Nordea Bank Abp

Good morning and welcome to Nordea's half-year 2024 results presentation. I'm Ilkka Ottola, Head of Investor Relations. Here in Helsinki, I'm joined by our President and CEO, Frank Vangjensen, and our Group CFO, Ian Smith. Today, we'll start with a presentation by Frank, followed by a Q&A session. Please remember to dial in to the teleconference in order to ask your questions. With that, let's get going. Over to you, Frank.

Good morning. Today we have published our results for the second quarter of 2024. It was not a strong quarter for Nordea. Our return on equity was 17.9% in the quarter and 18% for the first half of the year. A level of profitability that put us among the best performing banks in the industry. During Q2, we also delivered year-on-year growth. on our two largest income lines, supported by a higher net interest margin and increased customer savings and investment activity. The Nordic economies remained slow. However, there are positive signs for the road ahead. Household and business sentiment has improved somewhat, inflation has fallen, and we saw the first rate cuts in three of our four home markets. With further rate cuts anticipated this year, the prospects for the Nordic economies should brighten somewhat. Our results underline that we continue to make good progress on our strategic priorities. A key step this year is to strengthen our market position in Norway through the acquisition of a sizable personal and private banking business. I have been fortunate to spend the second quarter in Norway getting an even deeper understanding of the nuances in that market. And I'm convinced that we have great opportunities to target profitable growth across the business areas. I'm also glad to report that preparations for integrating the acquired businesses are progressing well and we remain on track to complete the acquisition in the fourth quarter. We look forward to welcoming our new customers and employees to Nordea. Looking at some of the highlights for the second quarter. We increased total income for the quarter by 3% year-on-year. The increase was driven by net interest income, which grew by 4%, and by net fee and commission income, which increased by 6%. Net insurance result was down 7% while net fair value result was solid but lower compared with the very strong Q2 last year. Operating profit was strong at nearly 1.7 billion euros for the quarter. Our return on equity remained strong at 17.9%. We improved lending margins and rose solid lending volumes even though the markets were slow. Mortgage lending was stable year-on-year, while corporate lending was down slightly. Deposit volumes were up, with retail increasing by 1% and corporate by 5%. Asset management grew 10% from a year ago to 400 billion euros, supported by continued positive net flows in our Nordic channels. Cost followed our plan, and our cost-to-income ratio with amortized resolution fees was 42.6%. Our risk position is sound, and credit quality continues to be strong. Net loan losses were 68 million euros, or 8 basis points, still below our long-term expectations, with the increase compared to last year driven by provisions for a small number of corporate client exposures. Capital generation remained strong and our CET1 ratio was 17.5% at the end of Q2. That's a summary of the quarter. Let's now take a closer look at the results starting with the income lines. Net interest income increased by 4%, a solid result given the strong second quarter last year. The increase was driven by improved deposit volumes and margins. Our net interest margin was higher year-on-year and was also stable for the third quarter in a row. A clear sign of our diversification and resilience. Despite The lending market still being slow in Q2, we maintained a stable level of mortgage lending. The corporate lending market also remained muted and our lending volumes decreased 1% year on year. Quarter on quarter, we recorded a positive impact from our deposit hedging actions. We expect our deposit hedging to benefit us as rate comes down further. Net fee and commission income grew by 6% year-on-year, demonstrating that we are able to serve our customers well with our broad offering. The quarter saw increased activity in savings and investments and not outstanding performance in debt capital markets following the good Q1, as well as improved corporate finance activity. This led to higher net income from savings, brokerage and advisory. We also had higher income from payments and cards supported by higher customer activity. Our savings fee income was supported by higher assets under management, which grew 10% on year to 400 billion euros. In Nordic Channel, this good momentum was maintained in private banking and life and pension in particular, with net flows totalling 1.9 billion euros. Net flows in international channels were negative at 1.4 billion euros, mainly driven by wholesale distribution. In the elevated interest rate environment, clients continue to favor other products, including fixed-term or money market funds. Net fair value result was down 15% year-on-year. We saw high activity in customer areas with strong demand for foreign exchange and interest rate hedging products, As we said before, this part of net fair value is more stable and clearly demonstrates our ability to support our customers in their risk management activities. Market making was slightly down compared with the strong quarter last year when we saw high activity in interest rate swaps and FX. Treasury had a more regular quarter. The treasury result was lower compared with the very high level of a year ago, as low volatility resulted in unstable valuations of hedges and holdings. Cost development was as planned, with an increase of 6% compared with the same quarter last year. Our costs for the year to date, including regulatory fees, were down 2% compared with the first half last year. Our Q2 cost-to-income ratio with amortized resolution fees was stable at 42.6%. The lower resolution fees this year have given us the opportunity to further increase overall investment capacity. We have continued making significant investments into our technology infrastructure, data and AI, our digital offering, as well as into financial crime prevention and other risk management capabilities. During the quarter, we also had integration costs from the Norway acquisition. These investments ensure the bank remains resilient, safe and trusted in a fast-evolving environment. Fraud prevention and detection is a key focus given it is a growing issue for societies globally, including the Nordics. We are working hard to keep our customers safe and we aim to have a leading position within this area. We are deploying more sophisticated prevention and detection capabilities For example, we have implemented transaction limits and introduced a safety feature that delays withdrawals, giving customers more time to reach out to Nordea to interrupt a payment. We continue to be very active in raising awareness about fraud through active dialogue in society and in our marketing. All in all, we expect these factors to drive our total full-year cost to be slightly up compared with 2023. Our risk position is sound and credit quality continues to be strong and in line with our long-term expectations. During the quarter, we had net loan losses and similar net result of 68 million euros or 8 basis points. This was higher than previous quarters where our loan losses have been below the long-term average and was driven by provisions for a few single corporate client exposures. We have a very well diversified credit portfolio spread across sectors and this has helped us to maintain strong credit quality. During the quarter, management adjustment allowances were reassessed and 30 million euros was released due to the improved macroeconomic outlook with lower inflation and interest rates. As a result, the management adjustment buffer now stands at 464 million euros in local currencies. Capital generation remained strong and we further reinforced our capital position. At the end of the quarter, our CET1 ratio stood at 17.5% or 4.4 percentage points above our capital requirements. In July, we received ECB approval for new capital models for resale exposures. And the new models are expected to go live in Q3 this year. The impact on REA after adjusting for the prospective rule changes recently proposed by the Norwegian FSA is broadly in line with our expectations. Following the approval, we have initiated a dialogue with the ECB regarding a resumption of share buyback programs from early 2025. Our four business areas performed well in the second quarter. In personal banking, we had good income growth driven by our deposit and savings products. Throughout the quarter, we stayed close to our customers. Our advisors were especially proactive, holding 7% more customer meetings than last year. Use of our digital services also grew to a record high. The number of private app users and logins increased respectively by 5% and 12% year-on-year in the quarter. We have continued to strengthen the digital experiences for our customers and further improve the self-service features in the mobile app. For example, customers can now enjoy improved savings insight and get a holistic overview of their earlier savings advice and profile. We have also made it easier for non-saviors to start savings through the app. As a result, deposit volumes increased by 2% year-on-year Customer investment activity picked up through the quarter supported by the expansion of our digital deposit product offering in all countries. During Q2, we maintained a stable level of mortgage lending along with improved margins. The housing market remained slow in the quarter. However, there were signs of improvement at the end of the quarter, where we observed a year-on-year increase in loan promise requests. Social income for the quarter was up 4%, driven by higher NII and higher savings income. Return on allocated equity was 19% compared with 20% in the same quarter last year, and the cost-to-income ratio was 48%, unchanged from a year ago. In business banking, we delivered solid income growth despite the slow markets. We maintained stable lending volumes year-on-year in local currencies. We also supported our customers in securing both equity and bond market funding in a more stable interest rate environment. Deposit volumes grew by 1% year-on-year in local currencies. In Q2, we made further enhancements to our digital services, such as adding more self-service options. I was pleased to see our customer satisfaction scores increase. Our net loan losses were 29 million euros, or 12 basis points, net of the 30 million euro management judgment buffer release. While the gross losses were higher than in recent quarters, it is important to note that they were driven by provisions for a few single customers affected by specific circumstances. Credit quality remained strong. We did not view these as a trend to extrapolate from. Total income for the first quarter increased by 4% year-on-year. The increase was driven primarily by improved deposit margins and higher customer activity, especially in the capital market area. Return on allocated equity was 18% unchanged from last year, while the cost-to-income ratio improved to 40% from 41%. In large corporate institutions, we continued to see good momentum in the business following the strong first quarter. Debt capital markets activity was especially strong and we supported our customers with a third of 150 transactions following on from the more than 200 we did in Q1. Issues were keen to front load their funding plans in the current favorable market conditions and more stable interest rate environment. In equity capital markets and mergers and acquisitions, we also continue to see improved sentiment and momentum in the market, with deal activity, including initial public offerings, slowly picking up. Deposit volumes for the quarter increased by 12% year-on-year. The lending markets remained slow, with all lending volumes decreasing by 2%. The credit quality of our LC&I loan book remained strong. Net loan losses and similar net result amounted to net reversals of 1 million euros. Total income for the quarter was up 6% year-on-year. The increase was driven by increased net fee and commission income. Return on allocated equity was 17%, up 1 percentage points, on the same quarter last year. The cost-to-income ratio improved to 38% from 41% a year ago. Asset and wealth management also delivered at a solid quarter. The strong momentum in our private banking business continued, supporting positive net flows of 2 billion euros. Net flow was positive in all countries, with Sweden and Denmark being the main drivers. In line with our growth strategy, our private banking business has welcomed an all-time high number of new customers in Sweden and in Norway in the year to date. Asset management increased by 10%, supported by positive development in the equity market and the positive flows in private banking. We saw outflows in our international business. We continue to grow with strong momentum in our life insurance and pension business. Grass-ridden premiums reached new record highs, increasing to €2.9 billion from €2.2 billion a year ago. Total income was up 3%, driven by higher net interest income and the higher assets under management. Return on allocated equity was 36% down from 41% a year earlier, driven by increased capital allocations. The cost-to-income ratio was stable at 41%. To sum up, this was a strong quarter and a strong first half year for Nordea, with good levels of customer activity despite the slow markets. We have performed well and are driving sustainable higher profitability and capital generation. Our results demonstrate the benefit of being diversified and operating at scale across the Nordics. This is something which makes Nordea unique as the only truly pan-Nordic bank. Our results also keep us on track to deliver strong profitability for the full year. The outlook is unchanged. We expect to achieve a return on equity of above 15% for 2025 and also target a return on equity of above 15% for 2025. We are determined to push forward with our strategic priorities and further improve customer experience and operational performance. Thank you.

Operator, we're not ready for the questions.