Nordea Bank has kicked off the year with robust first-quarter results for 2024, showcasing a return on equity (ROE) of 18.1%, the highest since 2007. The bank's total income rose by 6% year-on-year, bolstered by an 11% increase in net interest income. Despite a decrease in net fair value income, the bank's operating profit surged by 19% compared to the previous year.
Nordea's commitment to digital innovation and financial crime prevention, along with its focus on customer service and cost management, has positioned it to aim for an ROE above 15% for the full year.
Key Takeaways
- Return on equity (ROE) reached 18.1%, the highest since 2007.
- Total income increased by 6% year-on-year, with net interest income growing by 11%.
- Operating profit improved by 19% from the previous year.
- Mortgage and corporate lending volumes remained stable with a slight increase in corporate lending.
- Net insurance result jumped by 33%, while net fair value result declined.
- The cost-to-income ratio held steady at 40%.
- Credit quality stayed robust; loan losses were minimal at €33 million.
- CET1 ratio was reported at 17.2%.
- The bank plans to invest in technology and digital offerings, and aims to maintain a strong stance against financial crime.
Company Outlook
- Nordea targets an ROE above 15% for the full year 2024.
- The bank will continue to invest in digital capabilities, cybersecurity, and climate change initiatives.
- Focus will be on improving customer experience, driving growth, managing costs, and enhancing capital efficiency.
Bearish Highlights
- Corporate deposits saw a decrease of 6% year-on-year.
- Net fair value result was lower than the previous year.
- Total income for the quarter was down 5% year-on-year due to a decrease in net fair value income.
Bullish Highlights
- Asset under management increased by 8% to €391 billion.
- Retail deposits grew by 1% year-on-year.
- In Private Banking, customer numbers and total income increased significantly.
- Life & Pension segment saw gross written premiums rise to €3.1 billion from €2.3 billion a year ago.
Misses
- There was a net outflow in wholesale and international channels.
Q&A Highlights
- CEO Frank Vang-Jensen is confident in achieving the RWA target of greater than 15% by 2025 despite geopolitical tensions.
- CFO Ian Smith discussed interest rate cuts and their potential impact on net interest income (NII).
- Active RWA management could mitigate the expected €10 billion impact from the bank's model review.
- The bank tax for Q1 amounted to €18 million.
- Expectations are set for 2024 to outperform 2023 in terms of NII resilience.
Nordea Bank's (ticker: NDA SE) first-quarter performance signals a strong start to 2024, with the bank leveraging its stable lending volumes, increased asset management, and strategic focus on digital innovation and customer satisfaction to drive growth. While facing some headwinds in fair value results and corporate deposits, the bank's overall financial health remains robust, underpinned by its high credit quality and prudent capital management strategies. As Nordea continues to navigate the changing financial landscape, it remains poised to deliver on its ambitious targets for the year ahead.
InvestingPro Insights
Nordea Bank's impressive first-quarter performance has been underpinned by a combination of strategic initiatives and financial metrics that indicate a robust outlook for the bank. Here are some insights based on real-time data from InvestingPro:
InvestingPro Data:
- The bank's Market Cap stands at a solid $39.91B USD, reflecting investor confidence in its market position.
- With a P/E Ratio of 8.27 and an even lower adjusted P/E Ratio for the last twelve months as of Q4 2023 at 7.29, Nordea Bank is trading at a low valuation relative to near-term earnings growth.
- The Dividend Yield as of early 2024 is 7.03%, signaling a significant return to shareholders.
InvestingPro Tips:
- Nordea Bank pays a significant dividend to shareholders, which is a strong indicator of the bank's commitment to returning value to its investors.
- Analysts predict the company will be profitable this year, aligning with the bank's ROE target for 2024 and reinforcing the positive sentiment around its financial stability and growth prospects.
For investors looking for comprehensive analysis and additional tips, there are 6 more InvestingPro Tips available at https://www.investing.com/pro/NRDBY. To gain access to these insights and more, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Nordea Bank AB (NRDBY (OTC:NRDBY)) Q1 2024:
Ilkka Ottoila: Good morning, and welcome to Nordea's First Quarter 2024 Results Presentation. I'm Ilkka Ottoila, the Head of Investor Relations. With me here in Helsinki today are President and Chief Executive Officer, Frank Vang-Jensen; and Group CFO, Ian Smith. We'll start off with a presentation by Frank, followed by a Q&A session. In order to ask questions, please dial into the teleconference. But with that, let's get started. Over to you, Frank.
Frank Vang-Jensen: Today, we have published our results for the first quarter of 2024. We began the year strongly, continuing our good momentum supported by a competitive offering and our advisers' proactive approach towards customers. Return on equity reached 18.1%, which is our highest first quarter return on equity since 2007. So a good start despite the generally subdued economic environment and the ongoing high uncertainty in the world today. At Nordea, we have a strong business franchise with a resilient and well-diversified business model. So we are well equipped to navigate uncertainty and serve our customers. And as our first quarter results demonstrate, we continue to be one of the best performing universal banks in Europe. Some highlights for the quarter. Total income was up 6% year-on-year, driven by net interest income growth of 11%. Net fee and commission income was stable. Net insurance result was up 33%, while net fair value result was lower compared with a very strong Q1 last year. Operating profit increased by 19% year-on-year. Our good return on equity of 18.1% compared with a return on equity of 17.1% in the same quarter a year ago. The lending markets were slow. Still, we performed well with our mortgage lending volumes stable and corporate lending volumes up 2% year-on-year. Our assessment is that we have defended our market shares during the period. Retail deposits were up 1% year-on-year, while corporate deposits decreased by 6%. Asset under management were higher for the quarter, increasing by 8% on last year. We saw a solid net flow in our Nordic channels. Cost development follows our plan. Excluding regulatory fees, our cost-to-income ratio was stable at 40%. Credit quality remained strong. Our loan losses were, once again, modest at €33 million or 4 basis points for the quarter. We have kept our management judgment buffer unchanged in local currencies at €505 million. Underlying capital generation remained strong, and our CET1 ratio stood at 17.2% for the first quarter. That's an overview of the quarter. Let's now take a closer look at the numbers, starting with the income lines. Net interest income increased by 11% year-on-year, driven by higher net interest margins and higher corporate lending volumes and offset partly by our deposit hedging. Activity in the Nordic housing markets remained slow in the first quarter. Demand for new loan promises was lower than a year ago. Still, we continue to be active in all markets, maintaining our first quarter mortgage lending volumes at a similar level as a year ago and also maintaining our market shares with continued share gains in Sweden. Household lending margins were lower year-on-year, but we saw some improvement during the quarter. The corporate markets stayed slow, but still we increased lending volumes by 2% year-on-year. Net fee and commission income was stable year-on-year. Our savings fee income increased driven by higher assets on the management. The AUM increase was primarily driven by market performance with a mixed picture in net flows. While we continue to generate solid Nordic net flows of €1.1 billion in the quarter, our international channels, wholesale distribution in particular, continued to experience lower gross sales, and consequently we had a net negative flow. Our outflows in the international channels halved in the quarter, and we are working hard to get them back to growth, which we expect will take some time. Over the past four quarters, our Nordic channels, which correspond to 86% of our total AUM, have generated net inflows of €6.8 billion. Income from payment and card fees also grew in the quarter. Brokerage and advisory fee income was lower year-on-year. Our lending fee income was up slightly year-on-year, while fee paid in relation to significant risk transfers we made to improve capital efficiency were higher. Net fair value returned to a solid level in the first quarter after a somewhat softer fourth quarter. Customer risk management activity remained at a good level with FX and rate products most in demand. This part of the net fair value is a core part of our customer relationships and it has been relatively stable over recent quarters. Market-making was €35 million for the quarter, down from a very strong comparative €97 million. Treasury was positive, supported by improved valuations. We continue to manage our costs with strict discipline. Costs for the first quarter continued to develop in line with our plan, increasing by 5% year-on-year, excluding regulatory fees. The main drivers were salary inflation and the investments we are making as we build for the future. For Nordea, being a strong bank means being a resilient bank, and we are always working to strengthen, building on our robust financial position and developing every aspects of our operations. We are strengthening our technology foundation. We are investing in our digital offering to ensure we can offer our customers the very best services and experiences, and we are working to protect our customers and societies from financial crime. These are investments that help Nordea -- to help make Nordea a safe and strong bank for our stakeholders. During the quarter, we also had costs related to the integration of the businesses we have acquired in Norway that is the Personal Banking and Private Banking business from Danske Bank and Nordea Pension, the Life & Pension business in Denmark. Regulatory fees in the first quarter were substantially lower as the Eurozone's single resolution fund fees are zero this year, and so our total cost decreased by 9%. Credit quality remains strong, and we continue to benefit from our well-diversified loan portfolio in a more challenging economic environment. Net loan losses and similar net result for Q1 was €33 million or 4 basis points. This was lower than the fourth quarter last year and also below the long-term average, a good position to be in given the uncertain economic environment and the rather dramatic increase in interest rates. During the quarter, we made only a small number of new individual provisions mainly in the area of construction and consumer-related industries. Generally speaking, our customers continue to be resilient. But naturally, we are monitoring developments closely. We have a management adjustment buffer of €505 million to cover additional potential losses, and this is unchanged in local currencies from previous quarters. Capital generation and our capital position continue to be strong. At the end of the quarter, our CET1 ratio was 17.2%. This is 5.1 percentage points above the current regulatory requirement and demonstrates our strong capacity to support our customers, shareholders and society. In March, our AGM approved the dividend for 2023, resulting in a total dividend payment of €3.2 billion to our 590,000 shareholders, including 570,000 private individuals and many pension funds in the Nordics. That €3.2 billion that goes to further supporting Nordic growth broadly -- by economic growth broadly in the Nordic societies. We also completed our latest share buyback program of €1 billion. Our capital policy and our ambition to deliver market-leading shareholder returns remain unchanged. We continue to generate capital and expect to be in a position to provide an update on our capital plans, including buybacks later this year, after the ECB approves our new capital models for retail exposures. Our four business areas all did well in Q1. In Personal Banking, we had good income growth and performed well in lending and deposits. Customers increased their savings and investment activity. During the quarter, we saw a 25% year-on-year increase in the number of customers beginning a new savings plan using our digital savings assistant. We also strengthened our offering by introducing new deposit products in Finland, in Norway and in Sweden. Deposit volumes increased by 2% year-on-year. On the lending side, we continued to experience slow Nordic housing markets. Mortgage volumes were stable, while customer demand for new loan promises was slightly lower than in the same quarter last year. In Sweden, we further grew our share. The number of private app users and lock-ins both increased by 7% year-on-year in the quarter. Total income for the quarter was up 8%, driven by 9% higher NII. Return on allocated equity was 20% compared with 19% in the same quarter last year and the cost-to-income ratio improved to 47% from 48%. In Business Banking, we created solid income growth and grew our lending despite the slowing corporate market. Lending volumes were up 1% in local currencies year-on-year, driven by Norway and Sweden. Deposit volumes increased by 1%, and we continue to see migration from transaction deposits to fixed-term deposit products, which offer customer higher rates. During the quarter, we were able to reduce waiting times when customers contacted us by more than 20% year-on-year. One of the reasons for that is our digital investments. We have gradually made more of our services available to our customers on a self-service basis so that they can manage their financials quickly and easily with a few clicks. For example, in Sweden, customers can now use Nordea Business, our corporate app to apply for a green business loan. During the quarter, we also rolled out Nordea Business in Norway and the app is now available in all our markets, all part of our plan to deliver the same recognized experience to our customers across the Nordics. Our net loan losses were at a moderate level of €20 million or 9 basis points. Total income for the first quarter increased by 7% year-on-year, the increase was driven primarily by net interest income growth, supported by deposit margins and volume growth. Return on allocated equity was 18%, unchanged from a year ago, while the cost-to-income ratio improved to 40% from 42%. In Large Corporates & Institutions we continue to actively support our largest Nordic customers with their investment plans. We were very active on the advisory side and therefore had a solid quarter in what remained a challenging environment. The macroeconomic uncertainty has led to reduced levels of corporate activity and this was still the case in the early part of the quarter. However, we did see a pick-up in activity in March with large business encouraged by the latest inflation data. Our lending volumes for the quarter were broadly unchanged in local currencies. Deposit volumes went down 13% year-on-year, though quarter-on-quarter, we continue to see more stability. Debt capital markets activity also picked up in the quarter and we arranged more than 200 transactions, as a result, our fee income reached its highest level for any first quarter in the past five years. In equity capital markets and mergers and acquisitions, we continue to see improved sentiment and momentum in the market with deal activity slowly improving, including in private equity. We continue to work with our customers to support them in meeting their climate requirements and we remain number one in the Nordics for corporate sustainable bonds. I was pleased to see Nordea recognized for its sustainability leadership, winning awards for being best-in-the-world for sustainability-linked bonds and best in Western Europe for sustainability-linked loans. The credit quality of our LC&I loan book remains strong. Net loan losses and similar net result amounted to net reversals of €12 million. Total income for the quarter was down 5% year-on-year. The decrease was driven by a drop in net fair value income relative to the elevated levels we saw in the first quarter a year ago. Net interest income increased 7% year-on-year, while net fee and commission income was up 5%, driven by capital market transactions. Return on allocated equity was 19%, down 2 percentage points on the same quarter last year. The cost-to-income ratio was 35% compared with 34% last year. In Asset & Wealth Management, we also had a solid quarter with strong momentum in our Private Banking business, a key focus in our savings strategy. Total income was up 2%, driven by higher net insurance result and higher net interest income from improved deposit margins. The cost-to-income ratio remained stable despite cost inflation and integration costs related to the acquisition of Danske Bank's Norwegian Private Banking business. Total assets under management increased by 8% year-on-year to a total of €391 billion, driven by appreciating stock markets and positive flows in Nordic channels. In Private Banking, we grew the number of customers in Norway and in Sweden by more than 1,100 during the quarter, and total income was up 9% year-on-year. Customer activity remained high and net flows were positive by €300 million, despite seasonal headwinds. In international channels and wholesale distribution in particular, we continue to see outflows, driven by the same dynamics as seen over the past year. The high interest rate environment continues to drive rotation from certain funds into money market instruments and deposits, while we are working to address this, we expect to see the same trend continue in the near term. In Life & Pension, we have continued to develop our offering and strengthened our position, supported by recent acquisitions, net flows remained strong. Our market shares in Norwegian and Swedish pension transfer markets reached the highest level to-date. Gross written premiums in the quarter amounted to €3.1 billion, up from €2.3 billion a year ago. While most of that increase was driven by the Nordea Pension acquisition in Denmark, we have also driven organic growth in Sweden and Norway. Return on allocated equity was 36% compared with 37% a year earlier. The cost-to-income ratio was stable at 42%. To sum up, we have started the year well with high-quality income growth and strong profitability. We remain committed to delivering market-leading performance. We will do that by continuing to develop the customer experience by driving focused and profitable growth, by staying firm on cost management and by continuing to improve capital efficiency. Beyond that, we continue to take steps to ensure we are a strong, predictable and resilient bank for our customers, shareholders and society. Resilience is more than having a strong balance sheet and capital position. It's about having the right business model, it's also about investing in the many other elements, too, being a digital capabilities, cybersecurity, financial crime prevention or tackling climate change. Risk, risks come from many areas and banks need to be strong in every area, you can therefore expect that we will continue to prioritize resilience as we deliver on our business plan. Looking ahead, we expect to achieve a return on equity above 15% for the full year 2024 and with our 18.1% return on equity for the first quarter, we are off to a good start. We also target similarly strong profitability in 2025 with return on equity above 15%. Our ambition is unchanged to be the preferred partner for customers in a need of a broad range of financial services. Thank you.
Ilkka Ottoila: Operator, we're now ready for questions.
Operator: [Operator Instructions]. The next question comes from Andreas Hakansson from SEB. Please go ahead.
Andreas Hakansson: Good morning, everyone. First question comes to the buyback discussion. You delayed it, of course, but could you tell us a little bit why did you delay it? Are you uncertain about the outcome, the impact we discussed about the IRB overall? And since it's delayed, do you think you have time to really do a full what we would have expected buyback late in the year? And if not, should we just move that into next year, so it's not money lost, it's just moved in time? That's my first question.
Ian Smith: Good morning Andreas, nice to hear you, this is a timing thing. We don't yet have a decision from the ECB on our models. The ECB continues to negotiate with the Nordic regulators. They want to reach a common understanding and there are some complex matters being discussed in terms of how the models work, etcetera. So we think it's sensible to wait for that to conclude. And as we have said, then we'll update the market on capital return plans. So -- and your key question really is on timing and we don't know because the -- those discussions between the ECB and the Norwegian FSA and the other parties continue. So we're being patient and prudent and as I say, this is timing. But you know Nordea, with strong capital generation, we're among the best payout -- dividend payouts in the sector. We were the first out of the blocks on buybacks and continue to do so and we don't sit on excess capital. So I'd ask you to be patient as we are, and we'll wait to get the decision from the ECB.
Andreas Hakansson: So you think actually from a modeling point of view, the prudent thing to do. See, if I assume 500 million for this year, if I would, for any reason, believe that that's not going to happen this year, I should just move it into next year and then I get a bigger buyback next year. That's the way to look at it.
Ian Smith: I think that's probably a reasonable basis. The only thing I can't tell you is the timing of the decision.
Andreas Hakansson: That's fine. Then second question comes on NII. I must say I was positively surprised that the hedge kicked in more and earlier than I would have expected. So could you tell us a little bit? Because I remember, Ian, at the time of the Q4 numbers, I think you said that you expect NII to be relatively stable during the first rate cuts given that the last rate hikes didn't really have a big positive impact. So going from here coming into the quarters where we're most likely going to have rate cuts, how do you think underlying is going to develop? And how do you think the hedge is going to play out? So should we actually see the NII continue to grow quarter-by-quarter from here-on?
Ian Smith: So we saw a small, I guess, positive if we can say that a lower headwind, if you like, from the deposit hedge in Q1. And there are two things, I guess, where the hedge gives us benefits. One is when rates start to move, and that hasn't happened yet. But also what we're seeing is the benefit of some of the more expensive hedges that were purchased at low rates starting to roll off and be replaced with higher-yielding hedges. So there's a bit of that dynamic at play in Q1. And of course, the real support you get from the hedge is what happens when we see rates come down. In terms of the outlook for NII, as we said in our Q4 results, our expectation for 2024 is that we would see resilient net interest income. And I think that certainly played out in Q1. And I think we will see that resilience continue until we start to see perhaps the rate cycle begin to move. And we're not making any guesses as to when that will be. But we also said back at Q4, as you point out, that the later rate increases didn't have a significant impact on our net interest margin. And I think it's reasonable at this stage, subject to whatever the competition do that those initial rate cuts will also be relatively margin insensitive compared to what we might see later in the cycle.
Andreas Hakansson: Thanks very much. That's all my questions. Thank you.
Operator: The next question comes from Markus Sandgren from Kepler Cheuvreux. Please go ahead.
Markus Sandgren: Yes. I was just thinking the credit losses. What's the reasoning behind keeping the management buffer unchanged given the low loss level? And what's your -- and lower expectations for the future, how long can you keep the buffer unchanged?
Frank Vang-Jensen: Hi, it's Frank. Thank you for the question. No, it's a very relevant question. So we are -- Q1 was very strong. So you look at the quality, Stage 2 is a little bit higher, but actually, we are not seeing a lot of bankruptcies within the portfolio. And I think we are -- the team and the customers are managing it very well. So 4 basis points is resolved. And due to that, there is no reason for reversing the management buffer right now. And although we have been wrong, I think most of us are assessing sort of like how much credit losses the crisis, let's call it, the crisis, what sort of like lead to. I think it will just be prudent to keep it for now, and that is what we have been doing. That said, of course, we cannot keep it forever. So either we will release it to meet the unexpected losses or we will basically just release it over time as we don't use it. And -- but just now, no need to do anything as the underlying was very, very strong. And there is no signs actually here just now that sort of like things will deteriorate significantly right now.
Markus Sandgren: Okay. Thanks, very clear. And then may I just ask also on what's your feeling on the competitive landscape now when -- I mean, we're at the peak of rates and it should go down. Do you expect the competition to pick up in terms of for volumes basically? I saw Avanza lowered their mortgage rates already on the product that is already cheap. So what's your thinking there? Thanks.
Frank Vang-Jensen: That depends a little bit about which country we are talking about. But I would say, in general, so the mechanics and the dynamics in the markets are the same as we have seen so many times before in crisis, right? So when the market activity is slow and even in some countries declining, then some actors are tempt to forget that this is a long game, and it doesn't really help you to do business that are not profitable or too risky. But yes, it very much appears for the same actors and also it's a little bit about size of the actor. And right now, we do see irrational behavior out there. It is just to stay firm and be super proactive towards the right deals, the right customers and then avoid the sort of like the bad deals when it comes to risk and to pricing. And that is exactly what we do. But there are some that either feel desperate or at least are behaving in a very odd way, given sort of like the pricing and the risk. You see that in all the countries, and you clearly see this in Sweden as well. I think, as usual, when we start to see a relief, so on the interest rates, the first rate reduction has happened. We have central bank heads. We have sort of like chief economist. We have banks. We have politicians that start to communicate that rates are starting to come down. Inflation have peaked. Then people will start to believe in the future again, you will slowly start to build up confidence. And that usually will come with some more activity, more dreams, more belief in the future and then investment capacity -- asset investment capacity is quite good at the moment. It's just that people sit on the money, it will translate into more business. And then usually, the margins will reach more sort of like suitable numbers or more appropriate numbers, I would say. So we are very positive. And in between, we're cherry-picking, having high activity and impacting what we can.
Markus Sandgren: Okay, great. Thanks.
Operator: The next question comes from Shrey Srivastava from Citi. Please go ahead.
Shrey Srivastava: Thank you very much for taking my question. You've obviously highlighted the new deposit products you've introduced during the quarter in Finland, Norway and Sweden and the fact that you continue to see migration from transaction to savings. I mean, given you've obviously got a unique vantage point across the Nordics, could you highlight the difference in these deposit mix shift trends that you're seeing by country, if that's all right? And my second question would be on significant risk transfers. This obviously had an impact on your provisions, your fee and commission income and obviously capital. Is this something you foresee yourself doing at this run rate for the foreseeable future? And thus, should we extrapolate the impact going forward to the next quarters or is this more opportunistic and we shouldn't be extrapolating it? Thanks very much.
Ian Smith: Good morning, Shrey. So we tend not to talk about in detail about the sort of split between countries. Generally speaking, our household deposits are about 40% transaction accounts, 60% savings or remunerated deposits. Over the last 12 months, that's probably shifted by 8 percentage points to 9 percentage points between the two. But the rate of mix change has slowed over the last few months. So -- and that's what you'd expect to see. We've often talked about customers getting used to the new environment. So I think that mix is probably going to be reasonably stable from now on. And I think the encouraging thing is that customers really like our new products and we find ourselves in many markets doing well and capturing market share. So I think that feels reasonably stable in terms of the shape of the deposit book. On SRTs, the reason we highlighted at this time is it has had more of an impact on both those lines you highlight, the guarantee fee coming through the commission income line and then the benefit coming through on loan losses. We use these probably more actively than our Nordic peers. We think it's often a good way to deliver capital efficiency. I'm not in any way opportunistic. So we'll continue to do a couple each year, and it's a reasonable contribution, I think, to our capital efficiency. So no volatility. We just wanted to highlight the impact this time around because it was a bit different.
Shrey Srivastava: That's very clear. Thank you very much.
Operator: The next question comes from Magnus Andersson from ABGSC. Please go ahead.
Magnus Andersson: Yes, good morning. First, just, Ian, on capital there to conclude a follow-up to Andreas's question. So as I read you, nothing has changed with regards to your estimated 10 billion risk-weighted asset impact from the retail models, the 6 billion estimated impact from Basel IV or the 17 billion to 18 billion estimated capital repatriation between '22 and '25. Is that correct?
Ian Smith: So all of those things are central to our capital plans. We don't see any changes at this stage.
Magnus Andersson: Yes. And the corporate models, still your best guess is that you would get that approval in '26?
Ian Smith: I think that's the earliest we can expect. Yes.
Magnus Andersson: Yes. Okay. And no quantification or anything like that there?
Ian Smith: No, not at this point. I think we're working with the ECB on what we're seeing with those models and what their requirements might be. And when we get a better sense, we'll update you guys, Magnus.
Magnus Andersson: Okay. Thank you. Then secondly, on costs, two things there. First of all, in the Q4 report or at the telephone conference you gave kind of a soft cost guidance for '24 or flat or slightly up including restructuring costs for the Norwegian operations, whether that's still valid? That's number one. And number two, you also said that you would respond with cost initiatives if the income environment would turn tougher which it could, of course, with rates going down. So I was just wondering in what business areas or functions would we see such initiatives?
Frank Vang-Jensen: Magnus, this is Frank. I would say right now, we are in line with our plan. So nothing has changed to what we said in Q4 on costs. We're sharing with a firm hand. We are continuing, as you know, to invest heavily within our technology, digital offering, cyber, ESG, financial crime prevention and et cetera. And we have actually added more to sort of like the -- this investment basket this year than last year. So it's very significant. And although these extra investments, we are still in line with our plan. What I'm trying to say is that we have actually already taken extra sort of like actions to ensure that we follow our plan. If we should end up in a situation where we would need to do even more on the cost side, there is -- there are a number of areas where we could reduce our spending. There's no free launches. So if we would do it, and then we would, of course, first of all, try to ensure that it was not sort of like hurt our franchise. Secondly, we would be quite confident or we need to be quite confident that we would not see a pickup in growth in societies within short. And the reason for that is starting to reduce sales capacity and what not is, of course, very easily to do, but it comes with a consequence short term, midterm as well. But you can rest assured, if that happens, we need to work even harder with the cost. We will do it, and we have a number of initiatives lined up without going into more details.
Magnus Andersson: Okay. Thank you.
Operator: The next question comes from Sofie Peterzens from JPMorgan. Please go ahead.
Sofie Peterzens: Yes. Here is Sofie from JPMorgan. So, yes, sorry, just to go back to -- on the share buyback, I understand that it's a timing, but could you maybe just elaborate why it is a timing issue? Because you guided for IRB models to be around 10 billion increase in risk-weighted assets which should be more than manageable. So why do you have to wait for the ECB and the local FSAs to agree when you got -- or should I assume already have quite a good understanding of further risk-weighted asset inflation from IRB models will come? And then my second question would be on the fees. They were a bit softer than expected, and it seems that it's quite broad-based driven by brokerage, advisory and lending fees. How should we think about the kind of fee outlook from here? Thank you.
Frank Vang-Jensen: Would you take capital first?
Ian Smith: Good morning, Sofie. So look, I've -- we have a really good working relationship with the ECB on buybacks, and we're simply respectful of how that works. And so in circumstances where they're still working up to their decision and dealing with a number of moving parts, we just think that it's sensible to pause. It changes nothing in terms of our attitude to capital return. It changes nothing in terms of our long-term outlook as we confirmed. This is just being respectful of the relationship with our regulator. And I think our shareholders understand that.
Frank Vang-Jensen: All right, Ian, thank you so much. And when it comes to the NCI, I don't agree with you. It's not a soft one. It's a solid one. And actually, it's performing on all lines. There are, I guess two things that we should be aware of, which is probably also the reason for why you are asking. So first of all, we have 11 million as Ian said, securitization cost included in the lending fee. And that means that sort of like there is a small drag on that. It's for good reasons, right? But to understand, there is no underlying business momentum that has changed in any way. So that's one. The other one that is we have, I think, an okay-ish inflow now on our Nordic channels -- in our Nordic channels which is 86% of asset under management and confidence in societies are starting to building up meaning that we get more request on advice on investments and what not. And the inflow is €1.1 billion, I think it was in our Nordic channels in Q1. So all good and it's building. We struggled with our wholesale meaning our international channel. International channel is then 14% of our asset under management. So a small one, but especially wholesale meaning banks of the world are working with their clients and handing their savings. And to a large extent they are offering deposits and also similar products while our you can say low risk, low short duration fixed income products are not as popular as it has been before. And then ESG, of course, has also gotten a little bit of cold hand right now. So we have less gross sales at the moment than we have had before and that leads to a net outflow on that channel which is quite significant. So that is why we are having a little lower speed than we would usually have had on assets under management. And that, of course, translates into a small headwind on the total fee on savings and investments. But all in all, we will solve it and it is picking up.
Sofie Peterzens: Okay. That's clear. And maybe just regarding the securitizations, I mean, now we have seen two quarters of securitizations. How should we think about the capacity to do more securitizations going forward? And is the end game here really what Ian also mentioned previously around the capital efficiency, but kind of maybe if you could just comment around the securitization or the scope for more securitization?
Ian Smith: Yes. So there are certain areas of our book where the market and the counterparties we deal with have a more sanguine view of the risk associated with it than maybe comes from the regulatory capital requirements. And so where there are spots like that for us to exploit, then we'll do so. But we just see this as one of the tools in our armory. So I can't see us ramping up in this space. It will be at the edges in certain portfolios. A good example of where we think we see opportunities is shipping where because of regulatory risk weight flows we have 100% floor on shipping. We don't expect that to be there forever. But when -- while we have that in place and the -- as I say that the market understands that the risk is pretty low, we can get some good pricing on protection there. So I think it's one where we pick our spots. It will be a small part of our portfolio, but an important element in just trimming our capital consumption. So we're not ramping up.
Sofie Peterzens: But it's basically driven by capital.
Ian Smith: Where we have an opportunity to take advantage of a difference in view between a regulatory capital requirement that in our opinion is much higher than we need and that opinion shared by the market then we can do good business.
Sofie Peterzens: Okay. Great. That's very clear. Thank you.
Operator: The next question comes from Nicolas McBeath from DNB. Please go ahead.
Nicolas McBeath: So first a question on return on equity. So given the 18% ROE in the quarter and your expectation of NII resilience for 2024, do you see potential to substantially coming above the 15% ROE level suggested in your unchanged ROE outlook or are there any meaningful headwinds that you anticipate to weigh on the return on equity in the remaining three quarters for this year?
Frank Vang-Jensen: It's Frank. Thank you for the question. I think we feel comfortable with where we are and delivering on our '24 return target or outlook meaning better than 15%. And there's nothing that really points to us not having sort of like a strong sort of like trajectory for the coming period either. But, of course, whether it's sort of like 15.1%, whether it's 16%, whether it's 17% or whatever it might end up with when we close the books for the year, that's difficult to say and too early to say, of course. But a good start to the year. And as I said, we expect to continue with good steam ahead.
Nicolas McBeath: All right. And then second question on the resolution fund fee which we saw a quite big decline here in Q1 this year versus last year. So I was just wondering whether you could comment on the resolution front, the outlook for 2025.
Ian Smith: Yes. Happy to do that, Nicolas. So we still -- our resolution fee in the Eurozone from the Single Resolution Board was 0 this year, and as announced by the SRB, because their fund had reached its target and we had relatively stable levels of covered deposits. And I guess one can take a view on whether that situation will persist next year. So they'll come back to the banks for more money if the fund is depleted in any way or if they see deposits go up. I suspect that's probably less likely. But we still have a resolution fee that's payable in some of our Nordic home markets, which is why there is still some resolution fund fees in that line because they continue to build the funds in those territories. So I think it's difficult to imagine a change in circumstances for the SRB next year, but we have to be in the hands of the regulators there.
Nicolas McBeath: Okay. Perfect. Thank you.
Operator: The next question comes from Gulnara Saitkulova from Morgan Stanley. Please go ahead.
Gulnara Saitkulova: Hi, good morning. This is Gulnara from Morgan Stanley. Thank you for taking my questions. I have on NII, please. So on Page 18 of the presentation, we can see that you have reduced the volume of your hedge in the first quarter versus the fourth quarter. And why is that? And would you consider any further changes to the volume of the hedge going forward? And another question on NII. So you currently guide for your NII outlook. And you mentioned that you expect it to remain resilient for this year. Looking across your key Nordic markets, in which geographies you think you would expect the most resilience to come from? And which markets do you think will have a weaker positioning when it comes to the NII? Thank you.
Ian Smith: Morning, Gulnara, nice to speak to you. So we have a base volume of hedging that we always maintain, which is important for our risk management purposes. But sometimes, we see that the market pricing is either favourable or unfavourable. And so we will vary around that base volume. And what we did -- what we saw in Q3 and Q4 last year was what we thought was good pricing to add to the volume of the hedge. When we moved, when rate expectations in the market changed mid to late December into Q1, pricing was less attractive, so we didn't add to the volumes and some of the hedging ran off. So this is a bit of oscillation around the top end of hedge volumes. And it's the only area where we might actually sort of look at rates in the market and trim or add as necessary. But the bulk of the hedge is an interest rate risk management instrument and driven by our models in that regard in terms of customer behaviour and other things and is pretty solid. In terms of resilience, well, I guess, it depends on where we start to see rates move. I mean what we saw in Q1 was a good performance in Norway because it was the first quarter for quite some time that we didn't see any rate changes, and that means we didn't have to manage grace periods on repricing assets and those kinds of things. And so a stronger performance from Norway. And I think the rate cycle settling down there is helpful. In other markets, it will depend on where rates change. So Denmark and the Eurozone or -- in Finland and then in Sweden. So I think net-net across the group, as I say, we expect to see that resilience. And I think you'll then get a more nuanced picture as we go further into the rate reduction cycle.
Frank Vang-Jensen: Just to add one thing there…
Gulnara Saitkulova: Thank you.
Frank Vang-Jensen: We should also remember that the mortgage margins are very low at the moment, which usually happens in such a situation. And usually, the mortgage margins will -- when rates start to decline and activity starts to revert, they will come up to more, you can say, decent levels than today.
Gulnara Saitkulova: Thank you.
Operator: The next question comes from Namita Samtani from Barclays. Please go ahead.
Namita Samtani: Good morning. If I look at your corporate lending book, to me, it's very focused in the low probability of default buckets, i.e., to my mind, it's a lot of investment-grade lending, which brings me to my question that if system loan growth were to come back, would you be willing to go up the risk and be more aggressive on lending and even potentially at the expense of a bigger buyback? And secondly, could you just help me understand the loan demand trends you're currently seeing in Norway, both on the household and corporate side? Thanks very much.
Frank Vang-Jensen: Thanks. So let me take this one. So our risk appetite, I would not exclude that it, not by design, can change slightly during a crisis or during a period at least that's sort of like where there is a lot of uncertainty as right now, but that is not intended. So our appetite on and our sort of like definition of what is a credit that fits into Nordea and what is not a credit that fit -- that doesn't fit into -- or what is a credit that doesn't fit into Nordea is the same. So the problem by assessing a credit sort of like right now, that is how clear are we on believing in the stickiness of the -- or the strength of the future cash flow. That's very often the problem. And of course, with all the uncertainty right now, it is more tricky. But the risk appetite for Nordea, so which type of customers are we chasing and where do we believe that we spend our shareholders' money, that's unchanged. So you would not see any change in sort of like aggression when it comes to chasing higher risks. And for the price that we will get more credit losses over time and have a bigger sort of like capital drag. That's not the intention. But would there be anything that we could do even better right now, there will always be things that we can do better, but I cannot point to any precise things right or detailed things right now. On the Norway question about activity, as I understood it, I would say that the corporate landscape is quite active. We are -- I think we are doing very well. I'm very pleased with the progress that we are making. And it is actually -- it is sort of like a lending growth is built on several pillars. It's very limited commercial real estate to what it was before. Now it's very broad-based in all sort of industries, and it is looking good, I would say. The retail or the mortgage lending is a little bit more slow, but actually, it's still active. And I think, I sense a good sort of like believe in the future. And that leads to the Norwegian market being okay, I would say, given the circumstances that we have right now, probably the best or most active market right now of the Nordics when it comes to mortgages.
Namita Samtani: Thanks very much
Operator: The next question comes from Riccardo Rovere from Mediobanca (OTC:MDIBY). Please go ahead.
Riccardo Rovere: Thanks for taking my question. Good morning, everybody. Three, if I may. The first one is on your 2025 target. When you think about the situation, the market situation, when you concede those targets and you look at what's happening, how the situation is shaping today, what do you think is the deal, is there any big difference from what you are thinking a month ago? Is it shaping better or worse? Also qualitative comments could be helpful for us. The second question I had is, yes, you mentioned earlier in the call that you expect if rates do go down at least at the beginning, you expect no major impact on NII because the recent hikes did not provide any major positive contribution. Now if you had to some throw a ballpark, what would be the magnitude of rate cuts need to be, to see impact on NII and negative impact to, let's say, surpass the benefit from the deposits hedging from €35 billion of deposits, so more or less? And the third question I had is just a clarification. It's not clear to me whether the active RWA management can be something that can smoothen materially the impact from the review of the model. So is it something that can, let's say, cancel half of the €10 billion so that you expect to see from model review or I'm just getting it completely wrong? Thanks.
Frank Vang-Jensen: All right. Thank you. So I just take the first one. So the question about the sort of like the confidence or at least the view on the -- our '25 target. I would say nothing has changed in our view. We were very confident in our capabilities to deliver on our target -- RWA target of '25 being better, greater than 15%. And we are still -- and nothing has changed negatively to that on the contrary, I should say. Of course, there are changes when it comes to expectations, when it comes to sort of like interest rate curve and whatnot. And actually, we have basically stopped focusing and sort of like taking that into consideration. What we have looked very carefully into what is the resilience of Nordea, what is sort of like what is -- what are we able to deliver, and how adverse should sort of like the environment be before we should be starting to come into risk. And there's nothing right now that from a like macroeconomic perspective points to anything that should not -- that -- any scenario that's where we should not be able to deliver. That is what we are seeing right now. I think my biggest concern, that is the geopolitical situation. And the reason for that is it's something that we are not in control of. And we don't actually know what can happen. We do know there is a lot of tension and it seems that it's building. We do also know that like an incident somewhere can lead to a big consequence from where else. And how that will then potentially translate into impacting economic environment, economic outlook, like inflation, thereby growth, it's completely impossible to assess at the moment. So what we are doing is we do look at the fundamentals. We do look at sort of like the outlook. We stress tested, and we are comfortable and quite confident in our capability to deliver on our targets, else we would not have them. So that's one. The other one is that we continue to strengthen the resilience of Nordea. We are super resilient, and we are built on a very well-diversified portfolio in our opinion. And I think we have created a level now where we are very profitable. We have a low volatility and we have a low risk. That said, resilience is something that you have to work with all the time. And that's why we invest so heavily in nonfinancial risk areas, in technology foundation and digital capabilities and so -- and we will keep investing because we think it's important. Resilience and building resilience is the best answer to meet uncertainty. So I think that's the best answer I can give you for now. Over to you, Ian, please.
Ian Smith: Yes. Morning, Riccardo and thanks for those thoughtful questions. I mean I think when we think about resilience in '24, there's a caveat there, but we're still pretty confident. And that caveat is what happens on the competitive front. But I think it's reasonable if we look at the -- if we look at how net interest margin built over the hiking cycle, the first -- the last 3 or 4 25 basis points rises were less impactful on net interest margin than what happened before that. And so in answer to your question, I think that's probably the horizon that we see. But how we perform will depend on how soon and how often rates are reduced, and then secondly, how the other banks in our market respond also. But I hope that helps. And then the active RWA management. I think that there are 2 things that help offset the rear inflation that we'll see from retail models. The first is just strong capital generation, and we expect that to continue. And then there is a helpful contribution from SRTs and active capital management. And we saw, for example, a 20 basis points contribution from capital management in the first quarter this year. That's a combination of agreeing on treatment of certain items with ECB, just good housekeeping and then also the impact of SRT securitizations. We are unlikely to do enough of those to wholly offset the impact of retail models, but it's definitely something we're actively working on, and it makes a really helpful contribution.
Riccardo Rovere: So, Ian, so when you say offset, what you have in mind is partial offset, not full offset?
Ian Smith: Partial.
Riccardo Rovere: Partial. Okay.
Ian Smith: And that's because, as I said, with earlier questions, this is -- it's a useful tool, but it's not something that we use wholesale across the board. It's where it makes sense.
Riccardo Rovere: Very clear. Very helpful. Thanks.
Operator: The next question comes from Hugh Moorhead from Berenberg. Please go ahead.
Hugh Moorhead: Hi, good morning. Thanks very much for taking my question. Sorry, just one more on the buyback around the timing. Is it fair to assume you'll wait for ECB approval of the retail models before you then make a buyback application with them? And also does your preference -- or sorry, your, I guess, soft guidance for smaller, more frequent buybacks that you gave at Q4 remain or is that possibly more of a 2025 story? And finally, can you just confirm that the timing of the Danske acquisition won't affect the sort of potential buyback time line? Thank you.
Ian Smith: Morning, Hugh. So taking your last question first, Danske is still expected to complete towards the end of this year. It's been part of our plans for quite some time. So no impact on the capital plan. The smaller, more frequent statement that we made back at the Q4 results, it reflects the -- I guess the different place we find ourselves in now, which is where we've dealt with the obvious excess capital. And now it's about just continuing to generate capital, thinking about how we can deploy that in our business. And to the extent we think it's better to do so, we'll return to -- we'll return it to shareholders. So that's smaller, more frequent, that's, I think, part of our DNA from -- for the foreseeable future. And then in terms of a very detailed question on the buyback application, I said before that the reason why we're waiting is because we're just cognizant of maintaining a good relationship with ECB. So we'll wait for the decision and then we will proceed with capital return actions and plans thereafter.
Hugh Moorhead: Great. Thank you very much.
Operator: The next question comes from Jacob Kruse from Autonomous Research. Please go ahead.
Jacob Kruse: Hi. Thank you very much. Just two quick clarifications. So first, on the resolution fund fees and the regulatory fees really, which was €63 million in this quarter. If I think about the full year, is that kind of €18 billion regulatory fee above resolution fund fees of €45 million, what I should think about as the run rate for the next 3 quarters? And then secondly, on the NII, you talked about resilience, you talked about the resilience, the initial rate cuts and the hedges coming in. So when you say remain resilient, does that mean flat to up or is that being too specific about it, if we talk about the sort of next 1, 2, 3 quarters? Thank you.
Ian Smith: Morning, Jacob. So the -- I guess, we booked resolution fund fees in the first quarter, that the recurring item that you get is the Swedish risk tax, which is about €8 million a quarter or thereabouts. So that's, I guess, what we see for the rest of the year.
Ilkka Ottoila: 20 a quarter almost.
Ian Smith: Okay. Clarify that for Jacob offline, but -- I may have misspoken. And then on resilience of NII. The -- I mean what we talked about back at Q4 was that on assumptions that were in the market on timing and extent of rate cuts, plus other things impact the deposit hedge, et cetera, is that we would expect 2024 to come in higher than '23. And I think that's pretty clear. So I think that's a good resilient performance.
Jacob Kruse: Ok, thank you.
Ilkka Ottoila: Clarify on the bank tax, so €18 million in Q1, that's the number. And I think we're ready for the last question.
Operator: The next question comes from Hari Sivakumaran from KBW. Please go ahead.
Hari Sivakumaran: Hi there. Just had a question on Slide 22 on the real estate management. You can see that the Stage two picked up slightly, but also that the impaired loans have decreased. Are those recoveries? And at the same time, I can see that the coverage ratio has picked up there. So just comment on that? And then on LC&I in Denmark, we see quite strong growth this quarter. It looks like it's plus 11% Q-on-Q. Just what's driving that? Is that regular working capital or is that more CapEx then from your customers?
Ian Smith: Yes.
Frank Vang-Jensen: I think I could take the last question first, and Ian, you can take the remaining part. So LC&I in Denmark is just having a good speed at the moment. Many activities are going on. Many deals are happening. So I don't think we can -- at least not to my knowledge, we cannot point to anything specific than that we need to talk to with the team. But in general, I would say that it is a business with high energy and a lot of activity going on. Ian, the other questions, please?
Ian Smith: Yes. So Hari, on the increase in Stage two is a mixed picture. There's some real estate positions, there's some construction related and some consumer industry sectors that are affected in there. Some of that is because we're seeing those customers enter into high risk. But also some of it is quite technical in that where you see a downgrade from very strong to strong in terms of the credit rating. That also is a trigger for moving -- as an ECB trigger for moving into Stage two. So it affects us. It won't affect non-ECB regulated banks in that regard. And I think in terms of what we're seeing moving into Stage two, it's probably half and half between, I guess, a worsening of outlook for certain customers and those automatic triggers. And then in terms of the improvements that you note, that is about -- it's a combination of actual recoveries and customers with improved credit outlook. So a mixture of the two. And I think is -- I think it's positive in terms of just being able to see some of those credits strengthen or us work out of situations with a favorable outcome.
Frank Vang-Jensen: Okay. We have reached the end of the session. So thank you so much for your participation and a lot of good questions. And feel always free, as you know, to come back with any questions that we want to discuss. We are here for you. So thank you so much, and have a good day.
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