Nordea Bank Abp

Good morning and welcome to Nordea's first quarter 2024 results presentation. I'm Ilkka Ottola, the head of investor relations. With me here in Helsinki today are president and chief executive officer Frank Vangjensen 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.

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 advisors' 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 euros or four basis points for the quarter. We have kept our management judgment buffer unchanged in local currencies at 505 million euros. 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 under management. The AOM 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 euros in the quarter, our international channels, wholesale distribution in particular, continue 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 euros. 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 euros for the quarter, down from a very strong comparative 97 million euros. Treasury was positive, supported by improved valuations. We continued 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 aspect 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 to help make Nordea a safe and strong bank for stakeholders. During a 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 and 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 the more challenging economic environment. Net loan losses and similar net result for Q1 was 33 million euros of four 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 euros to cover additional potential losses, and this is unchanged in local currencies from previous quarters. Capital duration and our capital position continue to be strong. At the end of the quarter, our CETI 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 euros to all 590,000 shareholders, including 570,000 private individuals and many pension funds in the Nordics. That's 3.2 billion euros that goes to further supporting economic growth broadly in the Nordic societies. We also completed our latest share-buy-back program of 1 billion euros. 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, Norway and 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 logins 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 continued to see migration from transaction deposits to fixed-term deposit products, which offered customers 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 finances 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 and institutions, we continued 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 peak 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 were down 13% year-on-year, Though quarter on quarter, we continued 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 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 LCNI loan book remains strong. Net loan losses and similar net result amount 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 assets and 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 results 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 euros, 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 euros 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 and pension, we have continued to develop our offering and strengthened our position. Supported by recent acquisitions, net flows remain strong. Our market shares in Norwegian and Swedish pension transfer markets reached their highest level to date. Gross written premiums in the quarter amounted to 3.1 billion euros 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 it digital capabilities, cybersecurity, financial crime prevention, or tackling climate change. 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.

Operator, we're now ready for questions.

If you wish to ask a question, please dial £5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial £6 on your telephone keypad. The next question comes from Andreas Hackensen from SEB. Please go ahead.

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.

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, etc. 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. And your key question really is on timing. And we don't know because 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, we're a strong capital generation. We're among the best 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.

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.

I think that's probably a reasonable basis. The only thing I can't tell you is the timing of the decision. That's fine.

Then the second question comes from the 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 the NI 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 NI continue to grow quarter by quarter from here?

So we saw a small, I guess, positive, if we can say, 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.

Thanks very much. That's all my questions. Thank you.

The next question comes from Marcus Sandgren from Kepler Cherv Raw. Please go ahead.

I was just thinking the credit losses. What's the reasoning behind keeping the management buffer unchanged given the low loss level and lower expectations for the future? How long can you keep the buffer unchanged?

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 two 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 four basis points is a result. 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 a crisis, would 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. But just now, no need to do anything as the underlying was very, very strong. And there's no signs actually here just now that sort of like things will deteriorate significantly right now.

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 volumes, basically? I saw Avanza lower their mortgage rates already on a product that is already cheap. So what's your thinking there? Thanks.

That depends a little bit about which country we are talking about. But I would say in 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 tend to forget that this is a long game and it doesn't really help you to do business that is not profitable or too risky. But Yeah, 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 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 economists. 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 and that usually will come with some more activity, more dreams, more belief in the future, and then investment capacity, as 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 are... We're cherry picking, having high activity and impacting what we can.

Okay, great, thanks.

The next question comes from Shrey Srivastava from Citi. Please go ahead.

Thank you very much for taking my questions. 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. Given you've obviously got a unique vantage point across the Nordics, could you highlight the difference in these deposit makeshift 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.

Morning, Shrey. So we tend not to talk 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 or 9 percentage points between the two. But the rate of mix change has slowed over the last few months. 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 it 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. And 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.

That's very clear. Thank you very much.

The next question comes from Magnus Anderson from ABGSC. Please go ahead.

Yes, good morning. First, just the unknown capital there to conclude, 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 to 18 billion estimated capital repatriation between 22 and 25. Is that correct?

So all of those things are central to our capital plans. We don't see any changes at this stage.

And the corporate models, still your best guess is that you would get that approval in 26?

I think that's the earliest we can expect, yes.

Okay, and no quantification or anything like that there?

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.

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?

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 steering with a firm hand. We are continuing, as you know, to invest heavily within technology, digital offering, cyber, ESG, financial crime prevention, and etc., And we have actually added more to 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 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 are a number of areas where we could reduce spending. There's no free lunches, so if we would do it, And then we would, of course, first of all, try to ensure that it would not sort of like hurt our franchise. Secondly, we would be quite confident or we would 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 whatnot is, of course, very easy to do, but it comes with a consequent short midterm as well. But you can rest assured, if that happens, that 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.

Okay. Thank you.

The next question comes from Sophie Petersens from J.P. Morgan. Please go ahead.

Yeah, hi. Here is Sophie from J.P. Morgan. So, yeah, 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 got it for IRB models to be around 10 billion. increase in risk-created 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 should, I assume, already have quite a good understanding of further risk-created asset inflation from IRB models? Welcome. 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.

Would you take our capital first? Morning, Sophie. So look, 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 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.

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 reason for why you are asking. So, first of all, we have 11 million, as Ian said, securitization costs 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 inflow now on our Nordic channels, which is 86% of asset under management. And confidence in societies are starting to building up, meaning that we get more requests on advice, on investments and whatnot. And the inflow is 1.1 billion euro, I think it was, in our Nordic channels in Q1. So all good and it's building. We struggle with our wholesale, meaning our international channels. International challenge is then 14% of our asset management, so a small one. But especially wholesale, meaning other banks of the world are working with their clients and handing their savings. And to a large extent, they are offering deposits and other 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.

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 securitization going forward? And is the end game here really what Ian also mentioned previously around the capital efficiency? But maybe if you could just comment around the securitization or the scope for more securitization.

Yeah, 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. I can't see us ramping up in this space. It'll 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 flaws, we have 100% flaw on shipping. We don't expect that to be there forever. But 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'll be a small part of our portfolio, but an important element in just trimming our capital consumption. So we're not ramping up.

But it's basically driven by capital.

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.

Okay, great. That's very clear. Thank you.

The next question comes from Nicholas McBeath from DNB. Please go ahead.

Thank you. 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 levels in your unchanged ROE outlook, or are there any meaningful headwinds that you anticipate to weigh on the Britain equity in the remaining three quarters for this year?

Hi, 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 that'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 And as I said, we expect to continue with good steam ahead.

All right, thank you. 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 fund fee outlook for 2025.

Yeah, happy to do that, Nicholas. So, you know, we still... Our resolution fee in the Eurozone from the Single Resolution Board was zero this year, 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. 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 SRP next year, but we have to be in the hands of the regulators there.

Okay, perfect. Thank you.

The next question comes from Gulnara Saikulova from Morgan Stanley. Please go ahead.

Hi, good morning. 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're currently guide for your NII outlook. And you mentioned that you expected 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 NAI? Thank you.

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 market pricing is either favorable or unfavorable. 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. rate risk management instrument and, you know, driven by our models in that regard in terms of customer behavior 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 from Norway and you know I think that the rate cycle settling down there is helpful in other markets. It will depend on you know, where rates change. So Denmark and the Eurozone 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.

To add one thing there, 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.

Thank you.

The next question comes from Namita Samthani from Barclays. Please go ahead. 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 curve and be more aggressive on lending and even potentially at the expense of a bigger buyback um 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 thanks sir let me take this one so uh our risk appetite um

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's a lot of uncertainties right now. But that is not intended. So our appetite on and our sort of like definition of what is accredited that fits into Nordea and what is not accredited 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 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 Dodier, 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 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. 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 belief 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.

Thanks very much.

The next question comes from Ricardo Rovira from Mediobanca. Please go ahead.

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 macro situation, when you conceive those targets and you look at what's happening, how the situation is shaping today, what do you think is the big difference from what you were thinking months ago? Is it shaping better or worse? Also, qualitative comments could be helpful for us. The second question I have is, 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 throw a ballpark, what would be the magnitude of rate cuts, you know, need to be to see impact on NII and negative impact to, let's say, surpass the benefit from the deposits edging from 35 billion deposits or more or less? And the third question I have 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 cancel half of the $10 billion that you expect to see from model review, or I'm just getting it completely wrong?

Thanks.

All right, thank you, Julie. I'll just take the first one. So the question about the sort of like the confidence or at least the view on our 25 target, I would say nothing has changed in our view. We were very confident in our capabilities to deliver on our target, our 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 are we able to deliver? And how adverse should sort of like the environment be before we should be starting to come into risk? There's nothing right now that from a sort of like macroeconomic perspective points to anything that should not – any scenario 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 sort of like an incident somewhere can lead to a big consequence somewhere else. And how that will then potentially translate into impacting society. you know, economic environment, economic outlook, sort of 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 test it 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 in non-financial risk areas, in technology foundation, in 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.

Yeah. Morning, Ricardo. 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, you know, I think it's reasonable if we look at how net interest margin built over the hiking cycle, you the last sort of three or four 25 basis points rises were less impactful on net interest margin than what happened before that. And so, you know, in answer to your question, I think that's probably the horizon that we see. But, you know, 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 two 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 the 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.

So when you say offset, what you have in mind is partial offset, not full offset. Partial. Partial, okay.

And that's because, as I said with earlier questions, you know, 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.

Very clear, very helpful, thanks.

The next question comes from Hugh Moorhead from Burenburg. Please go ahead.

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 potential buyback timeline? Thank you.

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, I guess, the different place we find ourselves in now, which is where we 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 it to shareholders. So that smaller, more frequent, that's, I think, part of our DNA for the foreseeable future. And then in terms of, you know, a very detailed question on the buyback application, I said before that, you know, the reason why we're waiting is because we're, you know, just cognizant of maintaining a good relationship with the ECB. So we'll wait for the decision tomorrow. and then we will proceed with capital return actions and plans thereafter.

Great, thank you very much.

The next question comes from Jacob Cruz from Autonomous Research. Please go ahead.

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? What I should think about is the run rate for the next three quarters. And then secondly, on the MAI, you talk about resilience, you talk 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 one, two, three quarters. Thank you.

So morning, Jakob. So I guess we book resolution fund fees in the first quarter. 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.

20 a quarter almost.

Okay, clarify that for Jakob offline, but I may have misspoken. Okay, and then on resilience of NII, 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 of the deposit hedge, etc., is that we would expect 2024 to come in higher than 2023. And I think that's pretty clear. So, you know, I think that's a good, resilient performance.

OK, thank you. Clarify on the bank tax. So 18 million in Q1, that's the number. And I think we're ready for the last question now. OK.

The next question comes from Harry Sivakumaran from KBW. Please go ahead.

Hi there. I just had a question on slide 22 on the real estate management. You can see that the stage two ticked up slightly, but also that the impaired loans have decreased. Those recoveries, and at the same time, I can see that the coverage ratio has picked up there, so just any comments on that? And then on LT&I in Denmark, we've seen quite strong growth this quarter. It looks like it's plus 11% Q and Q. What's driving that? Is that kind of regular working capital, or is that kind of more capital from your customers?

I think I could take the last question first, and Ian, you can take the remaining part. So LCNI 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 then that we need to talk to 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 answer to the questions, please.

Yeah, so, Harry, the increase in Stage 2 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 it is because we're seeing... you know, those customers enter into high risk. But also some of it is quite technical in that, you know, where you see a downgrade from, you know, very strong to strong in terms of the credit rating, that also is a trigger for moving, it's 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 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 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.

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 question that you want to discuss. We are here for you. So thank you so much and have a good day.