengthening our position, but we're also very focused on the value of that platform to grow further. There is a substantial potential that also derives in further developing our large corporate business alongside now the investment banking and wealth management business, as well as the positions through Denmark and Finland. So we still see an attractive opportunity to grow. I'm primarily talking about the organic opportunities that will be accelerated through the strength of this platform. With regards to our overall strategy and M&A and bolt-ons, I would say we're still consistent.
Primarily, we are about organic growth, but we will at times consider bolt-ons if they are strategically valuable or add the scale to a business we already have, and today's transaction is an example of that, but primarily so for substantial increased strategic value.
Yes. Thank you. When it comes to integration costs, we haven't specified either the synergies or the transaction costs. But again, I would like to say that comparing this to other acquisitions, there are less integration costs stemming from technological integration and so forth in this type of transaction than what it is in other types of transactions. So again, I would just point to the fact that this is primarily driven by revenue synergies and the potential that we see there, and also transaction-wise, there is lower integration costs than what you would see in other types of transactions. Our dividend policy stands, and we've been clear on saying that we will continue to focus on a nominal increased cash dividend year on year, and then we will continue using buybacks as the flexibility tool.
That is something that we will continue looking at as well. We are generating capital from a profitable business, and we're also seeing that bringing Carnegie together with DNB will further boost this also going forward.
Thank you very much.
Our next question comes from Sofie Peterzens from J.P. Morgan. Please go ahead.
Yeah, thanks. Here is Sofie from J.P. Morgan. So, my first question would be around staff retention. Staff is very important for Carnegie's business. How do you kind of ensure that you're going to retain key staff, that we're not going to see any meaningful, kind of, meaningful departures in Carnegie? How do you plan to kind of merge the compensation structure and culture between Carnegie and DNB? And how should we overall think about the kind of compensation?
Maybe if you could also talk a little bit more in detail around the revenue synergies, because when I look at Carnegie's annual reports for the past five years, it seems that apart from 2021, when fees were exceptionally high in Sweden, Carnegie has really just generated around SEK 500 million of net profits, excluding any asset sales. How should we kind of think about the additional SEK 500 million in net profits? Where will these come from? Which products, which markets? So if you could give a little bit additional details. Thank you.
Thank you, Sofie, for good questions. I'll briefly comment overarchingly on the first one, and then ask Alex and Tony from Stockholm to comment on it, and Ida will do the second one, and I'll just start by saying very generally that retention and culture has been top of mind all along, ever since we started the dialogue, as it's a key element to this transaction, and both through what we have uncovered and also the plans we have put in place, we feel that this is a risk that is contained, and we feel comfortable with the platform we are moving forward on, but Alex and Tony, please, chip in.
... Thank you, Kjersti. Hello, Sophie. This is, of course, the key question, integration risk and retention risk, and this has really matured for us over a twelve to eighteen month period. But I'll start by saying that, as part of the agreement, certain shareholders have commitments. That is one sort of technical answer. But then the main answer is that, from our experience, what creates retention in this industry is about being the most competitive player with the sort of the highest deal flow and then being the best place to work. And we think we are really creating a very competitive Nordic offering by combining our two firms.
As such, the process has been to look at our complementarity, and I can get into that, but that in itself is creating retention. Maybe you want to comment as well, Tony, on culture?
I just want to first of all agree with everything Alex and Ida said. It's been quite a long process leading up to this, where we have discovered clear similarities in key culture, to the point where we are extremely excited about this opportunity, and we will remain very motivated to make this work. We see a lot of revenue synergies over time between us. The complementarity is just fantastic, and I think my staff is truly excited about this.
And if I can add, Sofie, just to make a point of the fact that DNB Markets is sort of an independent business area within DNB. I think I made the point at our last CMD in 2022 that our culture, in my mind, is somewhere between an international investment bank and a boutique. So this is very much a business that we are already in, and we believe we have good credibility in that area from the business that we've already built. So this is a very natural expansion, and we are very excited about the growth opportunities that the two combined firms will have ahead of them. Not least related to rolling out our broad product portfolio to our combined set of clients.
If I answer the second question in terms of revenue synergies, I think the first thing to look at is you are right in saying that 2022 and 2023 were lower markets, also shown in Carnegie, which is also natural, bearing in mind that they historically had more income stemming from equity capital markets, for instance, which has had a lower activity those years. But looking at this year and year to date, and rolling twelve months as well, they have net income of 535 million SEK. If you annualize that, you're up to around 700 million SEK. In addition to that, they've grown quite significantly and impressively, I would say, in wealth management.
A bit of a more recurring income stream, both organically from a strong platform and strong growth that they've seen in both asset management, but also private banking, but also recently through some add-on acquisitions on the asset management side, where we haven't seen the full effect in the year-to-date numbers. So those are important to keep in mind as well. In addition to that is the third element, which is more normalization of the capital markets activity. I mean, we all know that we're still not at the more normalized levels that we have seen before, and looking at an average over 10 years, we're still significantly below that when looking at the activity in the capital markets. And this is, of course, an element that we do bring in here as well.
And then on top of that, we have the income synergies just stemming from the fact that we have a broader product platform to offer our customers, and we have more customers to offer a more advisory service to, that will, we believe, will also boost income further going forward. But it's important to say that we've been quite conservative in our assessment also of the income generation going forward, compared to what the business case from the seller side has been.
Okay. And maybe just... Sorry, a quick follow-up on in terms of the staff retention. Do you have any kind of bonuses guaranteed for kind of the years to come for key staff?
Alex?
I think that we will not comment beyond the shareholder commitments that we've already.
Okay, I see. Okay, that's very helpful. Thank you.
The marketplace, and we are used to there being a very competitive market for all our talents, so we're very comfortable in how we're gonna address this going forward.
Okay, that's clear. Thank you.
Thank you. We're gonna move to our next question from Jan Erik Gjerland from ABG. Please go ahead.
Thank you for taking my questions as well. First of all, back to the incentives, et cetera. So how many people have you tied up in the new sort of organization versus the level of Carnegie employees and level of your own employees in the same units? If I can start with that.
I think I'll just echo what Alex then just said, Jan Erik, that there are some shareholders that have commitments. Beyond that, we are not commenting specifically on retention structures. But we are jointly in our excitement of the opportunities ahead and see the excitement across both organizations in terms of what this can create in future. And bear in mind that we're talking revenue synergies and increased opportunities, that we are very much common in terms of how we evaluate further. So we believe this will be a very attractive place to be.
Okay. If I understand the transaction correctly, you will sort of integrate DNB to get to Carnegie on the market side. And so in Norway, it would sort of stay the old DNB Markets, and you integrate the Carnegie into DNB Markets. But in Sweden, it looks like they keep continuing on their own, but with under your name, with DNB Carnegie as a name, but with the separate units as such. How could we be certain that you are keeping your hands off the good work you are doing in Carnegie versus keeping your hands on and destroy value here? So how are you- how is your incentives when it comes up to how many millions they will earn down the road versus how successful this could be? That is my question then.
If that was for me, Jan Erik, I'm happy to answer. First of all, I respect that I've had twelve to eighteen months thinking about this, and it's a lot to take in this morning. If I did hear you correctly, so what we are planning to do in this integration is to have DNB Carnegie as the global brand name for our investment banking and capital markets operation. And that is to signal how important this is to DNB, to retain a very strong brand name in Sweden, and to signal that what's important to us is for these two organizations to combine into one. Going back to retention, the daughter company, currently named Carnegie Investment Bank AB, will remain in this structure going forward.
We will transfer our equities, fixed income sales, credit research, and investment banking operations in Sweden into that unit. We will also do so in Denmark and Finland, but that's a combined three people, and that unit legally will be operated by the current CEO, Tony Elofsson. So that's also a retention strategy in itself, that Carnegie will continue to operate the majority of their business as they do today. And I will become chairman of the board for what will be renamed DNB Carnegie Investment Bank AB. And then I'm not sure if I agree on the premise that we are superior in Norway, in the sense that we can't, that the addition of Carnegie won't make us stronger.
And similarly, I believe that we will make Carnegie in Sweden stronger by the addition of our people. And we think about this really across three axes. One is the geographical one, which is obvious. A second one is across product, which I guess also is obvious. I believe we've built credibility over the past fifteen years that we can offer a very broad range of products to our clients. And lastly, it's also a point we'd like to make on the sector of complementarity. So, as you are intimately familiar with, DNB has their DNA in sort of asset-heavy sectors where typical debt financing is important. And Carnegie, you could say, have their DNA in somewhat more asset-light sectors, being TMT, healthcare, business services, and so forth.
So we also believe that we're very complementary on that topic. I hope that helped, partly at least, answer your question, Jan Erik.
Absolutely. I have one final one on the asset management units, which seems to have 436 billion under assets. If my investigation on the website is correct, it seems like the real asset management in the asset management division is some 150 billion at six months, so I don't know the nine-month number, and then 264 billion in private banking asset management units. Could you shed some light into what is the difference between the private banking asset management in things, what's inside the asset management? Is it more than the funds in the asset management, and then in the private banking, it's more assets you hold for the clients?
How is sort of the income stream coming from those assets, please, if you can shed some light to that?
I think, Jan Erik, we will have to come back to a lot of the more detailed questions later on, but I think the most important element is that I also pointed to that there are some recently made acquisitions that you aren't seeing in the numbers as of yet. Didner & Gerge is one of them, and that's also one of the reasons why you don't see the numbers being added up.
Mm, agree. But the 500 million extras is pointed to Sofie about, could you shed more light into the latter of that? Because it seems like a big number from D&G, so to speak.
... I don't think I said anything in relation to asset management on that. I said that if you add all, everything that we're talking about in terms of income synergies and revenue synergies going forward, I pointed to three areas. First of all, the annualization of the NOK 500 million year to date, which gives you approximately NOK 700 million. Wealth management that has grown organically, very strongly over time, both on the private banking side, but also on the asset management side, in addition to add-on acquisitions such as Didner & Gerge that have been made recently. Erik Penser Bank is another one that has been adding further income that you aren't seeing the full effects of the year to date numbers.
In addition to that, the normalization of the Capital Markets activities, which we expect will come in the years to come, and in twenty twenty-five, starting to pick up already from what we've seen in twenty twenty-four. I hope that answered your question.
Perfect. Thanks a lot. Very clear. Thank you.
Our next question comes from Thomas Svendsen from SEB. Please go ahead.
Yes, good morning. So, first question on this NOK 1 billion sort of pro forma adjusted normalized net profit. Could you say how much of this profit stems from investment banking services, and how much is from wealth management, approximately?
I think we have a Capital Markets Day on the nineteenth of November. We will provide more details and information on that. I can just say that Alex will be on stage then as well with Håkon Hansen in relation to wealth management. So we will provide you with more details going forward of all different aspects, but not sure I'll give you as many details as you would like to. But I think it's just important to say that we are looking at more of a recurring income stream going forward as well.
That's important when you're looking at year to date numbers and compare that to the numbers Carnegie had in previous years. There is a larger portion of the income stemming from more recurring business than what has been the case historically. That's also something that we've been looking at in this case, year to date, but also when assessing the opportunities in twenty twenty-five of amounting to NOK 1 billion.
Okay, and the second question from my side is on share buybacks. So will you continue now with the plan, your initial plan, from before you decided to do this deal? Or will you move slower just to sort of prepare for the closing of this, I guess, in the second quarter next year?
I think Ida has pointed out that our dividend policy remains consistent, and we have not announced a plan for share buybacks. Our primary target and goal is to pay out more than 50%, increasing payment per share per year, and then we use share buybacks as a flexible tool, and you have seen us doing that year over year, in a consistent way to endeavor to optimize around the desired capital position. This is clearly still extremely important for us to deliver to our shareholders, but also to optimize the return on equity in the business, so there's no change in relation to our thinking around share buybacks.
Okay, thank you.
Thank you. We will now move to our next question from Patrick Nelson from Goldman Sachs. Please go ahead.
Hi, and good morning. I appreciate you, you've been touching on this subject a bit already, but I was just wondering, in terms of moving from that above 1 billion net income number to the excess of 15% return on invested capital, could you just elaborate a bit how much of that comes from pure revenue synergies? How much of that is from a higher capital markets and banking activity, and what's your assumption there compared to sort of the long run average on the activity? And what's the other sources that helps you move from that 1 billion to that 15% return on invested capital? Thank you.
I think first of all, it's important to say the NOK 1 billion is our assessment of the 2025 earnings, and that's also where you see the multiple of 12 times. So that's really just kind of to start there. Then I think we said that we won't go into details in terms of the split, but I think, again, just emphasizing that we've done a very bottom-up analysis of the potential going forward in the business case, and been thoroughly looking through what we believe are the more recurring part of the business and what is more related to underlying capital markets activity. And are trying to be as conservative but realistic as we possibly can.
The 15 plus relates to return on investment, fully integrated.
Yes.
And then to reiterate analysis points in terms of extracting and reaping benefits from our complementarity, both on geography, products, and industries, we see a tremendous opportunity to deliver better to our existing client base and to a growing client base, and we will revisit this on later occasions to give you more flavor.
Okay, thanks a lot. And just in addition to that, would you have any sort of upper limit in terms of how much of your RWAs that you will allocate to the investment banking division, or is that still pending?
... We do not allocate RWA to investment banking. We have a broad corporate banking venture and a broad investment banking venture, which is now strengthened, and it's through cooperating between these two entities that we've been quite successful at generating value and growth across the DNB brand. Now, we hope to expand on that model, and believe that we will be able to expand on that model into the sphere that Carnegie has also been working on. But it doesn't work in the way that we're allocating balance sheet. We will still focus on having a balanced activity across retail, SMEs, and large corporates.
But I think we've also shown how we are able to accelerate the turnover of the balance sheet allocated to large corporates through our originate and distribute model, and find that these capabilities will also be just further strengthened with this transaction.
Okay, very clear. Thank you very much.
Thank you. We'll now take our next question from Riccardo Rovere from Mediobanca. Please go ahead.
Thank you. Thank you very much for taking my questions. I have a couple, if I may. First of all, it is quite a while that you're trying to expand the fee income side of your revenues. Been investing in investment banking. We have seen investment banking fees going up quite significantly over the past few years. Now that you're buying Carnegie, are you happy with the rebalancing between fee income and NII? Or do you think you will have to rely even more on fee income than how the bank will appear after the completion of the deal?
The reason why you are buying Carnegie, has it also to do with the fact that from, you know, purely and/or organically, you expanded up to a certain point where you could not really rebalance again, the fee income versus the NII, just organically? The second question I have is, sorry, to get back again on capital. Now, you start from 19, take out 120, you land at 17.8 on a pro forma basis, more or less. Capital requirement is 16.9. You want a buffer on top of that. If I'm not mistaken, you have never really said what the buffer is. But clearly, you are in the day one, the transaction on pro forma basis, you are still 100 basis point above what your requirement is.
Carnegie solves a part of the problem, but does not solve the whole problem. Now, with the share price at one point five times the tangible equity, is again, shall we think about cash DPS as the main tool and, you know, buyback being left with a residual role at one point five times the tangible equity? Because the problem is still there, at seventeen point eight.
Thank you so much for your very good questions, Riccardo. You're quite right. I mean, we've been very specific about growing our fee base faster than our volumes over time, and we've managed to do so through accelerating investment banking, asset management, and savings. But this is a real step change in that very same direction with an estimated growth of 30%, that rebalances the income mix. I certainly see that we will continue to look for growing the fee base as much as we can. We see it really adding value, not only individually and in itself, but strengthening customer relationships, loyalty, retention, and ability to work even closer with customers across a broader geography and a broader range of industries.
This is strengthening not only the income mix, but also our platform to continue to scale this. Whereas we from time to time manage our balance sheet, because we know from experience that it's wise to develop your credit activity on a step-by-step basis, there is a different assessment around the more capital light part of the activity. Having also said that we are not looking to change our risk profile and risk appetite related to this type of business, but there are areas here that we will still look to scale as much as we can and as fast as we can. On the capital side, I think I can only reiterate what we've said before.
We stick to our dividend policy, and you're right in your assumption, saying that we are well above our regulatory expectation. Within that expectation, there is also a management buffer or a Pillar 2 guidance of 125 basis points, and we've said, even though we haven't quantified what level we want to be above that level, we've said that we don't want too much buffer on top of the buffer, and that, of course, still holds, so also following this transaction, we are very well capitalized, and we will continue to focus on our dividend policy and our ambition to continue delivering on that.
Thank you very much, Maria. Thanks.
Our next question comes from Johan Ekblom, from UBS. Please go ahead.
Thank you. Maybe just to come back to the 15% return on invested capital target or guidance.
... You know, when we look at the drivers of the improved revenue, you talk about an expected normalization in capital markets revenues. Could you maybe talk a little bit about how much of the growth is, you know, coming from the annualization of some of the transactions that Carnegie has done? How much is the normalization, and how much are the synergies? Just in broad stroke, 'cause it's pretty big uplift, given that you said that cost synergies are expected to be rather small. Just try and get a bit more color on really what's the organic outlook for Carnegie versus the addition of the kind of expanded product portfolio and customer base.
Yes. I think, just looking at the performance that Carnegie has had year to date shows that there is a strength in that business model, and they're capturing a large part of the market activity that has been growing in the first nine months this year. In addition to that, what we bring in terms of further products and customers across, as Alex also pointed to, and Shrey pointed to, across geographies, across industries, should bear a significant potential going forward.
And then it's of course our main focus when looking, assessing this transaction, is the potential in Carnegie, and the potential that we're seeing in the continued growth in Carnegie following this transaction, bearing in mind that they will get access to a broader product platform, as well as a broader competence level and advisory service, also from a Norwegian standpoint, as well as from a Nordic footprint point. I won't be able to give you more details than that, but I think it's just clear to say that what we are seeing in the growth platform in Carnegie today is significantly different to what we saw in the numbers that you point to in 2023 and 2022.
And we are also not at the normalization of the capital markets activity, and there is a strong growth on the more recurring business side or the recurring income side related to wealth management.
I mean, maybe another way of putting it is, you know, the one billion next year is like an 8% ROIC. Is the majority of the bridge coming from synergies or from kind of the organic pickup in capital markets activity?
The majority is coming from synergy.
Yes.
I think that we can very clearly say, and also in view of both the acquisitions that Carnegie has made, both of where we deemed, and see that we are in the cycle, we think that the timing for this transaction is also favorable.
And maybe-
The majority-
Maybe at the risk of preempting the capital markets day, but when we think about the timeline to get from the one billion up to the 15%, I mean, are you thinking kind of a three-year, four-year period, or is it a longer time? I didn't see any specification on when you think you can get to 15% ROIC.
We haven't said that either, so that's why you haven't seen it, sorry. But I think it's important, and we will come back to this in more detail further down the line. But I think we are now looking at an opportunity where we believe that this transaction will be closed during the second half of this year, and then we will see potential to start to growing that business already from that standpoint. So I think it's we. And again, pointing to the fact that this transaction is EPS accretive day one, and return on equity accretive day one. So in addition to that, the return on invested capital at 15%, will then come also as an add-on going forward.
Thank you.
Thank you. Our next question comes from Martin Ek, from Handelsbanken. Please go ahead.
Thank you. Just to pick up on the question from before around capital. So as at Q2, you were operating with around 200 basis points of CET1 headroom to regulatory minimums or to your regulatory expectation, as you call it, which I understand includes Pillar 2 guidance. So, at the same time, there was an ongoing discussion around increased risk weights on corporate and mortgage lending, potentially consuming up to 80 basis points on CET1. If that or something similar happens, and then this transaction consumes another 120 basis points, then are you then effectively running with zero management buffer? Or so Ida answered another question, where I understood that potentially the management buffer goes into the Pillar 2 guidance a little bit in your case, or how should we understand this?
Do you mean that you have no buffer, or is the Pillar 2 Guidance a buffer to you?
I think what I was referring to is that we have 125 basis points of a Pillar 2 guidance, which is significantly higher than our Swedish peers, for instance, which I believe they have a Pillar 2 guidance of around 50 basis points.
Fifty, yeah.
So just that means that we have a higher Pillar 2 guidance management buffer than what they have. And then the question is, how much buffer do you wanna have on top of that buffer? For us, it's been clear to say that we want to have room to ensure that we continue to grow profitably in the business, in addition to manage FX fluctuations, for instance. And that's really what we've said in terms of the added buffer we want to have on top of the Pillar 2 guidance buffer.
... Well, you're right in saying that there's still no certainty in relation to, or decision made in relation to the risk weight floors that would consume eighty basis points. And that's also something that we naturally focus on, and are also but at the same time, we are quite clear on saying that we will continue to focus on our dividend policy, and are also saying that it shouldn't negatively impact the dividend policy short term or, and more importantly, also long term, it would boost or increase the opportunity for increasing the dividend policy as well. So you are quite right, sort of, raising both the discussion that has been around increased floors and what this transaction consumes. Now, we believe the market seems to believe there's a low risk on increased floors.
We do not sort of have an opinion. We'll just have to wait and see. Keep in mind also that we run a profitable business, so we generate capital on a daily basis, and regardless of the outcome of that, we're comfortable with our capability of delivering on our dividend policy.
Okay, thank you. But if I could follow up on that one, just a benchmark against your Swedish peers then. So do you consider it. So the Swedish peers clearly have a 3-4% buffer on top of the Pillar 2 guidance, right? So they are very careful not to run up against the P2G. But would you say that you, in Norway, need to be less careful in breaching the Pillar 2 guidance, or as you call it, regulatory expectation? Or how would you view it?
I think we can't comment on the other sort of capital strategies. I mean, bear in mind that if you look at unweighted leverage, we are by far the most amply capitalized bank in the Nordics, that you can see from our leverage ratio. So, our thinking around capital structure and buffer has been consistent for many years. And I think there have been differences historically across the Nordics, because the sentiment and what moves around and discussions around the regulatory environment shifts a little bit from time to time. And our thinking goes against the structure of our business across the Nordics and how we view the Norwegian regulators.
I think the most important thing for us is to say that we're way comfortable with the level of our capitalization, and with our ability to deliver on our dividend policy.
Okay, thank you very much for that answer.
Thank you. Our next question comes from Jacob Kruse from Autonomous. Please go ahead.
Hi, thank you for taking the question. So two questions. First, just on the outlook, the 15% return on invested capital. So when you think about that, do you view that as 15% on NOK 12 billion, i.e., NOK 1.8 billion of net profit expected at some point in the future? And just related to that, you've given this NOK 700 million annualized number, and I know both Didner & Gerge and Erik Penser Bank are quite material, although I'm not quite clear how much is already integrated in that 535 number. So could you just sort of set out how much additional revenue are you assuming, just from the acquisitions, and how much one-off costs do you see falling away when you look at that NOK 700 million number?
Thank you.
I think I'll start with the first question. That is right. That is a correct assumption. On the second part, I think we've already dwelt on that, and we are not giving any further details into this at the moment. So I think we'll just have to reiterate what we've said before. I think that's the information that we have for you today. Just check in with Alex and Tony. Let me just, Jacob, sorry, check in with Alex and Tony, since we're not sitting in the same place. Is there anything you would like to add, sort of more from a qualitative point of view, with regards to the prospects and opportunities?
I think a lot has been covered from my side, but I'm happy to shift the word to Tony, also to talk a little bit about the background and comment on the business side of things.
Yeah, no, so, to describe the background leading up to the transaction, we've been looking for a strong partner for Carnegie for the last, year or so. Someone who can take us to the next, level, and, that partner is clearly, clearly DNB. And we believe we can do a lot together, bringing a lot of new products to our clients. You can look at it, from, the point of view of revenue per head. So, DNB Markets revenue is, twice as big as ours, more than that, with the same number of staff. So that's a multiplier effect of the products that DNB Markets provide, of at least two times, and that's how we see it.
So we should have the potential over time to significantly grow our revenue on our client base with the additional product.
Thank you. Jacob? Jacob, anything further?
Oh, sorry. Can I just ask, why are you being relatively opaque about how these numbers come about? Because surely you must have the detailed numbers to get to the 15%. So what is the reason for kind of leaving a lot of it just to our imagination?
I think what we're saying is that we are giving you information in terms of where we see the income streams coming from. In addition to that, we are pointing to the Capital Markets Day, that we also want to have as an opportunity to provide you with more details, and also in a setting where it's built upon the message of the broader message. Because this is not purely Carnegie and the transaction, this is actually a step change also in the fee-related business in DNB as a whole.
That is something that we believe that you also benefit from having in a more better context, setting it aside with a more of a broader description from Alex, both of the current existing DNB Markets activity and how that will be developed further with the combination of DNB Carnegie. In addition to the wealth management business, that is another area that we will focus on the capital markets day.
Okay. Thank you very much.
Thank you. We have a few follow-up questions. The first one comes from Sofie Peterzens from J.P. Morgan. Please go ahead.
Yeah, thanks a lot for taking my question. So just going back to the Erik Penser Bank, that transaction was announced end of last year, right? And it closed in January, or am I mistaken? So if you could just talk about when the Erik Penser Bank transaction closed, and it was only 50 people that were transferred from Erik Penser Bank to Carnegie, right? And then second question, just a follow-up. Could you just disclose to us how many people you have working for DNB Markets? Yeah. So that's it. Thank you.
I think, first of all... Yes, please go ahead.
If I can take the latter one. I think the exact figure is just around 850 people working in DNB Markets. I believe the last number was 859 or so. I'm sorry, David, you're gonna comment on the first question as a starting point?
No, no, please start then. Please go ahead.
If the question was with regards to Erik Penser, I think Tony is probably the person that answers best for the background and the integration of Erik Penser.
Yeah. So Sofie, that was a correct description. It was announced about a year ago, and it closed in January. It was essentially an asset purchase. We took over around 90 people, of which around 50 are still with us post synergies. It was very much driven by assets under management on the private banking side, where we added around SEK 40 billion over time, and that has been a gradual shift from their side to ours, as part of what was being mentioned before about our step up on recurring revenue in particular.
Just to clarify then, the Erik Penser Bank transaction, which is one of the more material transactions for Carnegie, that's pretty much then already fully reflected in the NOK 535 million net income that you posted for the first nine months?
I would say most of it, but not all of it, because some of that shift of clients and assets under management has come gradually, even after closing, because they kept the infrastructure to allow for the move of clients gradually during the spring, even after closing the transaction.
Okay. That's very clear. And Erik Penser Bank, kind of, currently owns around 5% in Carnegie?
They own around 5% of Carnegie, yes.
Okay, perfect. That was everything. Thank you so much.
Thank you. We have a follow-up question from Riccardo Rovere, from Mediobanca. Please go ahead.
Thanks. I have a question for Carnegie, actually. If I understood correctly, you earlier stated that you have been looking for a strong partner for Carnegie over the past year or so, if I got it correctly.
Yeah.
My curiosity here is, have you ever looked at options other than DNB? And given that at the very end of the day, you decided for DNB, what did you find in DNB that you maybe couldn't find anywhere else?
Yeah
... in the space? Thanks.
It's a very good question, and the answer is yes, we looked at all alternatives, and there were other suitors, but none close to the fit, the perfect fit of DNB. As already mentioned before, the geographic complementarity is fantastic, the product complementarity, and also the sector complementarity. But I would really highlight also the ability to embrace our culture and our brand name and way of doing business. I would really like to thank Altor in this, because they've allowed us a lot of freedom in choosing the right partner. So we are very happy about this. You can't find a better match than this.
Thank you. Thank you very much.
Okay, everyone. Thank you, Riccardo, and thank you to all of you for your valuable participation, and we are also sorry, we hear that there has been someone in queue. Hopefully, you will get your question answered if you will give us a call later, but we, we'd like to wish you all the very best of the rest of the day. Thank you so much.
Thank you.
Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.