Nordea Bank Abp

Good morning and welcome to Nordea's third quarter 2024 results presentation. I'm Ilkka Ottola, head of investor relations. Here in Helsinki, I'm joined by our president and CEO, Frank van Jensen, and our group CFO, Ian Smith. As usual, we'll start with the presentation by Frank, followed by Q&A session. Please remember to dial into 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 third quarter. This was not a good performance from Nunder, with profitability again at a higher level. Returns on equity was 16.7%. Business volumes were stable during the quarter and customer activity was good, especially in savings and investments. This supported a year-on-year increase in our income. Our return on equity has clearly exceeded 15% for the past eight quarters, which demonstrates the bank's sustainable improvement in profitability. Since our repositioning in 2019, we have lifted Nordea to a new level through lasting efficiencies, an adjusted business mix, and focused profitable growth. and we firmly believe we can sustain our position as one of the best performing universal banks in Europe. For the full year 2024, we expect return on equity to be above 16%. So a very solid position to be in, and it means we have a strong capacity to support our customers and grow our business. We have been by their side during the more challenging times for the Nordic economies in recent years, and we will continue to take a leading role in supporting them as the outlook brightens. Inflation has declined significantly, and this has raised the prospect of further reductions in policy interest rates, which is boosting confidence. We saw signs of that in household and corporate activity during the third quarter. Looking at some of the highlights for Q3. Total income for the quarter increased by 2% year-on-year, led by 4% growth in net fee and commission income and a 26% increase in our net fair value result. Net interest income was lower but resilient, decreasing 1%. Operating profit was 1.6 billion euros. Our return on equity, as noted, was strong at 16.7%. Lending volumes were relatively stable with little change in mortgage lending and a slight decrease in corporate lending. Deposit volumes were up with retail increasing by 2% and corporate by 9%. Asset on management increased by 15%. Cost developed in line with our operating plan, driven by our strategic investments. Our cost-to-income ratio with amortized resolution fees and excluding the settlement of a regulatory investigation in the U.S. was 43.4%. Our credit performance remained solid with strong asset quality. Net loan losses were 51 million euros or 6 basis points. We maintain a strong capital position and continue to generate capital. At the end of Q3, our CT1 ratio was 15.8%, as expected. Our strong capital performance supports strong returns to Nordea shareholders. And today, we announced that this month we will begin a new share buyback program. Furthermore, given our strong results this year, we have today updated our outlook. We expect full year 2024 return on equity to be above 16%. With that summary, let's now take a closer look at the results, starting with the income lines. Net interest income decreased by 1%, a solid outcome versus the strong Q3 last year. The decrease was driven by lower deposit margins in line with our expectation in an environment of lower policy rates and was partly offset by higher household lending margins, the higher deposit volumes, as well as a positive impact from our deposit hedge. As a result, our net interest margin for the quarter was 1.77%. The lending markets remained slow in Q3, though there were some signs that activity is picking up, for example with increased loan applications and promises. We maintained our mortgage lending volumes at a stable level. We also sustained a good level of corporate lending volumes in a market where customers were more focused on refinancing rather than increasing their borrowing. However, we have seen some signs of improvement in our deal pipeline. Corporate lending was 1% lower for the quarter. Net fee and commission income grew by 4% year-on-year, driven by increased customer activity in savings and investments and higher activity in cards and payments. Our savings fee income was supported by higher assets under management, which grew by 15% year-on-year to an all-time high of 412 billion euros. In Nordic Channels, we had very strong momentum in private banking and life and pension in particular. with net flows amounting to 4.2 billion euros in the quarter. Net flows in internal channel and international channels remain negative. In wholesale distribution, we have seen outflow declining each quarter this year, in line with interest rates beginning to come down. However, With rates not yet normalized and geopolitical uncertainty still high, clients on the whole continue to favor other products like fixed-term or money market funds. In international institutional distribution, we are winning mandates, though it takes some time for those to be funded. So still a challenging environment, but some positive developments. During the quarter, the stronger market also supported a year-on-year increase in brokerage and advisory fees. Net fair value result was up 26% year-on-year, mainly driven by higher customer activity, an interest rate and foreign exchange hedging. Demand for FX and rates products has been solid, demonstrating our ability to effectively support customers in their risk management activities. Market making was at a good level, while Treasury and Otter was positive, driven by improved valuations and hedging results. Cost development was as planned, with an increase of 9% compared with Q3 last year. The increase was driven by higher than normal inflation rates and the significant strategic investments we have been making into technology, data and AI and other key capabilities. These are important investments and will enable us to tap into the benefit of our unique Nordic scale, providing differentiation that cannot easily be copied and growing our business income. We are working to build scale in product development, applications and processes. We also aim to make better use of our large data resources and AI to strengthen efficiency and improve the customer experience. Ultimately, through these investments, we will be able to serve customers even better and deliver increased income growth and financial results that put us top of the league in the Nordics and Europe. Costs associated with the integration of our Norwegian acquisition were also a driver of higher expenses in the quarter. We have been investing to grow our position in Norway, including through our larger acquisition, which is expected to close next month, with immediate P&L benefits from December 1st. We are taking over Danske Bank's Norwegian personal customer and private banking business along with associated asset management portfolios in a move that will strengthen our market position in Norway among personal and private banking customers. Our investments have driven significant progress and we will continue to invest. Looking ahead a little bit, we see core cost growth, that is excluding regulatory fees, being significantly lower in full year 2025 than what we had in the third quarter. We will provide our usual guidance for 2025 costs next quarter. During Q3, we also booked a 32 million euros charge from the settlement of the regulatory investigation in the United States. The cost-to-income ratio with amortized resolution fees and excluding the US settlement was 43.4% in the third quarter compared with 42.4% a year ago. Credit quality remained strong with Q3 net loan losses and similar net results of €51 million or 6 basis points. The losses were driven by a small number of individual cases in the SME space. Reflecting the more positive macroeconomic outlook, we released a third of 30 million euros from our management judgment buffer. The buffer now stands at 435 million euros in local currencies. Capital generation and our capital position continue to be strong. Our CT1 ratio stood at 15.8% at the end of the quarter, 2.3 percentage points above our capital requirement. The decrease from 17.5% in the previous quarter was as expected after we implemented our new capital models for retail exposures during the third quarter. Having implemented the retail models, we are resuming share buybacks with our next program beginning this month and concluding in February. We continue to be focused on shareholder return and using buybacks as a tool to distribute excess capital to our shareholders. As we have now calibrated our capital position, we will execute smaller and more frequent programs enabled by our strong capital generation. Our four business areas all delivered solid results for the third quarter. In personal banking, customers continued to increase activity in savings and investments, indicating stability and confidence in their financial position. Net fee and commission income grew by 5%, driven by increasing customer investment activity. Deposit volumes grew by 2% year-on-year, driven by Denmark and Norway. Mortgage lending was at a stable level overall, with lower mortgage volumes in Denmark and Finland, offset by higher volumes in Norway and Sweden. Overall lending, including stable non-mortgage lending, was slightly lower year on year. However, for the second consecutive quarter, we have continued to see some positive signs, including an increase in demand for new loan promises. This does suggest that the Nordic housing market are starting to pick up after a couple of years of sales and prices being subdued. Again, our mortgage and savings advisors were very proactive and continued to use leads from our digital channels to connect with customers and offer assistance. In Denmark, for example, digitally generated leads for our mortgage advisors grew by 47% year on year, an example of how we are combining digital and advisory to provide a better experience for our customers. Customers' use of our digital channels in Q3 was again at a high level, with the number of mobile users and logins both growing by 5% year on year. Total income for the quarter was up 1%, driven by the higher savings income, net insurance result and deposit volumes, and partly offset by lower deposit margins. Return on allocated equity was 18% compared with 21% in the same quarter last year, and the cost-to-income ratio was 48%, up from 45% a year ago. In business banking, we delivered solid income growth despite the subdued markets. We continued to engage with customers, supporting them as activity levels increased and demand for fee-based products and services grew. Deposit volumes increased by 3% year-on-year in local currencies at lower margins. Lending volumes remained stable. Total income for Q3 was up 1% year-on-year driven by higher payment and fees income, offset by lower net interest income. Return on allocated equity was 17% while the cost-to-income ratio was 41% compared with 40% a year ago. In large corporates and institutions, we had solid income growth as we supported our customers in the gradually improving macroeconomic environment. Net interest income was stable, with a positive overall volume development. Market sentiment was strong in the capital markets, and this was reflected in higher deposit volumes, which grew by 14% year-on-year and in income from bond issuance. Lending was 3% lower year-on-year, with loan volumes still largely focused on refinancings. Debt capital markets activity continued at high levels across the entire franchise. The total number of transactions we have arranged this year has now surpassed 500. Equity capital markets and mergers and acquisitions have also seen good momentum in deal activity. One of them is DSV's planned acquisition of Schenker. one of the largest ever M&A deals by a Nordic company, where we acted as joint global coordinator and joint book runner in the associated share issue. Total income was up 4% year-on-year, mainly driven by increased net result from items at fair value. Return on allocated equity was 17%, up from 16% a year ago. the cost-to-income ratio improved to 37% from 40% a year ago. Asset and wealth management had a solid quarter too, with strong momentum in our private banking business. We grew in all four of our home markets and onboarded a high number of new private banking customers, which contributed to overall positive net flows of 3.6 billion euros. Net flow in private banking was positive in all countries, with Sweden and Finland being the main contributors this quarter. The strong growth in our asset under management was supported by the stronger equity and fixed income market performance and positive flows in our Nordic channels of 4.2 billion euros. International channels, which represent about 13% of our total assets under management, had outflow of 1.8 billion euros. Performance in our life insurance and pension business was also solid, with gross written premiums reaching 2.6 billion euros compared with 1.8 billion a year ago. Total income was up 3%, driven by higher assets under management and a higher net fair value result. Return on allocated equity was 34%, down from 38% a year earlier, driven by increased capital allocations. The total cost-to-income ratio improved by a percentage point to 42%. In summary, this was a good quarter for Noderre and it extends the strong performance we have seen so far in 2024. Our structurally improved profitability and continued strong capital generation demonstrates that we are on a good path. We continue to deliver superior returns and generate capital for shareholders and are pleased to resume share-by-backs with our next program kicking off this month. We have updated our outlook for the full year 2024. We expect return on equity to be above 16%. We also remain confident in our ability to deliver a return on equity of above 15% for the full year 2025. Nordea has a strong foundation. We have shown that our well-diversified and pan-Nordic business model is working well and delivering sustained superior profitability and income growth. We are supported by the significant investments we are making and the scale benefits they enable, both in terms of income and costs. From this strong foundation, we look forward to demonstrating continued progress. Thank you.

Operator, we're now ready for the questions.